<PAGE>
As filed with the Securities and Exchange Commission on November 18, 1997.
Registration No. 333-35227
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 6 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ELECTRIC LIGHTWAVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 4825 93-1035711
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification
organization) Classification Number)
Code Number)
8100 N.E. PARKWAY DRIVE, SUITE 150, VANCOUVER, WASHINGTON 98662
(360) 892-1000
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
ROBERT J. DESANTIS
ELECTRIC LIGHTWAVE, INC.
8100 N.E. PARKWAY DRIVE, SUITE 150
VANCOUVER, WASHINGTON 98662
(360) 892-1000
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
COPIES TO:
JONATHAN H. CHURCHILL, ESQ. VINCENT PAGANO, ESQ.
WINTHROP, STIMSON, PUTNAM & ROBERTS SIMPSON THACHER & BARTLETT
ONE BATTERY PARK PLAZA 425 LEXINGTON AVENUE
NEW YORK, NY 10004 NEW YORK, NY 10017
(212) 858-1000 (212) 455-2000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 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, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
maximum maximum
Title of each class Amount to offering aggregate
of securities to be be price offering Amount of
registered registered per unit price registration fee
====================================================================================
<S> <C> <C> <C> <C>
Common Stock, Class A $207,000,000* $62,728**
====================================================================================
</TABLE>
- -----------------------
* Estimated solely for the purpose of calculating the registration fee pursuant
to Rule 457.
** Already paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 18, 1997
P R O S P E C T U S
10,000,000 SHARES
[LOGO]
ELECTRIC LIGHTWAVE, INC.
CLASS A COMMON STOCK
----------
All of the shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), offered hereby (the "Offering") are being sold by
Electric Lightwave, Inc. ("ELI" or the "Company"), a wholly owned subsidiary of
Citizens Utilities Company. Of the 10,000,000 shares of Class A Common Stock
being offered hereby, 8,000,000 shares are being offered initially in the
United States and Canada (the "U.S. Offering") by the U.S. Underwriters (as
defined herein) and 2,000,000 shares are being offered initially outside of the
United States and Canada (the "International Offering") in a concurrent
offering by the International Managers (as defined herein and, together with
the U.S. Underwriters, the "Underwriters"). Such offerings are collectively
referred to herein as the "Offering." See "Underwriting."
The Company has two classes of common stock: Class A Common Stock and Class B
Common Stock, par value $.01 per share (the "Class B Common Stock" and,
collectively with the Class A Common Stock, the "Common Stock"). The shares of
Common Stock are substantially identical, except that holders of Class A Common
Stock are entitled to one vote per share and holders of Class B Common Stock
are entitled to 10 votes per share on all matters submitted to a vote of
stockholders. Each share of Class B Common Stock is exchangeable at the option
of the holder into one share of Class A Common Stock. Upon completion of the
Offering, Citizens, the holder of the Class B Common Stock, will have
approximately 97.5% of the combined voting power of the outstanding Common
Stock (97.16% if the Underwriters' over-allotment options are exercised in
full) and will have the ability to control all matters requiring stockholder
approval, including the election of directors. See "Description of Capital
Stock" and "Risk Factors--Control by Citizens."
Prior to the Offering, there has been no public market for the Class A Common
Stock. It is currently anticipated that the initial public offering price will
be between $16.00 and $19.00 per share. The initial public offering price and
the underwriting discount and commission per share are identical for each of
the U.S. and International Offerings. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price. The
Class A Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "ELIX."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $ $ $
- ---------------------------------------------------------------------------------------------------
Total (3)................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and Citizens have agreed to indemnify the U.S. Underwriters and
International Managers against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) The Company has granted the U.S. Underwriters and International Managers
options exercisable within 30 days after the date hereof to purchase up to
1,200,000 and 300,000 additional shares of Class A Common Stock,
respectively, solely to cover over-allotments, if any. If such options are
exercised in full, the total Price to Public, Underwriting Discount and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
----------
The shares of Class A Common Stock offered hereby are being offered by the
U.S. Underwriters and International Managers named herein, subject to prior
sale, when, as and if accepted by the U.S. Underwriters and International
Managers, subject to approval of certain legal matters by counsel for the U.S.
Underwriters and International Managers and subject to certain conditions. The
U.S. Underwriters and International Managers reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Class A Common Stock will be made at
the offices of Lehman Brothers Inc. in New York, New York on or about ,
1997 against payment therefore in immediately available funds.
----------
U.S. Underwriters offering shares in the United States and Canada
LEHMAN BROTHERS
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
DEUTSCHE MORGAN GRENFELL
International Managers offering shares outside the United States and Canada
LEHMAN BROTHERS
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY DEAN WITTER
DEUTSCHE MORGAN GRENFELL
, 1997.
<PAGE>
[MAP]
Electric Lightwave Network Map
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF CLASS A COMMON STOCK
FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE
CLASS A COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE CLASS A
COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. "ELI" and the "Company" refer to
Electric Lightwave, Inc. Unless otherwise indicated, the information set forth
in this Prospectus does not give effect to the exercise of the Underwriters'
over-allotment options. See "Glossary" for definitions of certain terms used in
this Prospectus.
THE COMPANY
ELI is a full-service, facilities-based competitive local exchange carrier
("CLEC") providing a broad range of telecommunications services in five major
market clusters in the western United States. The Company provides state-of-
the-art voice and data communications services to retail customers, primarily
large-and medium-sized communications-intensive businesses, and wholesale
customers, primarily telecommunications service providers. The Company operates
high-quality, extensive digital fiber optic networks based on a switched
broadband platform in each of its five market clusters (comprising six
metropolitan statistical areas ("MSAs"), including 59 municipalities) with
38,045 local access line equivalents, 2,087 route miles and 123,257 fiber miles
installed and 540 on-net buildings connected as of September 30, 1997. The
Company has interconnected its market clusters with facilities-based owned and
leased long-haul fiber optic networks.
The Company currently provides services in five markets: Portland, Oregon;
Seattle, Washington; Salt Lake City, Utah; Sacramento, California; and Phoenix,
Arizona ("hub cities") and their respective surrounding areas (together with
the hub cities, "market clusters" or "clusters"). The Company's clusters
include an extensive fiber optic network. The Company currently provides
switched services, including local dial tone, utilizing five Nortel DMS 500
switches, in all of its market clusters except Phoenix, where the Company
expects to initiate local dial tone service upon installing an additional
switch in the first half of 1998. The Company's clusters are also served by its
extensive frame relay network, which is comprised of 17 state-of-the-art
switches and 30 points-of-presence ("POPs") in 26 western U.S. cities. The
Company has also developed an Internet backbone network providing Internet
connectivity in each of its markets which includes access on a redundant basis
to the three largest Internet service providers in the United States. The
Company's goal is to add or expand its market presence from six to 14 MSAs and
from two to five long-haul networks by the end of 1998.
The Company offers an extensive portfolio of products and services in four
categories: local telephone, long distance, data and video, and network access.
These products and services include: Local dial tone, with voicemail and
enhanced features; long distance with calling cards; advanced data services,
including frame relay, international frame relay and high-speed Internet
access; video conferencing and dialable wideband services; LAN-to-LAN services
with very high transport speeds; ISDN; and point-to-point communications and
dedicated DS-1s and DS-3s. The Company expects to provide Asynchronous Transfer
Mode ("ATM") services during 1998. The Company's data network expertise allows
it to provide a broader range of telecommunications services to customers,
which helps to maximize the amount of telecommunications traffic on its
network.
Deregulation in the telecommunications industry has created an enormous
market opportunity for ELI. Based on Federal Communications Commission ("FCC")
data, the Company estimates that in 1996 total revenues from local and long
distance telecommunications services were approximately $183 billion, of which
approximately $107 billion were derived from business telecommunications
services. The Company estimates that based on industry sources, the total
addressable business telecommunications services market in its current five
market clusters (based on access lines) was approximately $4.3 billion in 1997.
The Company believes that the market in its clusters will grow over the next
decade because of the favorable demographics and an increase in use of
telecommunications services and that its share of this market will increase as
a result of the passage of the Telecommunications Act of 1996 (the "1996 Act"),
the actions of various state commissions and other FCC rulings, which
collectively have essentially opened up the market to competition.
3
<PAGE>
Since its inception, ELI believes that it has been at the forefront of
industry efforts to introduce competition to the local telecommunications
markets. As such, ELI believes that it has achieved significant milestones in
the CLEC industry and is well positioned to benefit from the opening of the
local telecommunications market. Before the passage of the 1996 Act, the
Company pursued regulatory and legislative reforms and consummated certain
interconnection agreements with incumbent local exchange carriers ("ILECs")
that in its view allowed the Company to offer economical and operationally
efficient local exchange services. The Company believes that it was early to
market in Portland, Seattle, Salt Lake City and Sacramento and believes it is
the leading CLEC in Portland, Seattle and Salt Lake City. The Company believes
that it was the first CLEC to receive authority from a state regulatory
authority in a state west of the Mississippi River to operate and to offer a
full switch-based product portfolio.
Since 1990, the Company has been a subsidiary of Citizens Utilities Company
(which, together with its subsidiaries, is referred to herein as "Citizens").
Citizens is a publicly-held communications and public services company which
provides, either directly or through subsidiaries, telecommunications, electric
distribution, natural gas transmission and distribution, and water and
wastewater services to over 1.6 million customer connections in 20 states.
Citizens is one of the nation's leading independent communications companies
and operates an integrated distribution network over which it provides local,
long distance, paging, cellular, network sales and other communications
products and services. At September 30, 1997, Citizens' consolidated assets
totaled $4.5 billion and shareholders' equity totaled $1.7 billion. Citizens'
consolidated revenues for the twelve months ended September 30, 1997 totaled
$1.4 billion. The Company has historically been funded by capital contributions
and advances from Citizens and through a lease agreement guaranteed by
Citizens. Citizens does not have any obligation to make additional equity
investments in or advances to the Company or to guarantee or otherwise provide
financial support for the Company subsequent to the Offering, other than the
guarantees described herein. See "Capitalization" and "Relationship with
Citizens."
BUSINESS STRATEGY
Guided by the business strategy adopted in 1990, the Company has become a
leading facilities-based, full-service CLEC. The key elements of this strategy
include:
. Target Attractive Regional Markets. The Company's focus is on MSAs in
the western United States that the Company believes have few CLEC
competitors, a relatively high proportion of communications-dependent
businesses and the prospect of population and economic growth above the
national average. Growth in these regions has been fueled to a large
degree by the computer, software, semiconductor and aerospace industries
and other telecommunications-intensive businesses such as financial
services and telemarketing call centers. The Company's policy has been
and will continue to be to establish a new market cluster where it
expects to become the leading facilities-based, full-service CLEC in
such market in competition with the ILEC. Due to its superior customer
service, advanced network technologies and the breadth and quality of
its networks, the Company believes that it has an opportunity to capture
a significant share of the local market for communications in its target
regions in competition with U S WEST Communications, Inc. ("U S WEST")
and PacBell, which are the ILECs in its target regions.
. Develop Market Clusters. The Company builds facilities and offers
services in market clusters which exist in and around a hub city in the
selected MSA. Once a potential market is identified, the Company
establishes a network in the hub city and then expands the network to
adjacent cities and communities of interest. Through the use of this
strategy, the Company is able to leverage and extend the depth of its
management resources, communications network, switch assets and product
portfolio and reduce its dependence on the ILEC. The Company realizes
economies of scale in terms of network build out, switch deployment,
provisioning and servicing from its cluster strategy. Clustering also
enables the
4
<PAGE>
Company to (i) optimize its networks' switching capacity through the
ability to place switches anywhere in the cluster, (ii) cost-effectively
offer services to smaller markets adjacent to its existing networks and
in which the Company is less likely to face strong competition from
other CLECs, and (iii) achieve increased gross margins and improved
network reliability due to higher levels of on-net traffic. The Company
believes communications traffic is heavy between a metropolitan area and
its outlying markets and its cluster strategy takes advantage of this by
offering facilities-based, end-to-end service offerings that cover these
broad geographic areas.
. Interconnect Market Clusters. The Company's strategy is to interconnect
the Company's major market clusters with facilities-based broadband,
long-haul fiber optic networks. Interconnecting its market clusters
enables the Company to lower costs and enhance its revenue potential by
carrying increasing amounts of long distance, frame relay, Internet and
point-to-point traffic on its own facilities. By carrying traffic on its
own facilities, the Company is able to improve the utilization of its
network facilities and avoid leased facilities charges and certain
interconnection costs.
. Maximize On-net Traffic by Providing Facilities-based Services. The
Company has constructed extensive voice, frame relay, Internet backbone
and interconnecting long-haul networks, and each of the Company's
operating clusters includes an extensive fiber optic network backbone.
These extensive networks are a key aspect of the Company's strategy to
maximize the services provided to customers on the Company's network
("on-net"). Approximately half of the Company's services provided to
customers are currently on-net and the Company's strategy is to increase
this percentage over time. Maximizing the volume of on-net traffic
allows the Company to (i) improve customer loyalty; (ii) increase
network reliability; (iii) provide a wider range of services; (iv)
increase process control and thereby strengthen customer service through
end-to-end management; and (v) reduce its reliance on the ILEC for
technologically up-to-date services which are essential for the
Company's enhanced services. The Company believes that greater on-net
traffic will also increase operating margins by increasing utilization
of capacity inherent in the Company's network.
. Penetrate Markets by Leveraging Data Expertise. The Company has
undertaken a major expansion of its networks and products to satisfy the
growing demand for enhanced network services, including frame relay
networking services and Internet access. As a result, the Company has 17
frame relay switches as of September 30, 1997 servicing customer
locations. Enhanced network services, which are currently provided
primarily on the Company's frame relay network, are specialized
interchange services offered by the Company for customers that need to
transport large amounts of data among multiple locations. ELI's
relationship with certain carriers allows the Company to terminate
traffic both nationally and internationally utilizing other companies'
networks and to provide a flow of traffic into the Company's networks.
In addition, to further increase efficient access to a greater customer
base, ELI established approximately 30 POPs which interconnect their
frame relay networks to those of U S WEST, PacBell and other carriers.
. Establish Strategic Relationships With Utility Companies. A strategy of
the Company has been to form strategic relationships with utility
companies that enable it to (i) utilize existing rights-of-way and fiber
optic facilities, (ii) leverage their construction expertise and local
permitting experience and (iii) have access to capital in order for ELI
to extend its network infrastructure more quickly and economically. The
Company's strategic alliances include agreements for the utilization of
existing excess facilities and the construction of long-haul networks
which link the Portland and Seattle clusters and which will link
Portland and Spokane, Washington and Portland and Eugene, Oregon.
Another agreement provides for a fiber optic network in the Phoenix
metropolitan area. These relationships allow the Company to achieve
economies of scale and scope by expanding its existing markets rapidly
and cost-effectively and enabling the Company to concentrate its efforts
on sales and marketing.
5
<PAGE>
. Continue its Effective Direct Sales and Superior Customer Service. ELI
has built a highly motivated and experienced direct sales force and
customer service organization that is designed to establish a direct and
personal relationship with its customers. The Company offers its
services in custom combinations, and utilizes a consultative sales
approach that provides customers a single point of contract at the
Company and an opportunity to work with the Company to design
innovative, turn-key solutions and new product applications which allow
them to take advantage of the broad array of services offered.
Consistent with its product offerings, the Company utilizes a three-
pronged sales approach comprised of direct retail, direct wholesale and
agents. Salespeople are given incentives through a commission structure
which targets 50% of a salesperson's compensation to be based on
performance. A sales account manager is responsible for managing each
customer's account and staying in constant contact with the customer to
satisfy that customer's specific telecommunications needs. Sales account
managers utilize a vertical sales strategy with the goal of selling
additional value-added, high margin services to existing customers. The
Company believes that combining the consultative sales strategy with the
vertical sales strategy will enable it to achieve higher margins on each
account. The Company views its commitment to customer satisfaction as a
key success factor and is developing a superior customer service system
which will automate order processing, including order placement, design,
provisioning and billing, for both retail and wholesale customers. This
strategy ensures that the Company's processes are aligned with customer
needs and satisfaction.
The Company's principal executive offices are located at 8100 NE Parkway
Drive, Suite 150, Vancouver, Washington 98662 and its phone number is (360)
892-1000.
See "Risk Factors" beginning on page 10 for a discussion of certain risks
relevant to an investment in the Common Stock.
6
<PAGE>
THE OFFERING
Class A Common Stock Offered..... 10,000,000 shares (8,000,000 shares in the
U.S. Offering and 2,000,000 shares in the
International Offering) (assuming over-
allotment options not exercised)
Common Stock to be outstanding
after the Offering:
Class A Common Stock............ 10,000,000 shares (1)
Class B Common Stock............ 41,165,000 shares
Total......................... 51,165,000 shares (1)
Use of Proceeds................... The net proceeds of the Offering are
estimated to be approximately $164,244,000,
after deducting underwriting discounts and
commissions and the estimated offering
expenses payable by the Company. The
Company intends to use such proceeds to
fund its operating and capital expenditure
requirements. See "Use of Proceeds."
Voting Rights..................... Holders of Class A Common Stock are
entitled to one vote per share and holders
of Class B Common Stock are entitled to 10
votes per share on all matters submitted to
a vote of stockholders. The holders of the
Class A Common Stock and the Class B Common
Stock vote together as a single class on
all matters submitted to a vote of
stockholders, except as otherwise required
by law. Upon completion of the Offering,
Citizens, the holder of the Class B Common
Stock, will have approximately 97.5% of the
combined voting power of the Company's
outstanding Common Stock (97.16% if the
Underwriters' overallotment options are
exercised in full) and will have the
ability to control all matters requiring
stockholder approval, including the
election of directors. See "Risk Factors--
Control by Citizens" and "Description of
Capital Stock-- Common Stock."
Exchange.......................... Each share of Class B Common Stock is
exchangeable at the option of the holder
into one share of Class A Common Stock. See
"Description of Capital Stock--Common
Stock--Exchange."
Listing........................... The Nasdaq National Market under the symbol
"ELIX"
- --------
(1) Excludes 2,316,000 shares of Class A Common Stock reserved for issuance
under the Equity Incentive Plan issuable upon the exercise of options
granted at an exercise price per share equal to the initial public offering
price of the Class A Common Stock. Excludes 535,000 restricted shares of
Class A Common Stock to be issued at the offering date to directors,
officers and employees under the Equity Incentive Plan. A total of 4,170,600
shares of Class A Common Stock are reserved for issuance under the Equity
Incentive Plan. See "Management--Equity Incentive Plan."
7
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following summary Statement of Operations and Balance Sheet Data for the
years ended and as of December 31, 1994, 1995, and 1996 have been derived from
the Company's Financial Statements and related notes thereto included elsewhere
in this Prospectus, which Financial Statements have been audited by KPMG Peat
Marwick LLP, independent Certified Public Accountants. The summary Statement of
Operations and Balance Sheet Data for the nine months ended September 30, 1996
and 1997 have been derived from the Company's unaudited Financial Statements and
related notes thereto included elsewhere in this Prospectus, and in the opinion
of management, include all adjustments necessary for a fair presentation of the
results of operations and financial condition of the Company for and as of such
periods. The results of operations for interim periods are not necessarily
indicative of a full year's operations. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Company's Financial Statements and related notes
thereto and the other financial data contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS
ENDED NINE MONTHS
DECEMBER ENDED SEPT.
31, 30,
---------------------------- ------------------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------------- ---------------
($ in thousands,
except per share
amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA
Revenues $ 8,152 $ 15,660 $ 31,309 $ 24,965 $ 41,843
Operating ex-
penses:
Network access ex-
penses 6,155 8,728 24,081 16,533 24,217
Sales and market-
ing expenses 4,534 5,704 8,462 6,303 8,716
Depreciation and
amortization 2,476 7,064 7,192 4,997 7,601
Other operating
expenses 4,528 14,114 20,957 16,715 26,831
-------- -------- -------- -------- ---------
Total operating
expenses 17,693 35,610 60,692 44,548 67,365
-------- -------- -------- -------- ---------
Operating loss (9,541) (19,950) (29,383) (19,583) (25,522)
Interest expense 873 372 -- -- 513
-------- -------- -------- -------- ---------
Net loss $(10,414) $(20,322) $(29,383) $(19,583) $ (26,035)
======== ======== ======== ======== =========
Pro forma net loss
per share(1) $ (.70) $ (.47) $ (.62)
======== ======== =========
Pro forma net
loss giving effect
to certain
agreements (2) $(32,213) $(21,307) $ (32,254)
======== ======== =========
Pro forma net loss
per share giving
effect to certain
agreements (3) $ (.77) $ (.51) $ (.77)
======== ======== =========
<CAPTION>
AS AT DECEMBER 31,
----------------------------
PRO FORMA AS AT
AS AT SEPT. 30,
1994 1995 1996 SEPT. 30, 1997 1997(4)
-------- -------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital
(deficiency) $ (9,934) $(17,897) $ (9,940) $ (7,734) $ 156,510
Total assets 110,691 128,901 195,656 248,570 412,814
Long-term debt and
capital lease ob-
ligations 6,565 -- -- 10,374 10,374
Due to Citizens 35,109 64,941 155,395 219,171 --
Credit Facility -- -- -- -- 100,000
Shareholder's eq-
uity (deficiency) 55,991 38,669 9,286 (16,749) 266,666
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS
---------------------------- ENDED
1994 1995 1996 SEPT. 30, 1997
-------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
EBITDA(5) $ (7,065) $(12,886) $(22,191) $(17,921)
Cash flows used
for operating ac-
tivities (4,097) (1,570) (28,893) (18,040)
Cash flows used
for investing ac-
tivities (60,774) (16,129) (59,169) (48,717)
Cash flows pro-
vided by financ-
ing activities 64,907 17,751 88,530 67,293
<CAPTION>
AS AT DECEMBER 31,
---------------------------- AS AT
1994 1995 1996 SEPT. 30, 1997
-------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Property, plant &
equipment-owned $108,549 $127,297 $189,334 $249,499
--under
lease(6) -- 36,858 57,279 87,426
-------- -------- -------- --------
--Total $108,549 $164,155 $246,613 $336,925
-------- -------- -------- --------
Market clusters 5 5 5 5
Route miles(7) 601 780 1,428 2,087
Fiber miles(7) 37,504 52,013 97,665 123,257
Buildings con-
nected 191 282 438 540
Switches in-
stalled:
Voice 2 2 5 5
Frame relay 2 5 15 17
-------- -------- -------- --------
Total switches
installed 4 7 20 22
-------- -------- -------- --------
127 225 402 482
</TABLE>
-------
See Notes to Summary Financial and Operating Data on next page.
8
<PAGE>
NOTES TO SUMMARY FINANCIAL AND OPERATING DATA
(1) Pro forma net loss per share has been computed using pro forma weighted
average shares outstanding determined on the basis described in Note 2(i) of
Notes to Financial Statements.
(2) Represents the historical net loss as adjusted for the revised
administrative services fee and guarantee fees as if such fees were in
effect since January 1, 1996, and interest on the drawdown of the Credit
Facility (as defined under "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources") utilized to repay the remaining balance due to Citizens
subsequent to the capitalization of $119.2 million of the amount due to
Citizens, as if the Credit Facility was in effect on January 1, 1996 (see
Notes 6, 7 and 8 of Notes to Financial Statements).
(3) Represents the pro forma net loss giving effect to certain agreements as
described in (2) above divided by pro forma weighted average shares
outstanding determined on the basis described in Note 2(i) of Notes to
Financial Statements.
(4) The pro forma balance sheet data gives effect to the contribution of $119.2
million of the amount due to Citizens to additional paid-in capital as
discussed in Note 6 of Notes to Financial Statements, to the drawdown of the
Credit Facility to repay the remaining amount due to Citizens, and to the
issuance of the shares of Class A Common Stock offered hereby, as if such
transactions occurred on September 30, 1997.
(5) EBITDA consists of Earnings Before Interest, Income Taxes, Depreciation and
Amortization. EBITDA is a measure commonly used in the communications
industry to analyze companies on the basis of operating performance. EBITDA
is not a measure of financial performance under generally accepted
accounting principles and should not be considered as an alternative to net
income as a measure of performance nor as an alternative to cash flow as a
measure of liquidity. See the Company's Financial Statements included
elsewhere in this Prospectus.
(6) Facilities under an operating lease agreement under which the Company has
the option to purchase the facilities at the end of the lease term. See
Note 7 of Notes to Financial Statements.
(7) Route miles and fiber miles also include those to which the Company has
exclusive use pursuant to license and lease arrangements (See "Business--
Long-Haul Networks").
9
<PAGE>
RISK FACTORS
Prior to purchasing any shares of Class A Common Stock offered hereby,
prospective investors should consider carefully the following factors in
addition to the other information contained in this Prospectus.
Negative Cash Flow and Operating Losses
The capital expenditures of ELI associated with the installation, development
and expansion of its existing and new telecommunications networks are
substantial, and a significant portion of these expenditures generally are
incurred before any revenues are realized. These expenditures, together with
associated initial operating expenses, result in negative cash flow and
operating losses until an adequate customer base and revenue stream for these
networks have been established. The Company expects to incur net losses for the
foreseeable future as it expends significant amounts on sales, marketing,
customer service, engineering and corporate personnel as it continues to
install, develop and expand its existing and new telecommunications networks.
There can be no assurance that an adequate revenue base will be established in
each of the Company's clusters or that the Company will achieve or sustain
profitability or generate sufficient positive cash flow to fund its operating
and capital requirements and/or service its debt obligations. If the Company is
unable to establish an adequate revenue base in each of its clusters or does not
achieve or sustain profitability or generate sufficient positive cash flow to
fund its operating and capital requirements and/or service its debt obligations,
it may be forced to change its strategic plan and consider alternatives. The
alternatives could include the sale of some or all of ELI's facilities, a
strategic alliance with another telecommunications or utilities company, a
restructuring with or without a new financial partner or with Citizens, or the
failure to continue as a growing concern. The consequences to the Company and
its investors could be materially adverse.
Significant Capital Expenditures
The development and expansion of the Company's existing and new networks and
services will require significant additional capital expenditures. The
Company's capital expenditures for the eighteen months subsequent to the
completion of the Offering are estimated to be approximately $400 million. The
Company continues to evaluate additional revenue opportunities in each of its
markets and, as additional opportunities develop, the Company plans to make
additional capital investments in its existing networks and to expand networks
as may be required to pursue such opportunities.
ELI has historically been funded by capital contributions, advances and
guarantees from Citizens. The Company expects to meet its capital needs with the
proceeds of the Offering, the Credit Facility (as defined below) for which the
Company has received a commitment, together with internally generated cash flow
and lease arrangements, proceeds from other bank credit facilities, other
borrowings and possible issuances of additional equity securities. Citizens does
not have any obligation to make additional equity investments in or advances to
ELI or to guarantee or otherwise provide financial support for ELI after the
completion of the Offering, other than to guarantee ELI's obligations under the
Credit Facility and the Lease. If Citizens intends to reduce its economic
interest in ELI to less than 51%, Citizens will be entitled to request ELI to
refinance its obligations under the Lease and the Credit Facility and ELI shall
be obligated to use its best efforts to do so. This refinancing would occur when
Citizens reduces its economic interest in ELI to less than 51%. See
"Relationship with Citizens-Citizens' Guarantees of ELI's Obligations." For a
description of the Credit Facility and Citizens' undertaking to obtain
regulatory authorization for its guarantee of ELI's debt within 90 days after
the closing of the Credit Facility, see "Management's Discussion and Analysis-
Liquidity and Capital Resources."
10
<PAGE>
There can be no assurance that ELI will be successful in generating sufficient
cash flow or raising debt or equity capital in sufficient amounts on terms
acceptable to it. The failure to generate sufficient cash flow or to raise
sufficient funds may require the Company to delay or abandon some or all of its
development and expansion plans, which could have a material adverse effect on
ELI's growth, its ability to compete in the telecommunications services
industry and its ability to achieve positive cash flow. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
Risks Inherent in Expansion
ELI intends to expand its networks in each of the Portland, Seattle, Salt Lake
City, Sacramento and Phoenix metropolitan areas, has commenced construction in
Boise, Idaho (the Salt Lake City cluster) and has completed preparations to
begin construction in Spokane and Tacoma, Washington (the Seattle cluster) and
Ogden, Utah (the Salt Lake City cluster). The Company intends to consider
additional expansion in other areas in the future. There can be no assurance
that the Company will be able to expand its existing clusters or construct new
clusters as currently planned or on a timely basis. The expansion of ELI's
existing clusters and its construction of new clusters will be dependent, among
other things, on its ability to acquire rights-of-way and any required permits
on satisfactory terms and conditions, on its ability to finance such expansion
and construction, its ability to assess markets, design fiber network carrier
rings and backbone routes, install other facilities, and implement
interconnection with ILECs, all in a timely manner, at reasonable costs and on
terms and conditions acceptable to ELI. The Company's ability to manage this
expansion effectively will require it to continue to implement and improve its
operational and financial systems and to expand, train and manage its employee
base. ELI's inability to expand its existing clusters or install new clusters
or manage effectively such expansion and installation could have a material
adverse effect upon the Company's business strategy, financial condition and
results of operations.
Substantial Competition
The Company operates in an increasingly competitive environment. Services
substantially similar to those offered by the Company are also offered by the
ILECs serving the markets currently served or intended to be served by the
Company. ILECs have longstanding relationships with their customers, have
financial and technical resources substantially greater than those of the
Company and benefit from federal and state laws and regulations that, ELI
believes, in some instances favor the ILECs over CLECs. Under certain
circumstances, the FCC and state regulatory authorities provide the ILECs with
an ability to lower selectively the price of certain services within the areas
in which the Company operates. In addition, as a result of the 1996 Act, ILECs
are likely to obtain additional pricing flexibility with regard to services that
compete with those offered by the Company. Increased price competition from
ILECs could have a material adverse effect on the Company's financial condition
and results of operations. See "Business-Competition" and "Government
Regulation."
Also, under the 1996 Act, ILECs formerly subject to anti-trust decree
restrictions on interLATA (interexchange) long distance services are no longer
permanently barred from entry into these businesses, subject to certain
requirements in the 1996 Act and rules and policies to be implemented by the FCC
and the states. Also under the 1996 Act, long distances carriers will be
permitted to enter businesses in which they will be in competition with the
Company. The FCC
11
<PAGE>
may authorize a Regional Bell Operating Company ("RBOC") to provide interLATA
services in a state when the RBOC enters into a state utility commission-
approved agreement with one or more facilities-based competitors which provide
business and residential local exchange service and such agreement satisfies 14
specified interconnection requirements. In evaluating an RBOC application for
interLATA entry, the FCC must consult with the U.S. Department of Justice.
Alternatively, if no such facilities-based competitors request such
interconnection, the RBOC may obtain authority from the FCC to provide interLATA
services if the RBOC obtains state utility commission approval of a statement of
generally available terms and conditions of interconnection that satisfies the
requirements. If and when an RBOC obtains authority to provide interLATA
services, it will be able to offer customers local and long distance telephone
services. This will permit the RBOC to offer a full range of services to
potential customers in a new region and thus eliminate an existing competitive
advantage of the Company. Given the resources and experience the RBOCs currently
possess in the local exchange market, the ability to provide both local and long
distance services could make the RBOCs very strong competitors.
The 1996 Act is intended to increase competition in the local telecommunications
business. The 1996 Act requires all local exchange providers, including new
entrants, to offer their services for resale and requires ILECs to offer their
network facilities on an unbundled basis. There can be no assurance that any
unbundled rates or facilities offered by ILECs to ELI will be economically
attractive or technically viable. See "Government Regulation-Telecommunications
Act of 1996." These requirements facilitate entry by new competitors without
substantial capital risk or investment. See "Business-Competition."
The Company faces strong competition from operational facility-based CLECs in
each of the markets in which the Company operates. In each of the clusters in
which ELI operates, at least one other CLEC, and in some cases several other
CLECs, offers many of the same telecommunications services provided by the
Company, generally at similar prices.
Potential and actual new market entrants in the local telecommunications
services business include RBOCs entering new geographic markets, CLECs, Inter-
Exchange Carriers ("IXCs"), cable television companies, electric utilities,
international carriers, satellite carriers, teleports, microwave carriers,
wireless telephone system operators and private networks built by large end
users, many of which may have financial, personnel and other resources
substantially greater than those of ELI. In addition, the current trend of
business combinations and alliances in the telecommunications industry,
including mergers between RBOCs, may increase competition for the Company. The
Company's competitors for high speed data services include major IXCs,
Competitive Access Providers ("CAPs"), other CLECs, and various providers for
niche services (e.g., Internet access providers, router management services and
systems integrators). The market for Internet access and related services in
the United States is extremely competitive, with no substantial barriers to
entry. The Company expects that competition will intensify as existing services
and network providers and new entrants compete for customers. The Company's
current and future competitors include telecommunications companies and other
Internet access providers. Many of these competitors have greater market
presence and greater financial, technical, marketing and human resources, more
extensive infrastructure and stronger customer and strategic relationships than
the Company.
12
<PAGE>
Dependence Upon Interconnection and Relationship with ILECs
The 1996 Act imposes interconnection obligations on ILECs, and generally
requires that interconnection charges be cost-based and nondiscriminatory. To
the extent ELI interconnects with and uses an ILEC's network to service the
Company's customers, ELI is dependent upon the technology and capabilities of
the ILEC to meet certain telecommunications needs of the Company's customers and
to maintain its service standards. ELI will become increasingly dependent on
interconnection with ILECs as switched services become a greater percentage of
the Company's business. However, there can be no assurance that the Company will
be able to obtain the services it requires at rates, and on terms and
conditions, that permit the Company to offer switched services at rates that are
both profitable and competitive. See "Business-Competition-ILEC Competition."
The Company has commenced legal action against U S WEST, alleging that it was
blocking competition in local telephone service. See "Business-Legal
Proceedings."
Local Services and Switched Service Strategies
The Company is a recent entrant in the competitive local telecommunications
services industry. The local telecommunications services market has recently
opened up to competition due to the passage of the 1996 Act, state and federal
regulatory rulings designed to implement the 1996 Act, and negotiations with
ILECs under the terms of the 1996 Act and state rulings. The Company believes
that offering a full-service portfolio of local, long distance and data products
is the best method for gaining market share among business customers.
The Company is making significant operating and capital investments and will
have to address numerous operating complexities associated primarily with
providing local services. The Company will be required to enhance current
provisioning and technical support systems and will need to develop new
marketing initiatives and hire and train a continuing growing sales force
responsible for selling its services. There can be no assurance that the
Company can design and install, and coordinate with ILECS regarding, necessary
provisioning, billing and customer management systems in a timely manner to
permit the Company to provision local exchange, toll, long distance or data
communications services as planned.
The Company expects to face significant competition from ILECs, whose core
business is providing local dial tone service. The ILECs, who currently are the
dominant providers of services in their markets, are expected to mount a
significant competitive response to new entrants in their market, such as the
Company. The Company expects to face significant competitive product and
pricing pressures from the ILECs in these markets, as well as from other CLECs.
Federal and State Regulation
The Company is subject to federal and state regulation. In most states, ELI is
subject to certification and tariff filing requirements with respect to
intrastate services. See "Government Regulation-State Regulation." In some
instances, the certificate obtained by the Company in a particular state limits
the services that it is permitted to provide in that state. These current
restrictions on the services that may be provided by the Company should be
eliminated as a result of the 1996 Act, which prohibits states from imposing
legal restrictions that effectively prohibit the provision of any
telecommunications service. States will, however, under the 1996 Act, retain
authority to impose on the Company and other telecommunications carriers
13
<PAGE>
requirements to preserve universal service, protect public safety, ensure
quality of service and protect consumers. States are also responsible under the
1996 Act for mediating and arbitrating interconnection arrangements between
CLECs and ILECs if the carriers fail to agree on such arrangements.
ELI is currently required to file tariffs for some interstate services with the
FCC, although such tariff requirements are less restrictive than those imposed
on ILECs offering similar services. These tariffs, which are presumed to be
lawful on filing, must contain the rates, terms and conditions under which
service is generally available from ELI. While unlikely, challenges by third
parties to the Company's tariff filings or related contractual arrangements may
cause ELI to incur substantial legal and administrative expenses. The FCC has
promulgated rules to eliminate tariffing of interstate long distance services.
Those rules have been stayed during the pendency of judicial review. If and when
these rules are allowed to go into effect, the Company will no longer be
required to file FCC tariffs for its interstate long distance services.
Additionally, under a recent FCC order, CLECs, including ELI, are no longer
required to file tariffs for interstate exchange access services.
Under the 1996 Act, the Company is subject to certain federal regulatory
obligations when it provides local exchange service in a market. All local
exchange carriers, including CLECs, must interconnect with other carriers, make
their services available for resale by other carriers, provide nondiscriminatory
access to rights-of-way, offer reciprocal compensation for termination of
traffic and provide dialing parity and telephone number portability. In
addition, the 1996 Act requires all telecommunications carriers to ensure that
their services are accessible to and usable by persons with disabilities.
Further, ELI and other CLECs will be required to contribute to federal and state
universal service funds provided for in the 1996 Act, but which have not yet
been implemented. Because many FCC rules implementing the 1996 Act are under
challenge in the courts and are still being analyzed by the industry, and
related state implementation processes are not complete, it is uncertain how
burdensome the requirements of the 1996 Act will be for ELI.
The 1996 Act contains other provisions that may be subject to FCC rulemaking and
judicial interpretation.
The FCC recently adopted rules to reform the interstate access charges ILECs may
impose for use of local networks to originate and terminate interstate services.
Among the effects of those rules will be a substantial reduction in ILEC access
prices. Certain of ELI's services permit the customer to bypass the ILEC access
charges. The downward pressure on access prices resulting from the FCC's
actions may adversely impact ELI's revenues from its competitive access
products. However, ELI also pays ILEC access charges in connection with ELI's
long distance products, and to this extent reductions in ILEC access charges
will lower ELI's costs.
In addition, no assurance can be given that changes to current regulations or
the adoption of new regulations by the FCC or state regulatory authorities or
legislative initiatives or court decisions would not have a material adverse
effect on ELI. See "Government Regulation."
Governmental and Other Authorizations
The development, expansion and maintenance of the Company's networks depend on,
among other things, its ability to obtain rights-of-way and any other required
governmental
14
<PAGE>
authorizations and permits, all in a timely manner, at reasonable costs and on
satisfactory terms and conditions. In addition, ELI currently leases and plans
in the future to enter into facility arrangements for significant numbers of
optical fibers from other parties. In some of the cities or municipalities where
ELI provides network services, it may pay license or franchise fees, usually
based on a percentage of gross revenues or a per foot right-of-way fee. The 1996
Act permits municipalities to charge such fees only if they are
nondiscriminatory, but there can be no assurance that municipalities that
presently favor a particular carrier, typically the ILEC, will conform their
practices to the requirements of the 1996 Act in a timely manner or without a
legal challenge. Furthermore, there can be no assurance that certain cities or
municipalities that do not now impose fees will not seek to impose fees, nor can
there be any assurance that, following the expiration or renegotiation of
existing franchises, fees will remain at their current levels or that the
franchises will be renewed.
With respect to the Company's ability to lease or enter into facility
arrangements, there can be no assurance that the Company will be able to obtain
all necessary permits, licenses, conduit agreements or pole attachment
agreements from governmental authorities or private rights-of-way providers
necessary to effectuate such transactions. As a result, there can be no
assurance that ELI will be able to expand its existing networks or develop new
networks successfully, which would have a material adverse effect on the
Company's growth and financial condition.
If any of the Company's existing franchise, license or similar agreements for a
particular market were terminated prior to their expiration dates or not renewed
and ELI were forced to remove its fiber or abandon its network in place, such
termination would have a material adverse effect on the Company's operations in
that market and could have a material adverse effect on ELI.
Dependence on Significant Customers
The Company has substantial business relationships with a few large customers,
including the major long distance carriers. During 1996, the Company's top five
customers accounted for approximately 20% of ELI's total revenues. No customer
accounted for 10% or more of total revenues in 1996. In 1997, one customer, IXC
Communications, is expected to account for approximately 10% of the Company's
revenues. A portion of the Company's services provided to IXC Communications
will no longer be required when IXC Communications completes construction of its
own facilities in the first quarter of 1998. A significant reduction in the
level of services ELI performs for any of these customers could have a material
adverse effect on the Company's results of operations or financial condition.
Most of the Company's customers have short notice contracts.
Services Provided by Third Party Vendors
Sophisticated information and processing systems are vital to the Company's
growth and its ability to monitor costs, bill customers, provision customer
orders and achieve operating efficiencies. Billing and information systems for
the Company's historical lines of business have been produced by third party
vendors. These systems have met the Company's needs, due in part to the
Company's low volume of bills and orders. As the Company provides expanded
local, long distance and data transmission services, the need for sophisticated
billing information systems will increase significantly. The Company's current
local billing platform plans rely on products and services provided by third
party vendors. Additionally, the Company is
15
<PAGE>
implementing new automated systems and expanding customer service centers to
provision orders. Information systems are vital to the success of these centers,
and the information systems for these centers have largely been developed by
third party vendors. The failure of (i) the Company's vendors to deliver
proposed products and services in a timely and effective manner, (ii) the
Company to adequately identify all of its information and processing needs or
(iii) the Company to upgrade systems as necessary, could have a material adverse
impact on the ability of the Company to reach its objectives, and on its
financial condition and results of operations.
While the Company believes that its software applications are "year 2000
compliant," there can be no assurance until the year 2000 occurs that all
systems will then function adequately. Further, if the software applications of
local exchange carriers, long distance carriers or others on whose services the
Company depends are not year 2000 compliant, it could have a material adverse
effect on the Company's financial condition and results of operations.
Minimum Requirements of Long-Haul License Agreements
The Company's license agreements for the exclusive use of long-haul facilities
connecting its Portland to Seattle, Portland to Spokane and Portland to Eugene
long-haul transport networks and for the exclusive use of the Phoenix network
contain annual minimum usage requirements. See "Business-Existing Market
Clusters-Long-Haul Networks." If the Company's traffic on any of these networks
falls below the minimums, the licensor will obtain the right to share usage of a
specified number of fibers with the Company, which could adversely impair the
capacity of such network available to service the Company's customers.
Operating Lease
Under the terms of the operating lease described under "Business-Properties-
Lease," if the Company wishes to continue to make use of its presently leased
facilities past the final lease expiration date in 2002, the Company will be
required to exercise its option to purchase the leased facilities at the
termination of the lease in 2002. If the purchase option is exercised, the
purchase price required will be the original cost to the lessor of purchasing
and installing the facilities subject to the maximum amount available under the
lease (expected to be $110,000,000). If the Company does not purchase the
facilities, they will be sold to a third party and the Company will guarantee
that the sales price to be received by the lessor will equal the acquisition and
installation costs, subject generally to a maximum payment under the guarantee
of 80% of such costs.
Control by Citizens
Citizens is currently the only shareholder of the Company. Upon the completion
of the Offering, Citizens will hold all the Class B Common Stock of the Company
(which Class B Common Stock entitles its holders to 10 votes per share on any
matter submitted to a vote of the Company's shareholders). The Class B Common
Stock will represent approximately 97.5% of the combined voting power of all
classes of voting stock of the Company (97.16% if the Underwriters' over-
allotment options are exercised in full) and thus will be able to direct the
election of all of the members of the Company's Board of Directors and exercise
a controlling influence over the business and affairs of the Company, including
any determinations with respect to mergers or other business combinations, the
acquisition or disposition of assets, the incurrence of indebtedness, the
issuance of any additional Common Stock or other equity
16
<PAGE>
securities and the payment of dividends with respect to the Common Stock.
Similarly, Citizens will have the power to determine matters submitted to a vote
of the Company's shareholders without the consent of the Company's other
shareholders, will have the power to prevent a change of control of the Company
and could take other actions that might be favorable to Citizens. The
disproportionate voting rights of the Class B Common Stock relative to the Class
A Common Stock may render impossible any merger proposal, a tender offer or a
proxy contest, even if such actions were favored by a majority of the holders of
the Class A Common Stock. See "Securities Ownership," "Description of Capital
Stock" and "Relationship with Citizens." Citizens has advised the Company that
its current intent is to continue to hold all of its Class B Common Stock. There
can be no assurance, however, concerning the period of time during which
Citizens will maintain its beneficial ownership of Common Stock. As described
below, pursuant to the Underwriting Agreement, Citizens has agreed, subject to
certain exceptions, not to sell or otherwise dispose of, directly or indirectly,
any shares of Common Stock owned by it for a period of 180 days after the date
of this Prospectus without the prior written consent of Lehman Brothers Inc. on
behalf of the Representatives of the Underwriters.
The Company's Board of Directors currently consists of six members, four of whom
are executive officers and/or directors of Citizens and one of whom is
independent of both Citizens and ELI. Following the Offering, the Board will be
increased to consist of seven members to add an additional independent director.
In light of its ownership of the Company's Class B Common Stock, Citizens will
have the ability to change the size and composition of the Company's Board of
Directors and committees of the Board of Directors.
As of the date of the Prospectus, Citizens has advised ELI that Citizens has no
current plan or intention other than to hold the shares of Class B Common Stock
owned by it for the foreseeable future. However, there is no assurance that
Citizens may not decide in the future to sell all or a portion of its shares of
Common Stock publicly or privately or otherwise. Citizens has the right to
require the Company to register for sale under applicable securities laws all of
the shares of Common Stock (including any shares of Class A Common Stock
acquired by Citizens upon exchange of the Class B Common Stock) which Citizens
or its subsidiaries hold. See "Relationship with Citizens-Registration Rights
Agreement."
Beneficial ownership of at least 80% of the total voting power and value of the
outstanding Common Stock is required in order for Citizens to continue to
include the Company in its consolidated group for federal income tax purposes,
and beneficial ownership of at least 80% of the total voting power and 80% of
each class of nonvoting capital stock is required in order for Citizens to
effect a transaction intended to be tax-free under section 355 of the Internal
Revenue Code of 1986, as amended, of the Company or certain other tax-free
transactions. Each member of a consolidated group for federal income tax
purposes is jointly and severally liable for the federal income tax liability of
each other member of the consolidated group. Each member of the Citizens
controlled group, which includes Citizens, the Company and Citizens's other
subsidiaries, is also jointly and severally liable for pension and benefit
funding and termination liabilities of other group members, as well as certain
benefit plan taxes. Accordingly, if the Company is included in Citizens'
consolidated group it could be liable under such provisions in the event any
such liability is incurred, and not discharged, by any other member of the
Citizens consolidated or controlled group. If the Company were no longer to be
included in Citizens's consolidated group for federal tax purposes, there is no
assurance that the
17
<PAGE>
Company's tax position would not be less favorable than it is at
present. See "Relationship With Citizens."
Conflicts of Interest
Various conflicts of interest between the Company and Citizens may arise in the
future in a number of areas relating to their past and ongoing relationships,
including potential acquisitions of businesses or properties or other corporate
opportunities, the election of new or additional directors, payment of
dividends, incurrence of indebtedness, tax matters, financial commitments,
marketing functions, indemnity arrangements, registration rights, administration
of benefit plans, service arrangements, issuances of capital stock of the
Company, sales or distribution by Citizens of its remaining shares of Common
Stock and the exercise by Citizens of its ability to control the management and
affairs of the Company. In addition, Citizens is in the telecommunications
business and may, now or in the future, provide services which are the same or
similar to those provided by ELI. Citizens will be free to compete with ELI in
certain markets. See "Relationship with Citizens-Customers and Service
Agreement."
Citizens' Representation on Company's Board of Directors and as Officers of the
Company. Certain directors and/or executive officers of Citizens are directors
of the Company. Also, the Chief Executive Officer of Citizens is the Chairman
of the Board of the Company, the President of Citizens is Vice Chairman and
Chief Executive Officer of the Company and another executive officer of Citizens
is an executive officer of the Company. See "Management." Neither the Company
nor Citizens has instituted any formal plan or arrangement to address potential
conflicts of interest that may arise between the Company and Citizens. The
Company's directors intend to exercise reasonable judgment and take such steps
as they deem necessary under all of the circumstances in resolving any specific
conflict of interest that may occur and will determine what, if any, specific
measures may be necessary or appropriate in light of their fiduciary duties
under state law, including whether to have any specific matter approved by a
majority vote of the disinterested directors. There can be no assurance that
any conflicts will be resolved in favor of the Company.
Future Arrangements. The Company and Citizens have entered into a number of
agreements for the purpose of defining the ongoing relationship between them.
Pursuant to these arrangements, Citizens will provide benefits to the Company
that it might not provide to a third party, and there is no assurance that the
terms and conditions of any future arrangements between Citizens and the Company
will be as favorable to the Company as in effect now.
Competition. To address the potential for conflicts between the Company and
Citizens, the Customers and Service Agreement between the Company and Citizens
contains provisions prohibiting the Company from competing with Citizens for
customers in Citizens' existing service areas and in certain new lower density
territories which Citizens will have been first to enter after the Offering.
Citizens has agreed that it will not compete with the Company in the service
territories in which the Company is currently providing services and in certain
new higher density territories which the Company will have been first to provide
services after the Offering, except that Citizens may compete in ELI's new
territories in the provision of long distance services. Neither Citizens nor
ELI may solicit an existing wholesale customer of the other company for services
which such customer is currently receiving under contract from the other
company. The relevant provisions are intended to permit the Company to continue
all activities in which it currently engages, and to expand into related market
areas. The Customers
18
<PAGE>
and Service Agreement will remain in effect for so long as Citizens owns a
majority of the economic or voting interest of the shares of Common Stock of the
Company. See "Relationship with Citizens-Customers and Service Agreement."
Tax Sharing. The Company has heretofore been included in Citizens' federal
consolidated income tax group. After the Offering it is expected that the
Company will no longer be included in the federal consolidated income tax group
although, depending upon Citizens' stock ownership of the Company, it is
conceivable that the Company may continue to be so included. In such case the
Company's federal income tax liability would be included in the consolidated
federal income tax liability of Citizens and its subsidiaries. The Company may
also be included with certain Citizens subsidiaries in combined, consolidated or
unitary income tax groups for state and local tax purposes. The Company and
Citizens will enter into a federal, state and local tax-sharing agreement (the
"Tax Sharing Agreement"). Under the Tax Sharing Agreement, Citizens will have
sole authority to respond to and conduct all tax proceedings (including tax
audits) relating to the Company and to file all returns on behalf of the
Company. The amount of the Company's liability to (or entitlement to payment
from) Citizens under the Tax Sharing Agreement will equal the amount of taxes
that the Company would owe (or refund that it would receive) had it prepared tax
returns on a stand-alone basis. See "Relationship with Citizens-Tax Sharing
Agreement." This arrangement may result in conflicts of interest between the
Company and Citizens. For example, under the Tax Sharing Agreement, Citizens
may choose to contest, compromise or settle any adjustment or deficiency
proposed by the relevant taxing authority in a manner that may be beneficial to
Citizens and detrimental to the Company.
Intercompany Agreements Not Subject to Arm's-Length Negotiation
Citizens and the Company have entered into intercompany agreements that are
material to the Company's business. See "-Conflicts of Interest" above and
"Relationship with Citizens." Because the Company has been a wholly owned
subsidiary of Citizens, these agreements are a result of negotiations between
affiliated parties. Although the administrative costs to be paid by ELI to
Citizens pursuant to the Administrative Services Agreement are not expected to
exceed the fees that would be paid if such services were to be provided by an
independent third party, the prices charged to the Company at a particular time
for services provided under this or the other agreements may be higher or lower
than prices that might have been charged by an unaffiliated third party.
Potential Issuance of Preferred Stock
The Company's Board of Directors has the authority, without any further vote or
action by the Company's stockholders, to issue up to 10,000,000 shares of
Preferred Stock in one or more series and to determine the designations, powers,
preferences and relative, participating, optional or other rights thereof,
including without limitation, the dividend rate (and whether dividends are
cumulative), exchange rights, voting rights, rights and terms of redemption,
redemption price and liquidation preference. Although the Company has no
current plans to issue any shares of Preferred Stock, the rights of the holders
of Common Stock would be subject to, and may be adversely affected by, the
rights of the holders of any Preferred Stock that may be issued in the future.
If at some future time Citizens should have disposed of its majority interest in
ELI, the issuance of Preferred Stock could have the effect of delaying,
deterring or preventing a change in control of ELI, including the imposition of
various procedural and other
19
<PAGE>
requirements that could make it more difficult for holders of Common Stock to
effect certain corporate actions, including the ability to replace incumbent
directors and to accomplish transactions opposed by the incumbent Board of
Directors. See "Description of Capital Stock."
Rapid Technological Changes
The telecommunications industry has experienced and is expected to continue to
experience rapid and significant changes in technology. While ELI believes
that, for the foreseeable future, these changes will neither materially affect
the continued use of fiber optic cable or digital switches and transmission
equipment nor materially hinder the Company's ability to acquire necessary
technologies, the effect of technological changes on the Company's business and
operations cannot be predicted. Also, alternative technologies may develop for
the provision of services to customers. ELI may be required to select in
advance one technology over another but it will be impossible to predict with
any certainty, at the time the Company is required to make its investment, which
technology will prove to be the most economic, efficient or capable of
attracting customer usage.
Dependence on Key Personnel and Citizens
The Company's business is managed by a small number of key management and
operating personnel, the loss of certain of whom could have a material adverse
effect on the Company's business. The Company believes that the future success
of ELI will depend in large part on its continued ability to attract and retain
highly skilled and qualified personnel. See "Management."
The Company believes that a significant factor contributing to its growth has
been its affiliation with Citizens and the provision by Citizens of
administrative and other services. Although the Company has entered into
various ongoing service and other agreements with Citizens, there can be no
assurance of ELI's continued relationship with Citizens. A disruption of
certain of the services provided ELI by Citizens could have a material adverse
effect on the Company's financial condition and results of operations. See
"Relationship with Citizens."
Environmental Matters
The Company and its contractors are subject to various laws and regulations
governing hazardous or environmentally sensitive materials or conditions which
may occur in connection with the construction, installation, operation or
maintenance of the Company's facilities. There can be no assurance that
hazardous materials or conditions of ELI's facilities might not expose the
Company to tort or other claims that could have a material adverse effect on
ELI.
Absence of Prior Public Market; Possible Stock Price Volatility
Prior to the Offering, there has been no public market for the Class A Common
Stock, and, although the Class A Common Stock has been approved for listing on
the Nasdaq National Market, there can be no assurance that an active trading
market for the Class A Common Stock will develop or will be sustained. The
initial public offering price of the Class A Common Stock has been determined
through negotiations with the Representatives of the Underwriters and may not be
indicative of the market price for the Class A Common Stock following the
Offering. For a discussion of the factors considered in determining the initial
public offering price, see "Underwriting." No predictions can be made as to the
effect, of any, that future market sales of Class A Common Stock, or the
availability of such shares for sale, will have on the prevailing market prices
of the Class A Common Stock following the Offering;
20
<PAGE>
and there can be no assurance that future market prices for the Class A Common
Stock will equal or exceed the initial public offering price set forth on the
cover page of this Prospectus. The market prices of securities of growth
companies similar to ELI have historically been highly volatile. Future
developments and announcements on matters concerning ELI or its competitors,
including quarterly results, technological innovations, mergers or strategic
alliances, new services or government legislation or regulation, may have a
significant effect on the market price of the Class A Common Stock. See
"Underwriting."
Shares Eligible for Future Sale
Upon completion of the Offering, there will be 10,535,000 shares of Class A
Common Stock issued and outstanding (12,035,000 if the Underwriters' over-
allotment options are exercised in full) and 41,165,000 shares of Class B Common
Stock outstanding. The 10,000,000 shares of Class A Common Stock to be sold in
the Offering will be tradeable without restriction. The shares of Class B Common
Stock and any Class A Common Stock issued upon exchange of Class B Common Stock
held or to be held by Citizens may be offered for sale at any time assuming
compliance with legal requirements.
The Company and Citizens, as the holder of the Class B Common Stock, have agreed
not to offer, sell, contract to sell, file a registration statement pursuant to
the Securities Act or otherwise dispose of any shares of Common Stock without
the prior written consent of Lehman Brothers Inc. on behalf of the
Representatives, for a period of 180 days after the date of this Prospectus. In
addition, Citizens has advised ELI that it currently intends to hold the shares
of the Class B Common Stock owned by it for the foreseeable future. However, no
assurance can be given that Citizens will not decide in the future to register
its shares of Common Stock under the Securities Act and to dispose of all or a
portion of such stock on the public market, or privately, or otherwise.
Citizens and ELI have entered into a Registration Rights Agreement, pursuant to
which Citizens has demand and piggyback registration rights. See
"Relationship with Citizens-Registration Rights Agreement." Alternatively,
Citizens could dispose of shares periodically pursuant to Rule 144 of the
Securities and Exchange Commission. See "Shares Eligible for Future Sale."
No predictions can be made about the effect, if any, that market sales of shares
of Class A Common Stock or the availability of such shares for sale would have
on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of Class A Common Stock in the public market, or the
perception that such sales could occur, may have a material adverse impact on
the market price for the shares of Class A Common Stock offered hereby or on the
ability of the Company to raise capital through a public offering of its equity
securities. See "Shares Eligible for Future Sale."
Immediate and Substantial Dilution
Purchasers of the Class A Common Stock offered hereby will incur immediate and
substantial dilution in pro forma net tangible book value per share. See
"Dilution."
Absence of Dividends
ELI has never paid or declared dividends on its capital stock and intends to
retain future earnings, if any, to finance the development and expansion of its
networks and operations. Therefore, ELI does not anticipate paying any
dividends in the foreseeable future. The decision whether to pay dividends will
be made by the Company's Board of Directors in light of
21
<PAGE>
conditions then existing, including the Company's results of operations,
financial condition and requirements, business conditions, covenants under loan
agreements and other contractual arrangements, and other factors. See "Dividend
Policy."
FORWARD-LOOKING STATEMENTS
Statements made in this Prospectus which are not historical or current facts,
such as descriptions of the Company's intentions to enter new markets, extend
existing facilities, and deploy switches and other facilities outside of
markets, are forward-looking statements and are only predictions or statements
of current plans, which are constantly under review by the Company. Such
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed or implied in the
forward-looking statements. These risks and uncertainties are referred to in
the Risk Factors section immediately above and elsewhere in this Prospectus and
also include, but are not limited to, the Company's ability to identify future
markets and successfully expand existing ones, design and acquire fiber optic
backbone routes, install cable and facilities including switching electronics,
finance its construction and expansion plans, successfully execute its marketing
strategy, surmount competitive challenges and obtain rights-of-way, building
access rights and any required governmental authorizations, franchises and
permits, all in a timely manner, at reasonable costs and on satisfactory terms
and conditions. Future successful results will also depend on favorable
regulatory, legislative and judicial developments.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $164,244,000 (approximately $188,919,000 if the Underwriters'
over-allotment options are exercised in full) after deducting underwriting
discounts and commissions and estimated expenses of the Offering. ELI intends to
use the net proceeds of the Offering to fund its operating and capital
expenditure requirements. The Company estimates that its capital expenditures
for the eighteen months subsequent to the completion of the Offering will be
approximately $400 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The Company's business strategy envisions that the Company will build out its
existing clusters, construct new clusters and interconnect its clusters, which
will require substantial additional capital in addition to the capital raised in
this Offering. The Company expects to meet such additional capital needs with
the proceeds from the Credit Facility, together with internally generated cash
flow and lease arrangements, proceeds from other bank credit facilities, other
borrowings and possible issuances of additional equity securities.
Because of the number and variability of factors that determine the Company's
use of the net proceeds of the Offering, management will retain discretion over
the application of net proceeds. There can be no assurance that such
application will not vary from the Company's current plans. In addition, there
can be no assurance that the Company will be able to generate or raise
sufficient capital to enable it to fully realize all of its strategic
objectives. See "Risk Factors-Significant Capital Expenditures" and "-Risks
Inherent in Expansion."
22
<PAGE>
Pending the foregoing uses, the net proceeds of the Offering will be invested in
short term and intermediate-term interest-bearing investment-grade securities
with maturities that match the operating and capital expenditure requirements of
the Company.
DIVIDEND POLICY
ELI has never paid or declared dividends on its capital stock and intends to
retain future earnings, if any, to finance its operations and the development
and expansion of its networks and, therefore, does not anticipate paying any
dividends in the foreseeable future. The decision whether to pay dividends will
be made by the Company's Board of Directors in light of conditions then
existing, including the Company's results of operations, financial condition and
requirements, business conditions, covenants under loan agreements and other
contractual arrangements, and other factors which the Company cannot now
predict.
DILUTION
The pro forma net tangible book value of the Company as of September 30, 1997
was approximately $97.6 million or approximately $2.34 per share of Common Stock
outstanding on such date. See "Description of Capital Stock." Pro forma net
tangible book value per share represents the amount of total tangible assets of
the Company less the amount of total liabilities (adjusted for the
capitalization of $119.2 million of the amount due Citizens) divided by the
total number of shares of Common Stock outstanding after giving effect to the
411,650-for-1 stock split effected on November 11, 1997. After giving effect to
the Offering (at an assumed offering price of $17.50, the midpoint of the range
set forth on the cover of the Prospectus, less underwriting discounts and
estimated expenses of $255,600 payable in connection with the Offering) and the
issuance of 535,000 restricted shares to officers and employees, the pro forma
net tangible book value of the Company as of September 30, 1997 would have been
approximately $261.8 million, or $5.06 per share of Common Stock. This
represents an increase in pro forma net tangible book value of $2.72 per share
to the existing stockholder and dilution of $12.44 per share to new investors
purchasing shares of Class A Common Stock in the Offering. The following table
illustrates dilution to new investors:
Initial public offering price per share.................... $17.50
Pro forma net tangible book value per share before
the Offering......................................... $2.34
Increase per share attributable to new investors(1) ....... 2.72
-----
Pro forma net tangible book value per share after the Offering 5.06
------
Dilution per share to new investors(2)(3).................. $12.44
======
__________________________
(1) After deducting the underwriting discount and estimated offering expenses
payable by the Company.
(2) Dilution per share is determined by subtracting the pro forma net tangible
book value per share after the Offering from the initial public offering
price paid by a new investor for a share of Class A Common Stock .
(3) If the Underwriters' over-allotment options are exercised in full, pro forma
net tangible book value of the Company after the Offering would be $5.38 per
share, representing an increase in pro forma net tangible book value of
$3.04 per share and dilution to new investors of $12.12 per share.
The following table summarizes the difference as of September 30, 1997 between
the existing stockholders and new investors with respect to the number of shares
of Common Stock purchased from the Company, the total consideration paid to the
Company and the average price paid per share after giving effect to the 411,650-
for-1 stock split effected on November 11, 1997 and the issuance of 535,000
shares of restricted stock to certain officers and employees contemplated as
part of the Offering.
<TABLE>
<CAPTION>
Shares Held Total Investment Average Cost
Number Percentage Amount Percentage Per Share
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New Investors 10,000,000 19.3% $175,000,000 46.9% $17.50
Existing Stockholders(1) 41,700,000 80.7% 198,426,000 53.1% 4.76
---------- ------ ------------ ------
Total(2) 51,700,000 100.0% $373,426,000 100.0%
========== ====== ============ ======
</TABLE>
(1) Based on the number of shares of Common Stock outstanding as of September
30, 1997, as adjusted for the 411,650-for-1 stock split effected on November
11, 1997 and the capitalization of $119.2 million of the amount due to
Citizens contemplated as part of the Offering.
23
<PAGE>
Includes 535,000 shares of restricted Class A Common Stock issuable to
certain officers and employees at the effective date of the Offering.
(2) Excludes 2,316,000 options to purchase Class A Common Stock issuable to
certain officers and employees at the effective date of the Offering.
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the Company
as of September 30, 1997; (ii) such capitalization pro forma to reflect the
contribution of $119.2 million of the amount due to Citizens to additional paid-
in capital, the drawdown under the Credit Facility and the use thereof to
repay the remaining balance due to Citizens and the issuance of 535,000
restricted shares of Class A Common Stock to officers and employees; and (iii)
such capitalization as adjusted to reflect the Offering at an assumed public
offering price of $17.50 per share, the midpoint of the range set forth on the
cover of this Prospectus. This table should be read in conjunction with the
Selected Financial and Operating Data and the financial statements and notes
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As at September 30, 1997
($ in thousands)
--------------------------------------------------------------
As Adjusted for the
Actual Pro Forma Offering(3)
-------- --------- --------------------
<S> <C> <C> <C>
Capital lease obligation $ 10,374 $ 10,374 $ 10,374
Due to Citizens 219,171 - -
Credit Facility - 100,000(1) 100,000
Stockholders' (deficiency) equity:
Preferred Stock, $.01 par value;
10,000,000 shares authorized,
0 shares issued and outstanding - - -
Class A Common Stock, $.01 par value;
110,000,000 shares authorized,
0, 535,000 and 10,535,000 shares issued and outstanding - 5(2) 105
Class B Common Stock, $.01 par value;
60,000,000 shares authorized,
41,165,000 shares issued and outstanding 412 412 412
Additional paid-in capital 78,843 198,009(1)(2) 362,153
Deficit (96,004) (96,004) (96,004)
Total stockholders' (deficiency) equity (16,749) 102,422 266,666
------- ------- -------
Total capitalization $ 212,796 $ 212,796 $ 377,040
========= ========= =========
</TABLE>
__________________________________
(1) Reflects recapitalization immediately prior to the Offering whereby Citizens
will contribute $119.2 million of the amount due to Citizens as of September
30, 1997 to additional paid-in capital with the remaining balance of $100
million (plus any additional amounts incurred since September 30, 1997)
being repaid to Citizens with the proceeds of a drawdown under the Credit
Facility.
(2) Reflects the issuance of 535,000 restricted shares of Class A Common Stock
to officers and employees immediately prior to the Offering.
(3) Reflects the issuance of 10,000,000 shares of Class A Common Stock at $17.50
per share after deducting underwriting discounts and commissions and
estimated expenses of the Offering.
24
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following selected Statement of Operations and Balance Sheet Data for
the years ended and as of December 31, 1992 and 1993 have been derived from
the Company's unaudited Financial Statements which, in the opinion of
management include all adjustments necessary for a fair presentation of the
results of operations and financial condition of the Company for and as of
such periods. The following selected Statement of Operations and Balance Sheet
Data for the years ended and as of December 31, 1994, 1995 and 1996 have been
derived from the Company's Financial Statements and related notes thereto
included elsewhere in this Prospectus, which Financial Statements have been
audited by KPMG Peat Marwick LLP, independent Certified Public Accountants.
The selected Statement of Operations and Balance Sheet Data for the nine
months ended September 30, 1996 and 1997 have been derived from the Company's
unaudited Financial Statements and related notes thereto included elsewhere in
this Prospectus and in the opinion of management, include all adjustments
necessary for a fair presentation of the results of operations and financial
condition of the Company for and as of such periods. The results of operations
for interim periods are not necessarily indicative of a full year's
operations. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's Financial Statements and related notes thereto and the other
financial data contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
($ in thousands,
except per share
amounts)
STATEMENT OF
OPERATIONS DATA
Revenues $ 1,206 $ 3,705 $ 8,152 $ 15,660 $ 31,309 $ 24,965 $ 41,843
Operating expenses:
Network access
expenses 142 1,289 6,155 8,728 24,081 16,533 24,217
Sales and marketing
expenses 1,043 841 4,534 5,704 8,462 6,303 8,716
Depreciation and
amortization 879 1,567 2,476 7,064 7,192 4,997 7,601
Other operating
expenses 1,949 2,892 4,528 14,114 20,957 16,715 26,831
------- ------- -------- -------- -------- -------- --------
Total operating
expenses 4,013 6,589 17,693 35,610 60,692 44,548 67,365
------- ------- -------- -------- -------- -------- --------
Operating loss (2,807) (2,884) (9,541) (19,950) (29,383) (19,583) (25,522)
Interest expense 754 1,053 873 372 -- -- 513
------- ------- -------- -------- -------- -------- --------
Net loss $(3,561) $(3,937) $(10,414) $(20,322) $(29,383) $(19,583) $(26,035)
======= ======= ======== ======== ======== ======== ========
Pro forma net loss per
share(1) $ (.70) $ (.47) $ (.62)
======== ======== ========
Pro forma net loss
giving effect to
certain agreements (2) $(32,213) $(21,307) $(32,254)
======== ======== ========
Pro forma net loss
per share giving effect
to certain agreements (3) $ (.77) $ (.51) $ (.77)
======== ======== ========
<CAPTION>
PRO FORMA
AS AT DECEMBER 31, AS AT AS AT
---------------------------------------------- SEPT. 30, SEPT. 30,
1992 1993 1994 1995 1996 1997 1997(4)
------- ------- -------- -------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital
(deficiency) $(5,300) $(5,699) $ (9,934) $(17,897) $ (9,940) $ (7,734) $156,510
Total assets 25,476 47,840 110,691 128,901 195,656 248,570 412,814
Long-term debt and
capital lease
obligations 11,053 9,610 6,565 -- -- 10,374 10,374
Due to Citizens 4,581 21,481 35,109 64,941 155,395 219,171 --
Credit Facility -- -- -- -- -- -- 100,000
Shareholder's equity
(deficiency) 4,437 9,150 55,991 38,669 9,286 (16,749) 266,666
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- --------------
1994 1995 1996 1997
-------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
EBITDA(5) $ (7,065) $(12,886) $(22,191) $(17,921)
Cash flows used for operating
activities (4,097) (1,570) (28,893) (18,040)
Cash flows used for investing
activities (60,774) (16,129) (59,169) (48,717)
Cash flows provided by financing
activities 64,907 17,751 88,530 67,293
<CAPTION>
AS AT DECEMBER 31,
---------------------------------------------- AS AT
1992 1993 1994 1995 1996 SEPT. 30, 1997
------- ------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Property, plant &
equipment-owned $21,083 $45,309 $108,549 $127,297 $189,334 $249,499
--under lease(6) -- -- -- 36,858 57,279 87,426
------- ------- -------- -------- -------- --------
--Total $21,083 $45,309 $108,549 $164,155 $246,613 $336,925
------- ------- -------- -------- -------- --------
Market clusters 2 5 5 5 5 5
Route miles(7) 71 131 601 780 1,428 2,087
Fiber miles(7) 5,140 9,796 37,504 52,013 97,665 123,257
Buildings connected 57 104 191 282 438 540
Switches installed:
Voice -- 1 2 2 5 5
Frame relay -- -- 2 5 15 17
------- ------- -------- -------- -------- --------
Total switches
installed -- 1 4 7 20 22
------- ------- -------- -------- -------- --------
Employees 46 75 127 225 402 482
</TABLE>
- -------
NOTES TO SELECTED FINANCIAL AND OPERATING DATA
(1) Pro forma net loss per share has been computed using pro forma weighted
average shares outstanding determined on the basis described in Note 2(i) of
Notes to Financial Statements.
(2) Represents the historical net loss as adjusted for the revised
administrative services fee and guarantee fees as if such fees were in
effect since January 1, 1996, and interest on the drawdown of the Credit
Facility utilized to repay the remaining balance due to Citizens
subsequent to the capitalization of $119.2 million of the amount due to
Citizens, as if the Credit Facility was in effect on January 1, 1996
(see Notes 6, 7 and 8 of Notes to Financial Statements).
(3) Represents the pro forma net loss giving effect to certain agreements as
described in (2) above divided by pro forma weighted average shares
outstanding determined on the basis described in Note 2(i) of Notes to
Financial Statements.
(4) The pro forma balance sheet data gives effect to the contribution of
$119.2 million of the amount due to Citizens to additional paid-in capital
as discussed in Note 6 of Notes to Financial Statements, to the drawdown of
the Credit Facility to repay the remaining amount due to Citizens, and to
the issuance of the shares of Class A Common Stock offered hereby, as if
such transactions occurred on September 30, 1997.
(5) EBITDA consists of Earnings Before Interest, Income Taxes, Depreciation
and Amortization. EBITDA is a measure commonly used in the communications
industry to analyze companies on the basis of operating performance.
EBITDA is not a measure of financial performance under generally accepted
accounting principles and should not be considered as an alternative to
net income as a measure of performance nor as an alternative to cash flow
as a measure of liquidity. See the Company's Financial Statements included
elsewhere in this Prospectus.
(6) Facilities under an operating lease agreement under which the Company has
the option to purchase the facilities at the end of the lease term. See
Note 7 of Notes to Financial Statements.
(7) Route miles and fiber miles also include those to which the Company has
exclusive use pursuant to license and lease arrangements (See "Business-
Long-Haul Networks").
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with ELI's
historical audited financial statements and the notes thereto included elsewhere
in this Prospectus.
Overview
The Company is a full-service, facilities-based competitive local exchange
carrier providing a broad range of telecommunications services in five major
market clusters in the western United States. The Company currently provides
services in the following markets: Portland, Oregon; Seattle, Washington; Salt
Lake City, Utah; Sacramento, California; and Phoenix, Arizona ("hub cities") and
their respective surrounding areas (together with the hub cities, "market
clusters" or "clusters"). Among its five current markets, the Company has been
operating in Portland and Seattle since 1991, Salt Lake City and Sacramento
since 1994 and Phoenix since 1995. The Company began building its switched data
network in 1994. The Company installed its first local switch in the Seattle
market in 1994 and began generating revenues in early 1995 followed by Portland,
Salt Lake City and Sacramento in 1996. The Company intends to install a local
switch in Phoenix in 1998. The Company placed in service its first long haul
network from Phoenix to Las Vegas in 1995 and its second long haul network from
Portland to Seattle in early 1997.
The Company's product portfolio has grown from traditional competitive access
provider services such as point-to-point connectivity for interexchange carriers
and businesses to a full array of switched voice, data and long-haul services
targeted toward communications-intensive businesses in both the retail and
wholesale markets. The Company offers an extensive portfolio of products and
services in four categories:
. Local telephone, long distance, data and video, and network access services
(see "Current Products and Services" below for a description of the product and
services) as follows:
. Local Telephone - local dial tone and switched products and services that
include lines, trunks, local access and Centrex( among other services.
. Long Distance - wholesale and retail services that include 1+, toll-free,
pre-paid, originating and terminating access services.
. Data and Video - switched and dedicated data connectivity services that
include frame relay, video conferencing, ISDN PRI, LAN/WAN and Internet
transport services.
. Network Access - point-to-point services that include special access,
digital private line and other dedicated services both in metropolitan and long-
haul applications.
The Company categorizes its operating expenses into the following five major
groupings:
. Network Access - includes all leased network facilities and resold product
expenses.
26
<PAGE>
. Sales and Marketing - includes all direct and indirect sales channel
expenses and commissions. Also includes all product development, advertising
and promotional expenses.
. Depreciation and Amortization - includes depreciation of telecommunications
network assets including fiber optic cable, network electronics, network
switching and network data equipment.
. Administrative Services - includes administrative services provided by
Citizens. The Company is charged for the direct cost of administrative services
plus an allocation of Citizens' corporate overheads.
. Other Operating - includes all general and other operating and
administrative expenses.
The pace of the Company's revenue and expense growth results from its market
cluster expansion strategy. Once a potential market is identified, the Company
establishes a network in the hub city and then expands the network to adjacent
cities and communities of interest. This strategy requires that significant
capital and operating expenditures be incurred before the realization of
revenues which results in negative cash flow and operating losses until an
adequate customer base and revenue stream for these networks is established.
The Company experiences very minimal customer churn. In addition, the Company
is developing a superior customer service system which will facilitate combining
enhanced services such as data and video with network access services. The
growth in enhanced services is expected to increase revenues with minimal
additional expense.
The Company has been a subsidiary of Citizens since 1990. Citizens is a
publicly-held communications and public services company which provides, either
directly or through subsidiaries, telecommunications, electric distribution,
natural gas transmission and distribution and water and wastewater services to
over 1.6 million customer connections in 20 states. Citizens is one of the
nation's leading independent communications companies and operates an integrated
distribution network over which it provides local, long distance, paging,
cellular, network sales and other communications products and services.
Citizens has funded or guaranteed the financing of nearly all of the Company's
capital and operating needs to date.
Results of Operations
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1997
Revenues
Revenues increased from $25.0 million to $41.8 million, an increase of $16.8
million, or 67%, for the nine months ended September 30, 1996 as compared with
the nine months ended September 30, 1997, primarily due to the Company's rapid
customer and product growth. The Company's local telephone services revenues
and local access revenues increased from $1.5 million to $4.4 million, an
increase of $2.9 million, or 193%, for the nine months ended September 30, 1996
as compared with the nine months ended September 30, 1997, primarily due to
local switch implementations for new and existing customers in Portland, Salt
Lake City,
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Sacramento and Seattle during the second half of 1996. Annualized monthly local
telephone services revenues increased to $9.1 million based on September 1997
revenues from $3.6 million based on September 1996 revenues as the Company
increased its access line equivalents to 38,045 as of September 1997. Long
distance services revenues decreased from $6.3 million to $6.1 million, a
decrease of $.2 million, or 3%, for the nine months ended September 30, 1996 as
compared with the nine months ended September 30, 1997, primarily due to short
term contract revenues for prepaid debit card services in 1996. The Company's
data and video services revenues increased from $1.4 million to $5.5 million, an
increase of $4.1 million, or 293%, for the nine months ended September 30, 1996
as compared with the nine months ended September 30, 1997, primarily due to the
introduction of ISDN services and increases in frame relay and Internet access
services. ISDN PRI and Internet access services were introduced the last half of
1996 and have obtained considerable market acceptance. The Company believes that
these products will continue to experience exceptional growth based on current
market trends. Network access services and other revenues increased from $15.7
million to $25.8 million, an increase of $10.1 million, or 64%, for the nine
months ended September 30, 1996 as compared with the nine months ended September
30, 1997, primarily due to increased volume on its existing Phoenix to Las Vegas
route as well as volume on the Portland to Seattle route which was placed in
service in February, 1997. Of the $10.1 million increase in network access
services revenues, $3.1 million is pursuant to a contract with a significant
customer which contract will expire in early 1998.
Network Access Expenses
Network access expenses increased from $16.5 million to $24.2 million, an
increase of $7.7 million, or 47%, for the nine months ended September 30, 1996
as compared with the nine months ended September 30, 1997, primarily due to the
Company's expansion of its frame relay product, development of a fully redundant
leased Internet access backbone network with related Internet access costs and
customer growth.
Sales and Marketing Expenses
Sales and marketing expenses increased from $6.3 million to $8.7 million, an
increase of $2.4 million, or 38%, for the nine months ended September 30, 1996
as compared with the nine months ended September 30, 1997, primarily due to
increased product development activities related to local services and data
services, such as Internet access and frame relay. The Company's expanded focus
on direct retail sales which targets large- to medium- size telecommunications
intensive businesses resulted in increased sales expenses. The Company believes
that by focusing on these end-user customers vertical selling opportunities will
be maximized.
Depreciation and Amortization
Depreciation and amortization increased from $5.0 million to $7.6 million, an
increase of $2.6 million, or 52%, for the nine months ended September 30, 1996
as compared with the nine months ended September 30, 1997, primarily due to
higher plant in service balances for newly completed telecommunications network
facilities and electronics in the Portland, Salt Lake City and Sacramento
markets.
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Administrative Services Expenses
Administrative services expenses increased from $1.6 million to $2.9 million, an
increase of $1.3 million, or 81%, for the nine months ended September 30, 1996
as compared with the nine months ended September 30, 1997, primarily due to
increases in the volume and cost of services provided by Citizens.
Other Operating Expenses
Other operating expenses increased from $15.1 million to $23.9 million, an
increase of $8.8 million, or 58%, for the nine months ended September 30, 1996
as compared with the nine months ended September 30, 1997, primarily due to
increases in salaries, payroll taxes and employee benefits to support the
expanded delivery of services, new product development, marketing activities and
an expanded customer service organization. The average number of employees
increased 43% for the nine months ended September 30, 1996 as compared with the
nine months ended September 30, 1997.
Interest Expense
Interest expense increased $.5, for the nine months ended September 30, 1996 as
compared with the nine months ended September 30, 1997, primarily due to
interest associated with the capital lease for the Company's long-haul route
between Portland and Seattle which commenced in February, 1997 (see Note 7 of
Notes to Financial Statements).
Year Ended December 31, 1995 Compared to Year Ended December 31, 1996
Revenues
Revenues increased from $15.7 million to $31.3 million, an increase of $15.6
million, or 99%, for the year ended December 31, 1995 as compared with the year
ended December 31, 1996, primarily due to expansion of the customer base,
increased sales of services in Portland and Seattle, and the Company's expansion
in the Salt Lake City and Sacramento markets. The Company's local telephone
services revenues increased from $.6 million to $2.2 million, an increase of
$1.6 million, or 267%, for the year ended December 31, 1995 as compared with the
year ended December 31, 1996, primarily due to increases in the Company's local
dial tone services revenues and local access services revenues associated with
the introduction of local switched services in Portland and Salt Lake City and
expanded local services in the Seattle market. Long distance services revenues
increased from $1.6 million to $5.0 million, an increase of $3.4 million, or
213%, for the year ended December 31, 1995 as compared with the year ended
December 31, 1996, primarily due to revenues associated with a short term
contract which has since expired for wholesale long distance services. The
Company's data and video services increased from $.3 million to $2.4 million, an
increase of $2.1 million, for the year ended December 31, 1995 as compared with
the year ended December 31, 1996, primarily due to increases in frame relay and
Internet access services. Network access services and other revenues increased
from $13.1 million to $21.7 million, an increase of $8.6 million, or 66%, for
the year ended December 31, 1995 as compared with the year ended December 31,
1996, primarily due to the increase of long-haul transport of DS-3 and DS-1
sales.
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Network Access Expenses
Network access expenses increased from $8.7 million to $24.1 million, an
increase of $15.4 million, or 177%, for the year ended December 31, 1995 as
compared with the year ended December 31, 1996, primarily due to facilities rent
expense associated with the expansion of the customer base and the establishment
of a leased network linking the Company's five market clusters.
Sales and Marketing Expenses
Sales and marketing expenses increased from $5.7 million to $8.5 million, an
increase of $2.8 million, or 49%, for the year ended December 31, 1995 as
compared with the year ended December 31, 1996, primarily due to sales and
marketing costs associated with the introduction of local switched services in
Portland, Salt Lake City, and Sacramento, expanded local services in the Seattle
market, the expanded frame relay product and newly-introduced Internet access
and ISDN products in 1996.
Depreciation and Amortization
Depreciation and amortization were comparable for both years.
Administrative Services Expenses
Administrative services expenses increased from $1.5 million to $2.3 million, an
increase of $.8 million, or 53%, for the year ended December 31, 1995 as
compared with the year ended December 31, 1996, primarily due to increases in
the volume and cost of services provided by Citizens.
Other Operating Expenses
Other operating expenses increased from $12.6 million to $18.7 million, an
increase of $6.1 million, or 48%, for the year ended December 31, 1995 as
compared with the year ended December 31, 1996, primarily due to an increased
provision for uncollectible accounts of $2.9 million, labor costs and outside
services to support customer growth and expansion in all service categories.
The number of average employees increased 79% for the year ended December 31,
1995 as compared with the year ended December 31, 1996 resulting in increases in
salaries and payroll taxes.
Interest Expense
Interest expense decreased $.4 million, or 100%, for the year ended December 31,
1995 as compared with the year ended December 31, 1996, primarily due to the
repayment in December 1995 of previously outstanding debt.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1995
Revenues
Revenues increased from $8.2 million to $15.7 million, an increase of $7.5
million, or 91%, for the year ended December 31, 1994 as compared with the year
ended December 31, 1995, primarily due to the Company's expansion of its
customer base for network access
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services revenues. Local dial tone services were introduced in 1995 in Seattle
and generated $.6 million of local telephone services revenues. Long distance
services revenues increased from $1.4 million to $1.6 million, an increase of
$.2 million , or 14%, for the year ended December 31, 1994 as compared with the
year ended December 31, 1995, primarily due to increases in retail long distance
services. The Company's data and video services increased from $.1 million to
$.3 million, an increase of $.2 million, or 200%, for the year ended December
31, 1994 as compared with the year ended December 31, 1995, primarily due to
increases in frame relay and Internet access services. Network access services
and other revenues increased from $6.7 million to $13.1 million, an increase of
$6.4 million, or 96%, for the year ended December 31, 1994 as compared with the
year ended December 31, 1995, primarily due to increased metropolitan area
network transport and long haul transport services.
Network Access Expenses
Network access expenses increased from $6.2 million to $8.7 million, an increase
of $2.5 million, or 40%, for the year ended December 31, 1994 as compared with
the year ended December 31, 1995, primarily due to the expansion of its customer
base for network access services revenues and the introduction of local
telephone services in Seattle.
Sales and Marketing Expenses
Sales and marketing expenses increased from $4.5 million to $5.7 million, an
increase of $1.2 million, or 27%, for the year ended December 31, 1994 as
compared with the year ended December 31, 1995, primarily due to increased sales
for its network access services revenues and the introduction of local telephone
services in Seattle. Marketing costs also include costs associated with product
development for frame relay and Internet access services products and wider
product offerings to current and potential customers.
Depreciation and Amortization
Depreciation and amortization increased from $2.5 million to $7.1 million, an
increase of $4.6 million, or 184%, for the year ended December 31, 1994 as
compared with the year ended December 31, 1995, primarily due to expansion of
the telecommunications network and the commencement of amortization of deferred
start-up costs in Salt Lake City and Sacramento.
Administrative Services Expenses
Administrative services expenses increased from $1.3 million to $1.5 million, an
increase of $.2 million, or 15%, for the year ended December 31, 1994 as
compared with the year ended December 31, 1995, primarily due to increases in
the volume and cost of service provided by Citizens.
Other Operating Expenses
Other operating expenses increased from $3.2 million to $12.6 million, an
increase of $9.4 million, or 294%, for the year ended December 31, 1994 as
compared with the year ended December 31, 1995, primarily due to increased labor
costs associated with the significant growth of the Company. The Company
increased its number of employees resulting in increases in salaries and payroll
taxes. The Company also supplemented staffing with temporary employees to
support the Company's growth.
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Interest Expense
Interest expense decreased from $.9 million to $.4 million, a decrease of $.5
million, or 56%, for the year ended December 31, 1994 as compared with the year
ended December 31, 1995, primarily due to the declining balance of outstanding
debt. This debt was fully paid in December 1995.
Liquidity and Capital Resources
The capital expenditures of the Company associated with the installation,
development and expansion of its existing and new telecommunications networks
are substantial, and a significant portion of these expenditures generally are
incurred before any revenues are realized. The Company's gross property, plant
and equipment has grown from $109 million at December 31, 1994 to $249 million
at September 30, 1997. These expenditures, together with associated initial
operating expenses, have resulted in negative cash flow and operating losses and
will continue to do so until an adequate customer base and revenue stream for
these networks have been established. The Company expects to incur net losses
for the foreseeable future as it continues to install, develop and expand its
new and existing telecommunications networks. There can be no assurance that an
adequate revenue base will be established or that the Company will achieve or
sustain profitability or generate sufficient positive cash flow to fund its
operating and capital requirements and/or service debt.
The development and expansion of the Company's new and existing networks and
services will require significant additional capital expenditures. The
Company's capital expenditure requirements for 1997 are estimated to be $79.3
million (of which $48.7 million was incurred through September 30, 1997) and
for 1998 are estimated to be $275 million. In addition, the Company expects to
lease an additional $22.6 million of network facilities through an existing
operating lease agreement. The Company continues to evaluate opportunities for
revenue growth and to make substantial capital investments in connection with
the entry into new markets and the continued development of its existing
networks. These opportunities include, but are not limited to, acquisitions
and/or joint ventures, which are consistent with the Company's long-range
business plans. Additionally, the Company expects to continue to build on its
existing relationships with providers and other strategic customers, suppliers
and telecommunications carriers. Such acquisitions, investments and/or
strategic arrangements, if available, could require financial resources in
addition to the 1997 and 1998 capital requirements presented above and could
require reallocation of the Company's financial resources.
The Company expects to meet its capital needs with the proceeds of the Offering,
the Credit Facility, together with internally generated cash flow and lease
arrangements, proceeds from other bank credit facilities, other borrowings and
possible issuances of additional equity securities. The Company has historically
been funded by capital contributions and advances from Citizens which totaled
approximately $312.9 million through September 30, 1997, and through a lease
agreement guaranteed by Citizens. While Citizens will continue to fund the
Company's operating and capital requirements through the completion of the
Offering, Citizens will not have any obligation to make additional equity
investments in or advances to the Company or to guarantee or otherwise provide
financial support for the Company subsequent to the Offering, other than the
guarantees described herein.
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Prior to the completion of the Offering, $119.2 million of the amount due to
Citizens as of September 30, 1997 will be contributed to additional paid-in-
capital and the remaining $100 million, plus any additional amounts incurred
since September 30, 1997, will be repaid with the proceeds from the Credit
Facility. In 1994, 1995 and 1996, Citizens had been charging interest on the
amount due to Citizens only to the extent that the Company was allowed to
capitalize interest under Generally Accepted Accounting Principles. On October
23, 1997, ELI and Citizens entered into a commitment letter arrangement with
Citibank, N.A. ("Citibank") for a $400 million, 5-year revolving credit facility
("Credit Facility"). Under the Credit Facility, Citizens has agreed, subject to
receiving regulatory authorization, to substitute its guarantee of the entire
$400 million Credit Facility for that of certain subsidiaries of Citizens within
90 days of the closing of Credit Facility. Failure of Citizens to provide such
guarantee would constitute a default under the Credit Facility. The Credit
Facility will provide that ELI may elect to borrow amounts at the then current
short-term Eurodollar rate plus a spread, or at Citibank's publicly announced
base lending rate plus a spread, both spreads being based on Citizens' long-term
unsecured debt ratings, or at a competitive bid option. Facility fees of .05%
are payable.
During 1995, the Company entered into an operating lease agreement in connection
with the construction of certain network facilities. The construction is
ongoing and rent is paid on the facilities when completed and placed in service.
The Company will have the option to purchase the facilities at the end of the
lease term. In the event the Company chooses not to exercise this option, the
Company is obligated to arrange for the sale of the facilities to an unrelated
party and is required to pay the lessor any difference between the net sales
proceeds and the lessor's investment in the facilities. However, any amount
required to be paid to the lessor is subject generally to a maximum of 80% of
the lessor's investment, giving effect to lease payments previously made. The
total amount of facilities leased through this agreement is expected to be $110
million, of which approximately $87.4 million has been completed and placed in
service as of September 30, 1997. Citizens has guaranteed all obligations of the
Company under this operating lease. Effective with the completion of the
Offering, the Company has agreed to pay to Citizens an annual guarantee fee
equal to 3.25% per annum of the lessor's investment in the leased assets.
Citizens also provides certain administrative services to the Company including,
but not limited to, certain financial management services, information services,
legal and contract services and human resources services. The Company has been
charged for all reasonable costs incurred in the provision of these services.
The Company will enter into an administrative services agreement with Citizens
effective with the completion of this Offering for the continuation of such
services and will continue to be billed for all reimbursable costs plus an
administrative charge.
Effects of Newly-Issued Accounting Standards
In February, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 128 ("SFAS 128"), "Earnings Per
Share," which supersedes Accounting Principles Board Opinion No. 15 and
establishes standards for computing and presenting earnings per share ("EPS").
It replaces the presentation of primary EPS with a presentation of basic EPS.
Dual presentation of basic and diluted EPS on the face of the income statement
is also required. SFAS 128 is effective for fiscal periods ending after
December 15,
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1997. The Company does not expect the adoption of SFAS 128 to have a material
effect on the Company's EPS.
BUSINESS
General
ELI is a full-service, facilities-based CLEC providing a broad range of
telecommunications services in five major market clusters in the western United
States. The Company provides state-of-the-art voice and data communications
services to retail customers, primarily large- and medium-sized communications-
intensive businesses, and wholesale customers, primarily telecommunications
service providers. The Company operates high quality, extensive digital fiber
optic networks based on a switched broadband platform in each of its five market
clusters (comprising six MSAs, including 59 municipalities) with 38,045 local
access line equivalents, 2,087 route miles and 123,257 fiber miles installed and
540 on-net buildings connected as of September 30, 1997. The Company has
interconnected its market clusters with facilities-based owned and leased long-
haul fiber optic networks.
The Company currently provides services in five markets: Portland, Oregon;
Seattle, Washington; Salt Lake City, Utah; Sacramento, California; and Phoenix,
Arizona ("hub cities") and their respective surrounding areas (together with the
hub cities, "market clusters" or "clusters"). The Company's clusters include an
extensive fiber optic network. The Company currently provides switched
services, including local dial tone, utilizing five Nortel DMS 500 switches, in
all of its market clusters except Phoenix, where the Company expects to initiate
local dial tone service upon installing an additional switch in the first half
of 1998. The Company's clusters are also served by its extensive frame relay
network, which is comprised of 17 state-of-the-art switches and 30 POPs in 26
western U.S. cities. The Company has also developed an Internet backbone
network providing Internet connectivity in each of its markets which includes
access on a redundant basis to the three largest Internet service providers in
the United States. The Company's goal is to add to its market presence from six
to 14 MSAs and from two to five long-haul networks by the end of 1998.
The Company offers an extensive portfolio of products and services in four
categories: local telephone, long distance, data and video, and network access.
These products and services include: Local dial tone, with voicemail and
enhanced features; long distance with calling cards; advanced data services,
including frame relay, international frame relay and high-speed Internet access
video conferencing and dialable wideband services; LAN-to-LAN services with very
high transport speeds; ISDN; and point-to-point communications and dedicated DS-
1s and DS-3s. The Company expects to provide ATM services during 1998. The
Company's data network expertise allows it to provide a broader range of
telecommunications services to customers, which helps to maximize the amount of
telecommunications traffic on its network.
The above services are offered to meet customers' complete telecommunications
requirements. The Company offers its services in custom combinations, and
utilizes a consultative sales approach that provides customers a single point of
contact at the Company and an opportunity to work with the Company to design
innovative, turn-key solutions and new product applications which allows them to
take advantage of the broad array of services offered. The Company has
implemented an integrated network management and maintenance system designed to
monitor and test the Company's networks 24 hours a day, seven days a week and is
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developing a superior customer care system which will automate the entire order
management process (i.e., order placement, design, provisioning and billing
preparation) for both retail and wholesale customers. The order placement,
design and provisioning components of the order management system have been
installed and are operational. A new customized billing system and an up-to-the
minute trouble ticket tracking module, which is an enhancement of the management
and maintenance system, are being installed and are expected to be operational
and integrated into the information system by the end of the first quarter of
1998.
Deregulation in the telecommunications industry has created an enormous market
opportunity for ELI. Based on FCC data, the Company estimates that in 1996
total revenues from local and long distance telecommunications services were
approximately $183 billion, of which approximately $107 billion were derived
from business telecommunications services. The Company estimates that based on
industry sources, the total addressable business telecommunications services
market in its current five market clusters (based on access lines) was
approximately $4.3 billion in 1997. The Company believes that the market in its
clusters will grow over the next decade because of the favorable demographics
and an increase in use of telecommunications services and that its share of this
market will increase as a result of the passage of the 1996 Act, the actions of
various state commissions and other FCC rulings, which collectively have
essentially opened up the market to competition.
Since its inception, ELI believes that it has been at the forefront of industry
efforts to introduce competition to the local telecommunications markets. As
such, ELI believes that it has achieved significant milestones in the CLEC
industry and is well positioned to benefit from the opening of the local
telecommunications market. Before the passage of the 1996 Act, the Company
pursued regulatory and legislative reforms and consummated certain
interconnection agreements with ILECs that in its view allowed the Company to
offer economical and operationally efficient local exchange services. The
Company believes that it was early to market in Portland, Seattle, Salt Lake
City and Sacramento and believes it is the leading CLEC in Portland, Seattle and
Salt Lake City. The Company believes that it was the first CLEC to receive
authority from a state regulatory authority in a state west of the Mississippi
River to operate and to offer a full switch-based product portfolio.
Since 1990, the Company has been a subsidiary of Citizens. Citizens is a
publicly-held communications and public services company which provides, either
directly or through subsidiaries, telecommunications, electric distribution,
natural gas transmission and distribution, and water and wastewater services to
over 1.6 million customer connections in 20 states. Citizens is one of the
nation's leading independent communications companies and operates an integrated
distribution network over which it provides local, long distance, paging,
cellular, network sales and other communications products and services. At
September 30, 1997, Citizens' consolidated assets totaled $4.5 billion and
shareholders' equity totaled $1.7 billion. Citizens' consolidated revenues for
the twelve months ended September 30, 1997 totaled $1.4 billion. The Company
has historically been funded by capital contributions and advances from Citizens
and through a lease agreement guaranteed by Citizens. See "Capitalization" and
"Relationship with Citizens."
Business Strategy
Guided by the business strategy adopted in 1990, the Company has become a
leading facilities-based, full-service CLEC. The key elements of this strategy
include:
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. Target Attractive Regional Markets. The Company's focus is on MSAs in the
western United States that the Company believes have few CLEC competitors, a
relatively high proportion of communications-dependent businesses and the
prospect of population and economic growth above the national average. Growth
in these regions has been fueled to a large degree by the computer, software,
semiconductor and aerospace industries and other telecommunications-intensive
businesses such as financial services and telemarketing call centers. The
Company's policy has been and will continue to be to establish a new market
cluster where it expects to become the leading facilities-based, full-service
CLEC in such market in competition with the ILEC. Due to its superior customer
service, advanced network technologies and the breadth and quality of its
networks, the Company believes that it has an opportunity to capture a
significant share of the local market for communications in its target regions
in competition with U S WEST and PacBell, which are the ILECs in its target
regions.
. Develop Market Clusters. The Company builds facilities and offers services
in market clusters which exist in and around a hub city in the selected MSA.
Once a potential market is identified, the Company establishes a network in the
hub city and then expands the network to adjacent cities and communities of
interest. Through the use of this strategy, the Company is able to leverage and
extend the depth of its management resources, communications network, switch
assets and product portfolio and reduce its dependence on the ILEC. The Company
realizes economies of scale in terms of network build out, switch deployment,
provisioning and servicing from its cluster strategy. Clustering also enables
the Company to (i) optimize its networks' switching capacity through the
ability to place switches anywhere in the cluster, (ii) cost-effectively offer
services to smaller markets adjacent to its existing networks and in which the
Company is less likely to face strong competition from other CLECs, and (iii)
achieve increased gross margins and improved network reliability due to higher
levels of on-net traffic. The Company believes communications traffic is heavy
between a metropolitan area and its outlying markets and its cluster strategy
takes advantage of this by offering facilities-based, end-to-end service
offerings that cover these broad geographic areas.
. Interconnect Market Clusters. The Company's strategy is to interconnect the
Company's major market clusters with facilities-based broadband, long-haul fiber
optic networks. Interconnecting its market clusters enables the Company to lower
costs and enhance its revenue potential by carrying increasing amounts of long
distance, frame relay, Internet and point-to-point traffic on its own
facilities. By carrying traffic on its own facilities, the Company is able to
improve the utilization of its network facilities and avoid leased facilities
charges and certain interconnection costs.
. Maximize On-net Traffic by Providing Facilities-based Services. The
Company has constructed extensive voice, frame relay, Internet backbone and
interconnecting long-haul networks, and each of the Company's operating clusters
includes an extensive fiber optic network backbone. These extensive networks
are a key aspect of the Company's strategy to maximize the services provided to
customers on-net. Approximately half of the Company's services provided to
customers are currently on-net and the Company's strategy is to increase this
percentage over time. Maximizing the volume of on-net traffic allows the
Company to (i) improve customer loyalty; (ii) increase network reliability;
(iii) provide a wider range of services; (iv) increase process control and
thereby strengthen customer service through end-to-end management; and (v)
reduce its reliance on the ILEC for technologically up-to-date services
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which are essential for the Company's enhanced services. The Company believes
that greater on-net traffic will also increase operating margins by increasing
utilization of capacity inherent in the Company's network.
. Penetrate Markets by Leveraging Data Expertise. The Company has
undertaken a major expansion of its networks and products to satisfy the growing
demand for enhanced network services, including frame relay networking services
and Internet access. As a result, the Company has 17 frame relay switches
servicing customer locations as of September 30, 1997. Enhanced network
services, which are currently provided primarily on the Company's frame relay
network, are specialized interchange services offered by the Company for
customers that need to transport large amounts of data among multiple locations.
ELI's relationship with certain carriers allows the Company to terminate traffic
both nationally and internationally utilizing other companies' networks and to
provide a flow of traffic into the Company's networks. In addition, to further
increase efficient access to a greater customer base, ELI established
approximately 30 POPs which interconnect their frame relay networks to those of
U S WEST, PacBell and other carriers.
. Establish Strategic Relationships With Utility Companies. A strategy of
the Company has been to form strategic relationships with utility companies that
enable it to (i) utilize existing rights-of-way and fiber optic facilities, (ii)
leverage their construction expertise and local permitting experience and (iii)
have access to capital in order for ELI to extend its network infrastructure
more quickly and economically. The Company's strategic alliances include
agreements for the utilization of existing excess facilities and the
construction of long-haul networks which link the Portland and Seattle clusters
and which will link Portland and Spokane, Washington and Portland and Eugene,
Oregon. Another agreement provides for a fiber optic network in the Phoenix
metropolitan area. These relationships allow the Company to achieve economies
of scale and scope by expanding its existing markets rapidly and cost-
effectively and enabling the Company to concentrate its efforts on sales and
marketing.
. Continue its Effective Direct Sales and Superior Customer Service. ELI has
built a highly motivated and experienced direct sales force and customer service
organization that is designed to establish a direct and personal relationship
with its customers. Consistent with its product offerings, the Company utilizes
a three-pronged sales approach comprised of direct retail, direct wholesale and
agents. Salespeople are given incentives through a commission structure which
targets 50% of a salesperson's compensation to be based on performance. Each
customer is provided with a single point of contact at the Company. A sales
account manager is responsible for managing each customer's account and staying
in constant contact with the customer to satisfy that customer's specific
telecommunications needs. Sales account managers utilize a vertical sales
strategy with the goal of selling additional value-added, high margin services
to existing customers. The Company believes that combining the consultative
sales strategy with the vertical sales strategy will enable it to achieve higher
margins on each account. The Company views its commitment to customer
satisfaction as a key success factor and is developing a superior customer
service system which will automate order processing, including order placement,
design, provisioning and billing, for both retail and wholesale customers. This
strategy ensures that the Company's processes are aligned with customer needs
and satisfaction.
The Company frequently considers expansion through acquisition
opportunities in the telecommunications industry.
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<PAGE>
EXISTING MARKET CLUSTERS AND LONG-HAUL NETWORKS
COMBINED NETWORK INFORMATION AT SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
EXISTING NUMBER OF ON- NET
MARKET MUNICIPALITIES ROUTE FIBER BUILDINGS VOICE FRAME RELAY
CLUSTERS SERVED MILES MILES CONNECTED SWITCHES SWITCHES
- -------- ------ ----- ----- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Portland.................. 8 287 19,779 239 2 4
Seattle................... 15 130 11,840 72 1 2
Salt Lake City............ 20 222 21,355 121 1 2
Sacramento................ 11 176 16,896 98 1 2
Phoenix(1)................ 5 192 10,485 7 - 1
----------------- --------- ------ ---------- -------- -----------
Total.................... 59 1,007 80,355 537 5 11
=================
Other Frame
Relay Switches(2)........ 6
LONG-HAUL NETWORKS(1)
- --------------------------
Phoenix to Las Vegas.................. 356 18,204 3 - -
Portland to Seattle................... 207 12,410 - - -
Portland to Spokane(3)................ 517 12,288 - - -
--------- ------- ---------- -------- -----------
Total Long-Haul Networks.............. 1,080 42,902 3 - -
--------- ------- ---------- -------- -----------
Total Networks................... 2,087 123,257 540 5 17
========= ======= ========== ======== ===========
</TABLE>
___________________________
(1) Route Miles and Fiber Miles also include 166 route miles of which the
Company has exclusive use through license and lease agreements.
(2) The Other Frame Relay Switches are located in San Francisco and Los
Angeles, California; Tremonton, Utah; Kingman and Holbrook, Arizona; and
Dallas, Texas. The Tremonton, Kingman and
Holbrook switches are co-located on the premises of Citizens.
(3) This 570-mile network is currently under construction. Amount shown is
miles completed as of September 30, 1997.
Existing Market Clusters
The Company's existing market clusters currently consist of the Portland,
Seattle, Salt Lake City, Sacramento and Phoenix hub cities and their respective
surrounding areas.
Portland Cluster
Portland represents the Company's most mature network. The Company began
building the network in 1990, generated its first revenues from this cluster in
1991 and installed its first long distance switch in 1993. During 1996, the
hubsite located in downtown Portland doubled in size and more than quadrupled in
capacity. On January 12, 1996, the Company received a Certificate of Authority
to begin providing intrastate services and, on April 18, 1996, ELI reached an
interim interconnection agreement with the ILEC, U S WEST. The Company
installed a new Nortel DMS-500 switch in 1996, providing for both toll and local
switched services. The Company is currently expanding the Portland network into
Vancouver, Washington.
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<PAGE>
Seattle Cluster
Seattle represents the Company's first market in terms of the provisioning of
switched services. The Company began construction of the Seattle network in
1990, generated its first revenues in 1991 and installed its first switch in
1994. The Company received a Certificate of Authority to begin providing
telecommunications services on March 24, 1994. On April 3, 1997, the Company
reached a comprehensive interconnection agreement with U S WEST. Seattle
experienced significant network facilities growth since late 1996. The main
Seattle downtown hubsite was significantly expanded and two mini-hubs were also
constructed to allow for better distribution of traffic loads and to improve
fiber cable plant utilization. In addition to the above facilities growth, the
Bellevue, Washington network was completed in 1996. The Company is currently
finishing the Lake Washington project which will complete the SONET ring around
the Seattle metropolitan area.
Salt Lake City Cluster
The Company began construction of the Salt Lake City cluster in 1993 and began
generating revenues in 1994. On August 16, 1995, the Company received a
Certificate of Authority to begin providing a wide variety of telecommunications
services. On August 21, 1996, the Company began offering switched telephone
services via a Nortel DMS-500 switch. In addition, the Company completed the
first build-out of its customer market by interconnecting Salt Lake City with
the satellite cities of Orem and Provo in 1996.
The Company has begun the construction of a backbone network in Boise, Idaho,
and expects to install a Nortel DMS-500 switch during the first half of 1998.
ELI was authorized by the Idaho Public Utilities Commission to provide
intrastate service in Idaho as of February 17, 1997. ELI's authority covers
long distance business customers with six or more access lines in the greater
Boise area.
Sacramento Cluster
The Company entered the Sacramento market in 1993 and began to generate revenues
from this market in 1994. The Company received a Certificate of Authority from
the California Public Utility Commission on March 16, 1994. During 1996, the
Company accelerated the build-out of this market and installed its first switch
in December 1996. The Company is currently constructing facilities in the
decommissioned Mather Air Force Base which the Company believes is Sacramento's
premier economic development area.
Phoenix Cluster
The Company entered the Phoenix market in 1993 and began to generate revenues in
1995. The Company intends to install a Nortel DMS-500 switch in the first half
of 1998. On September 11, 1996, the Company and Salt River Project Agricultural
Improvement and Power District ("SRP") entered into an agreement whereby SRP
agreed to lease to the Company until December 31, 2011 an existing fiber optic
network consisting of 166 route miles, which will be expanded by SRP to 490
route miles in the Phoenix metropolitan area. The Company's rights to use this
network are exclusive subject to required minimums. The Company has committed to
constructing 55 miles of the network and the installation and investment of
electronics equipment for the entire expanded network, at an estimated cost of
$30.4 million. In June of 1997, the Company connected its downtown area network
to SRP's network. The agreement with SRP will
39
<PAGE>
significantly reduce the Company's time to market and capital expenditures in
the Phoenix metropolitan area while increasing network reach and customer
access. On January 16, 1997, the Company received a Certificate of Authority
from the Arizona Corporation Commission and the Company signed an
interconnection agreement effective July 2, 1997 with the ILEC, U S WEST. Of the
number of route miles shown in the above table under "-Existing Market Clusters
and Long-Haul Networks-Combined Network Information at September 30, 1997," 166
represent route miles leased from SRP.
Long-Haul Networks
ELI's long-haul networks are, and will continue to be, built to interconnect the
Company's market clusters and form an integral part of the Company's long-term
strategy. Through the long-haul networks, the Company is able to capture,
control and manage a larger end-to-end share of the regional communications
traffic, enjoy greater margins due to the ability to keep more traffic on-net
and improve customer service. Many of the Company's long-haul routes are the
result of alliances with power utilities. These alliances greatly accelerate
network deployment, minimize the Company's capital requirements, and optimize
the synergies of the alliance partners. A brief overview of each of the
Company's long-haul networks is provided below.
Phoenix to Las Vegas (Southwest Fibernet)
In 1993, the Company began construction of a long-haul transport network
connecting Phoenix and Las Vegas. The completed network is 356 route miles long
and contains 48 fiber strands. The Company began generating revenues from this
network in 1995.
Portland to Seattle
In March 1996, the Company and a utility reached a 15-year license agreement to
implement a long-haul transport network linking Portland and Seattle. The
agreement's termination date, January 11, 2012, may be extended by mutual
agreement of the parties for two separate 5-year renewal periods. This
agreement grants the Company an exclusive right to use capacity from a fiber
optic cable that was constructed by this utility linking Portland and Seattle,
subject to attaining traffic minimums to retain exclusivity. The network is 207
miles long and contains 72 fiber strands. The Company may use 56 fiber strands
for its services, including transport services, enhanced services to end-users
and dark fiber leasing. The Company was also granted the right to manage four
additional fiber strands from the fiber cable in a fiber swap arrangement with
another IXC in order to create a diverse SONET ring. The Company began
generating revenues from this network in 1997.
Portland to Spokane
In November 1996, the Company and the same utility reached a 15-year license
agreement to implement a long-haul transport network to link Portland and
Spokane. The agreement's projected termination date, December 1, 2012, may be
extended by mutual agreement of the parties for two separate 5-year renewal
periods. This agreement provides for the construction of a 570-mile, 36-fiber
strand network linking Portland to Spokane, of which the Company may use 24
strands for its services. Five hundred and seventeen miles of this network had
been constructed as of September 30, 1997. As in the license agreement for the
Portland to Seattle network, the Company will have an exclusive right to use
capacity, subject to attaining traffic minimums to retain exclusivity.
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<PAGE>
Portland to Eugene
In July 1997, the Company and the same utility signed a 15-year license
agreement for the construction of a joint long-haul transport network linking
Portland and Eugene, Oregon. The agreement's projected termination date, April
1, 2013, may be extended by mutual agreement of the parties for two separate 5-
year renewal periods. The network is scheduled to be completed by April 1, 1998,
and will have approximately 140 route miles containing 72 fiber strands, of
which the Company will have exclusive use of 60 for its services, subject to
minimums to retain exclusivity.
Portland to Boise to Salt Lake City to Las Vegas to Los Angeles
In October 1997, the Company entered into a 20-year Pre-Construction Agreement
with FTV Communications, LLC, pursuant to which FTV will construct a fiber optic
communications system linking Portland, Boise, Salt Lake City, Las Vegas and Los
Angeles and the Company will have the right to use 24 optical fibers for its
services. The network is scheduled to be completed on February 28, 1999 and will
have approximately 1,620 route miles. The agreement's projected termination
date, February 28, 2019, may be extended by the Company at its option for two
separate 10-year renewal periods.
Current Products and Services
Since its inception in 1990, the Company's product portfolio has grown from
traditional competitive access provider ("CAP") services such as point-to-point
connectivity for IXCs and businesses to a full array of switched voice and data
services that target communications-intensive companies in both the retail and
wholesale markets.
The Company's product strategy is to continue being a full-service
communications provider offering customers complete "one-stop shopping" for
their communications needs. By offering a diverse product portfolio, the
Company creates custom-tailored product bundles that are capable of delivering
innovative, turn-key solutions for customers. The Company provides facilities-
based products and services over its switched broadband digital network
platform. With a growing array of software-driven intelligent features, this
network platform enables the Company to cost-effectively integrate high revenue
generating products into its existing portfolio. The product and service
offerings are divided into the following four categories: Local Telephone
Services, Long Distance Services, Data and Video Services, and Network Access
Services. The following table summarizes the Company's current product and
service offerings:
Current Products and Services
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Local Telephone Long Distance Data and Video Network Access
Basic Business Lines Retail Switched 1+ Services Dedicated Internet Services 56 KB / 64 KB
PBX/Key Systems Trunks Retail Dedicated 1+ Services Frame Relay DS-1
Virtual Private Exchange Wholesale Termination International Frame Relay DS-3
Centrex(tm) Conferencing LAN / WAN FDDI Disaster Recovery
Foreign Exchange Services 800 Services - Dedicated Switched 56 KB Multiplexing
Voice Mail 800 Services - Switched Dialable Wideband Service Collocation
Multi-Service Fractional T-1 Prepaid Debit Cards Videoconferencing OC-12
Customer Premise Equipment Travel Cards ISDN PRI Diverse Routing
Fax Mail
OC-3 / OC-3C
CLASS(tm) Services
Wholesale LTS
</TABLE>
The following discussion summarizes the Company's primary product and service
offerings.
41
<PAGE>
Local Telephone Services
ELI's Local Telephone Services consist of products which involve the switching
of local calls. There are three primary customer segments for Local Telephone
Service: (i) small customers (less than 10 employees) with multi-key telephone
sets; (ii) medium-sized customers (10-50 employees) who use a key system, (iii)
and customers with more than 50 employees who have either their own Private
Branch Exchange ("PBX"), have a hybrid key system, or use the ILEC's Centrex(tm)
product. ELI's Local Telephone Service products are as follows:
Basic Business Lines offer either two-way lines (calls that can be placed or
received) or one-way lines (outgoing calls from the customer) to small and
medium-sized businesses with certain types of customer premise equipment.
Features such as call forwarding, three-way conferencing/call transfer,
directory number hunting, caller/number ID and speed dialing can also be
included.
PBX/Key System Trunk Interface is offered to medium and large businesses that
have their own PBX or key system that require special interface equipment. ELI
offers two types of interfaces: line-side or trunk-side. Trunk-side connections
are used when all calls are directed to an attendant and can accommodate
features such as three-way calling/call transfer, call forwarding and hunting.
Line-side connections are used when calls are directed to each station line.
Virtual Private Exchange ("VPX") is an alternative to the customer's PBX, key
system or ILEC-provided Centrex(tm) for medium and large businesses that require
the advanced functionality of a PBX or key system, such as call park, call pick-
up and last number redial. ELI's switch provides approximately 28 features for
a flat monthly rate with optional features available for an additional charge.
Direct inward dialing is an inherent feature of VPX. ELI also offers the Nortel
electronic business sets which are designed to work with VPX, allowing customers
to use features with the touch of a button. VPX can be purchased separately or
with the electronic business set, and voice mail can be added for an additional
monthly charge.
Foreign Exchange Service ("FEX") provides customers local telephone service from
an exchange (central office) other than the exchange from which they would
normally be served. Therefore, the customer would obtain access to the local
calling area (free calling area) of the foreign exchange office. Customers who
experience significant long distance calling between locations within the same
Local Access Transport Area ("LATA") are typical users of FEX lines in order to
pay one flat rate per month for these calls, rather than usage-based long
distance fees.
Voice Mail offers customers the option of using ELI's voice mail product versus
buying their own system. Voice mail is either offered for a flat additional fee
per month or bundled with other products, such as Enhanced Business Services.
Enhanced Business Service ("EBS") is a package for small business users, usually
with less than 10 lines. EBS is a line with selected special features,
including voice mail, offered for a flat monthly charge.
CustomLink (Multi-service Fractional T-1) is a package of services built around
local telephone services. It is the bundling of local lines/trunks with DS-0s
used for other services, all delivered on the same T-1. Since ELI in many cases
is already taking a T-1 to the customer's premises to deliver dial tone, the
customer is offered the opportunity to utilize the empty DS-0s on the T-1 for
access. Other ELI services, such as dedicated long distance, frame relay or
Internet, are offered at a lower rate than if these services were purchased
separately.
42
<PAGE>
Customer Premise Equipment ("CPE") which is provided through a partnership with
various equipment vendors, makes available to the Company's customers Nortel
telephone sets, "2500"-type sets and electronic business sets.
Long Distance Services
ELI's Long Distance Service is comprised of both retail and wholesale, switched
and dedicated, 1+, toll-free and pre-paid services.
Retail Switched 1+ and toll-free service is offered to business customers,
whereby the customer chooses ELI as its long distance/toll-free carrier and
calls are routed to/from ELI through the public switched network. Customers can
call intrastate, interstate, or internationally.
Retail Dedicated 1+ and toll-free service is offered to high volume business
customers, whereby the customer establishes a point-to-point circuit (i.e. DS-1
or DS-3) from their switch/PBX to ELI's switch. Outbound long distance and
toll-free calls are routed directly to/from ELI via this dedicated path.
Customers can call intrastate, interstate, or internationally.
Wholesale Termination encompasses an array of 1+ and toll-free services
providing carriers with LATA-wide termination services, enabling lower cost
access to, or diversity from, the ILEC's facilities. This product aggregates
the termination traffic of many carriers at ELI's switch and terminates it at a
lower cost than each of the carriers could obtain individually.
Prepaid Debit Cards and Travel Cards, are product offerings allowing mobile
people the ability to make long distance calls from any phone, anywhere through
accessing a toll-free number and the pre-paid switch. The service can either be
pre- or post-paid and sold through either retail or wholesale channels. Callers
can utilize the calling card from anywhere in the United States, Canada, or 18
other countries worldwide and can make calls to anywhere in the world.
"ALL CALLS" offers switched customers lower rates when they commit to ELI long
distance service plus ELI ISDN PRI or ELI local telephone services. With ALL
CALLS, the customer uses ELI for all local and long distance calls they make.
Data and Video Services
The Company offers a wide range of switched and dedicated data connectivity and
internetworking products. These products are marketed through both retail and
wholesale channels.
Dedicated Internet Services provides access to Internet service providers and
large businesses. ELI offers Internet access through frame relay, dedicated DS-
1, dedicated DS-3 and shared Ethernet.
Frame Relay is a data communications alternative to traditional point-to-point
networks for wide area network ("WAN") connectivity. The service provides
multi-point, wide-area connectivity using frame relay packet technology that
reduces the connection costs of distributed data networks. The service offers a
choice of interface speeds with multiple virtual circuits possible at each site.
ELI offers worldwide connectivity to its network through its frame relay
partners.
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<PAGE>
LAN/WAN Services are turn-key data networking solutions that connect two or more
customer locations at very high speeds, typically, 10Mbps to 100Mbps. Included
in the transparent LAN service is point-to-point connectivity, installed CPE and
the monitoring of the customer's network to insure connectivity. Through the
service, ELI provides native LAN protocols like Ethernet, Token Ring or FDDI in
a variety of configurations.
Videoconferencing is a service whereby ELI operates videoconferencing rooms in
five cities in the western United States: Vancouver, Seattle, Salt Lake City,
Portland and Sacramento. ELI can connect two or more of its rooms together and
can tie in two other non-ELI videoconferencing rooms at the same time.
ISDN PRI provides customers with a high-speed, flexible digital access
connection to ELI's network for voice, video and data applications.
Applications include Internet access, telecommuting, videoconferencing and
remote access to LANs or mainframes. ELI offers ISDN PRI in all of its service
areas.
The Company expects to offer ATM during 1998. It is a service that formats,
switches, and multiplexes various types of information, including voice, video
and data at speeds ranging from T-1 (1.544 megabits per second ("Mbps")) to OC-3
(155 Mbps). ATM provides Quality of Services ("QoS") parameters based on the
type of information being carried in a statistically multiplexed architecture to
reduce network costs. ELI's ATM service will provide interworking between frame
relay, transparent LAN and native ATM locations.
Network Access Services
The Company's dedicated point-to-point services, which include special access
and digital private line services, use high capacity digital circuits to carry
voice, video and data services. Services are offered in flexible configurations
at standardized transmission speeds.
The Company's network services are grouped together under the name "LightLine."
LightLine is a dedicated interstate and intrastate point-to-point transmission
facility (private line). LightLine may require some specific equipment on the
customer's premises on which the connection can be terminated. This equipment
can be leased from ELI by the customer. In most cases, ELI uses its own fiber
optic networks to provide LightLine services. The Company may lease facilities
from another carrier if it does not have the facilities available. LightLine is
labeled as four separate products differentiated by transmission speed: DS-0,
DS-1, DS-3 and OC-3.
Product Strategy and Development
In addition to its voice products, the Company's strategy is to continue to
expand its market role in data products. By expanding the Company's networks
through Network-to-Network Interfaces ("NNIs"), the Company has created an
expansive data network to deliver data solutions in the United States and
internationally. To leverage these networks and expand the Company's product
offerings, the Company is developing video and other high bandwidth
applications. The Company believes that the wholesale market offers a strong
fit with its product offerings. Database, long distance, frame relay, Internet,
ISDN PRI and ATM products can offer ILECs, IXCs and other resellers the
opportunity to expand their product offerings while enabling the Company to
leverage its networks.
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<PAGE>
The Company is focusing its product marketing and development efforts in the
following categories:
Local Telephone Services. As a supplement to basic access products, the Company
is focusing on software-based, high margin services including automatic call
distribution, Custom Local Area Signaling Service ("CLASS") features, enhanced
fax, integrated voice and fax mail, integrated voice response and other Advanced
Intelligent Network ("AIN")-based services. Expanded CPE offerings will also be
developed in 1997.
Long Distance. The Company is enhancing its existing product set for both the
wholesale and end-user markets by adding such services as international callback
and international 800.
Data and Video. The Company is focusing on national and international network
expansion and the continued development and delivery of ATM products. In
addition, customer network management products are being developed, as well as
switched access to frame relay and enhanced Internet services. The Company will
continue to focus on developing applications for data intensive markets, with a
particular focus on video applications.
Network and Strategic Services. The Company is focusing on its long-haul
networks and expansion of products into the optical carrier bandwidth range,
enabling customers to take full advantage of the SONET architecture and ATM
offerings. The Company is also developing telecommunications services to aid in
the delivery and management of electric utility services and telemetry
applications.
Network
The Company views the depth and breadth of its networks as a key strategic
asset. The Company's network is designed to simultaneously maximize both the
amount of communications traffic that can travel over the Company's owned
network facilities and the number of products and services that can be offered.
Nortel DMS-500 switches are currently operating in the Portland, Seattle, Salt
Lake City and Sacramento clusters, with an additional switch scheduled to be
installed and operational in Phoenix in the first half of 1998. The Company's
frame relay network, which is comprised of 17 state-of-the-art Cascade 9000
switches, has 30 POPs established in 26 western U.S. cities and is expected to
be capable of providing ATM services during 1998. The Company has also
developed an Internet backbone network providing Internet connectivity in each
of its markets, which includes access on a redundant basis to the nation's three
largest Internet service providers-UUNET, Sprint and MCI. The Company's data
network expertise allows it to provide a broader range of telecommunications
services to customers, which helps to maximize the amount of telecommunications
traffic on its network.
Network Design
To maximize circuit availability for its customers, the Company designs its
networks utilizing diverse fiber facilities, redundant electronics and back-up
power systems including diesel generators at all switching hubs. These
stringent design principles result in an overall circuit reliability of 99.99%.
45
<PAGE>
The Company deploys the latest network technologies including SONET rings,
integrated digital loop carrier systems, NORTEL DMS-500 switching platforms,
Cascade Frame Relay and ATM switches, Titan 3/1 cross connects and Alcatel 1/0
cross connect systems. These systems are coupled together to provide a seamless
telecommunications transport infrastructure that is centrally monitored and
managed to deliver services to customers efficiently.
Customer access is provided via several methods, the most prevalent of which is
to connect the customer location directly to the Company's network by splicing
fiber laterals directly into the backbone through diverse paths. A second
method for providing customer access is by way of a 38ghz DS-1 or DS-3 microwave
link connecting the customer location to the Company's fiber infrastructure.
The third mechanism of providing customer access is via a leased circuit
connection from a secondary facilities-based service provider to the Company's
own fiber network.
In addition to providing dedicated customer access, the Company strategically
builds fiber facilities to IXC and LEC POPs and co-locates its own high capacity
SONET systems that provide a medium to facilitate the flow of significant
traffic volumes between an IXC and LEC. Under the 1996 Act, all ILECs were
mandated to provide licensed service providers access to their embedded networks
(referred to as "co-location"). The Company builds diverse fiber entrance
facilities to the chosen ILEC, builds out and then leases floor space adjacent
to ILEC's switching facilities in order to accommodate various transport, data,
and voice frequency ("VF") equipment. In doing so, the Company significantly
reduces the leased circuit costs charged by the ILEC and provides a very
reliable service to the end user. As of September 30, 1997, the Company had co-
located in 17 ILEC offices.
Sales and Marketing
General
The Company serves retail and wholesale customers. The Company's retail
customers cover a broad range of fields. Major customers include companies in
the finance, government, health care, education, and Internet service provider
segments, all of which have high volume and complex telecommunications
requirements. Wholesale customers include IXCs, ILECs, CAPs, CLECs, travel
card/debit card providers and wireless service providers. The Company competes
in this market for point-to-point, high bandwidth products on the basis of
price, reliability, route diversity, ease of ordering, building access and
customer service. This market segment provides the Company with significant
revenues at wholesale margins that contribute to fixed costs coverage. The
Company focuses on serving its wholesale customers in all of its markets with a
view to establishing national preferred vendor relationships. Historically, the
wholesale market has accounted for approximately half of the Company's total
revenues.
The Company targets the higher margin data products category in its marketing
efforts to take advantage of increasing demand customers for sophisticated data
communications solutions.
The Company's sales professionals utilize solutions-based consultative selling
techniques whereby they gain an in-depth understanding of the customer's
operations in order to develop innovative applications-specific solutions for
all of the customer's needs. Each customer is managed by, and directly
interfaces with, a single sales account manager who has an in-depth
understanding of the customer's operations and the Company's product portfolio.
Each sales account manager is supported by a team consisting of a sales engineer
and customer service
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<PAGE>
advisor, who have the ability to offer training to customers in new product
applications. Once the sales relationship has been firmly established, the sales
account manager implements a vertical sales strategy aimed at selling additional
high margin, value-added, switch-based services to the customer. The Company
believes that combining the consultative sales strategy with the vertical sales
strategy should enable it to achieve higher margins on each account.
Sales Channels
In order to effectively market its products and services, the Company has
established the following sales channels: direct retail, direct wholesale and
agent. At September 30, 1997, the Company employed 53 salespeople and 43
customer care professionals.
The retail channel targets medium- to large-sized businesses. The Company
utilizes a direct sales force in each market cluster. Each regional sales force
is headed by a regional general manager and his/her sales team, which consists
of a sales manager, sales engineers, corporate account executives, account
executives and associate account executives, and local customer support
personnel.
The wholesale channel targets telecommunications service providers. The Company
uses a direct sales force, which is comprised of general sales managers, network
service managers, national account managers and account managers.
The Company uses qualified agents in each of its operating markets to sell its
products and services to a wide range of small- to medium-sized end-users.
Using agents for this account size is more cost effective than a direct sales
force. Agents primarily sell local dialtone, long distance and frame relay
services as well as product bundles. The Company supports its agents by
providing market research and training on the Company's products and services.
The Company currently uses approximately 25 agents across all of its markets and
is expanding its agent program.
Competition
ILEC Competition
In each of its markets, the Company faces significant competition from the ILEC,
which currently dominates the local exchange market and is a defacto monopoly
provider of local switched voice services. The Company's primary ILEC
competitors are U S WEST, PacBell and GTE. ILECs have longstanding relationships
with their customers, have financial and technical resources substantially
greater than those of the Company and benefit from federal and state laws and
regulations that, ELI believes, in some instances favor the ILECs over CLECs.
Under certain circumstances, FCC and state regulatory authorities may provide
ILECs with increased flexibility to reprice their services as competition
develops and as ILECs allow competitors to interconnect to their networks. In
addition, some new entrants in the local market may price certain services to
particular customers or for particular routes below the prices charged by the
Company for services to those customers or for those routes, just as the Company
may itself underprice those new entrants for other services, customers or
routes. If the ILECs and other competitors lower their rates and can sustain
significantly lower prices over time, this may adversely affect revenues of the
Company if it is required by market pressure to price at or below the ILECs'
prices. If regulatory decisions permit the ILECs to charge CAPs/CLECs
substantial fees for interconnection to the ILECs' networks or afford ILECs
other regulatory relief, such
47
<PAGE>
decisions could also have a material adverse effect on the Company.
However, the Company believes that the negative effects of the 1996 Act may be
more than offset by (i) the increased revenues available as a result of being
able to address the entire local exchange market, (ii) mutual reciprocal
compensation with the ILEC that results in ELI terminating its local exchange
traffic on the ILEC's network at little or no net cost to ELI, (iii) obtaining
access to off-network customers through more reasonably priced expanded
interconnection with ILEC networks and (iv) a shift by IXCs to purchase access
services from CAPs/CLECs instead of ILECs. There can be no assurance, however,
that these anticipated results will offset the effects of increased competition
as a result of the 1996 Act.
Under the 1996 Act, ILECs formerly subject to anti-trust decree restrictions on
interLATA (interexchange) long distance services are no longer permanently
barred from entry into these businesses, subject to certain requirements in the
1996 Act and rules and policies to be implemented by the FCC and the states.
The FCC may authorize an RBOC to provide interLATA services in a state when the
RBOC enters into a state utility commission-approved agreement with one or more
facilities-based competitors which provide business and residential local
exchange service and such agreement satisfies 14 specified interconnection
requirements. In evaluating an RBOC application for interLATA entry, the FCC
must consult with the U.S. Department of Justice. Alternatively, if no such
facilities-based competitors request such interconnection, the RBOC may obtain
authority from the FCC to provide interLATA services if the RBOC obtains state
utility commission approval of a statement of generally available terms and
conditions of interconnection that satisfies the requirements. If and when an
RBOC obtains authority to provide interLATA services, it will be able to offer
customers local and long distance telephone services. This will permit the RBOC
to offer a full range of services to potential customers in a new region and
thus eliminate an existing competitive advantage of the Company. Given the
resources and experience the RBOCs currently possess in the local exchange
market, the ability to provide both local and long distance services could make
the RBOCs very strong competitors.
The 1996 Act imposes interconnection obligations on ILECs, and generally
requires that interconnection charges be cost-based and nondiscriminatory. To
the extent ELI interconnects with and uses an ILEC's network to service the
Company's customers, ELI is dependent upon the technology and capabilities of
the ILEC to meet certain telecommunications needs of the Company's customers and
to maintain its service standards. ELI will become increasingly dependent on
interconnection with ILECs as switched services become a greater percentage of
the Company's business. However, there can be no assurance that the Company will
be able to obtain the services it requires at rates, and on terms and
conditions, that permit the Company to offer switched services at rates that are
both profitable and competitive. However, the Company believes that the
wholesale customers, and end-users that it targets, demand state-of-the-art
technology, consistent high quality transmission, superior high-speed data
transmission, diverse product offerings and superior customer service, all of
which the Company believes it can competitively provide. In addition,
historically, the Company has been able to build new networks and expand
existing networks in a more timely and economical manner than most CAP or CLEC
competitors through strategic arrangements such as leasing fiber optic cable
from others that already possess rights-of-way and have facilities in place.
The Company intends to use its experience and presence in the telecommunications
industry to further develop and expand its existing telecommunications
infrastructure.
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CLEC Competition
The Company's facility-based operational CLEC competitors in the markets in
which the Company operates include: MCI Metro, Inc.; MFS Telecommunications,
Inc.; Teleport Communications Group, Inc.; Brooks Fiber; NEXTLINK
Communications, Inc.; and GST Telecommunications, Inc.
Based on management's experience, the initial market entrant with an operational
fiber optic CLEC network generally enjoys a competitive advantage over other
CLECs that later enter the market. The Company believes that it is well
positioned in each of its existing clusters due to a combination of factors,
including its early entry into the Portland, Seattle and Salt Lake City markets,
its full-service capabilities, its commitment to superior customer service and
the depth of its network coverage.
In each of the clusters in which ELI operates, at least one other CLEC, and in
some cases several other CLECs, offers many of the same local telecommunications
services provided by the Company, generally at similar prices.
Competition From Others
Potential and actual new market entrants in the local telecommunications
services business include RBOCs entering new geographic markets, IXCs, cable
television companies, electric utilities, international carriers, satellite
carriers, teleports, microwave carriers, wireless telephone system operators and
private networks built by large end users, many of which may have financial,
personnel and other resources substantially greater than those of ELI. In
addition, the current trend of business combinations and alliances in the
telecommunications industry, including mergers between RBOCs, may increase
competition for the Company. With the passage of the 1996 Act and the entry of
RBOCs into the long distance market, the Company believes that IXCs may be
motivated to construct their own local facilities or otherwise acquire the right
to use local facilities and/or resell the local services of the Company's
competitors.
Dedicated Services
Competition for dedicated services is based on price, quality, network
reliability, customer service, service features and responsiveness to the
customer's needs. The Company believes that its reliable, state-of-the-art
digital networks, which offer significant transmission capacity at competitive
prices, will allow it to compete effectively with the ILECs, which may have not
yet fully deployed fiber optic networks in many of the Company's target markets.
The Company's fiber optic networks will provide both diverse access routing and
redundant electronics, design features not widely deployed within the ILEC's
networks.
High-Speed Data Service
The Company's competitors for high-speed data services include major IXCs, CAPs,
other CLECs, and various providers of niche services (e.g., Internet access
providers, router management services and systems integrators). The
interconnectivity of the Company's markets may create additional competitive
advantages over other data service providers that must obtain local access from
the ILEC or another CLEC in each market or that cannot obtain intercity
transport rates on as favorable terms as the Company.
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Internet Services
The market for Internet access and related services in the United States is
extremely competitive, with no substantial barriers to entry. The Company
expects that competition will intensify as existing services and network
providers and new entrants compete for customers. The Company's current and
future competitors include telecommunications companies, including the RBOCs,
IXCs, CLECs and CATVs, and other Internet access providers. Many of these
competitors have greater market presence and greater financial, technical,
marketing and human resources, more extensive infrastructure and stronger
customer and strategic relationships than the Company. The Company believes
that it has a competitive advantage because of its existing Internet backbone
network providing Internet connectivity in each of its market clusters, which
includes access on a redundant basis to the three largest Internet providers.
Operations/Information Technology
The Company views the establishment of a superior information technology
platform as a key strategic advantage in the execution of its goal to operate
effectively and deliver superior customer service. The Company has created
business relationships with selected software support organizations known for
state-of-the-art solutions.
The Company views its commitment to customer satisfaction as a key success
factor. The Company focuses on ensuring the Company's processes are aligned
with customer needs and satisfaction. The Company offers high-quality service
with its state-of-the-art network technology, integrated operations and superior
customer support. The Company has implemented an integrated network management
and maintenance system designed to monitor and test the Company's networks 24
hours a day, seven days a week and is developing a fully integrated superior
customer care system from three leading vendors which will automate the entire
order management process (i.e., order placement, design, provisioning and
billing preparation) for both wholesale and retail customers. The order
placement, design and provisioning components of the order management system
have been installed and are operational. A new customized billing system and an
up-to-the minute trouble ticket tracking module, which is an enhancement of the
management and maintenance system, are being installed and are expected to be
operational and integrated into the information system by the end of the first
quarter of 1998.
The current billing management system is capable of producing a single bill
detailing all of the products and services provided to both wholesale and retail
customers. The Company is installing a new billing system, which will allow the
Company to bill for incremental services and unique product bundles in a more
rapid and cost-efficient manner. The Company expects to complete the
implementation of the system by the first quarter of 1998.
The Company's goal is to have an efficient operating structure in place for
administering, provisioning and maintaining the Company's products and services
so as to become a low-cost telecommunications provider, while delivering
superior customer service.
Employees
As of September 30, 1997 the Company employed 482 persons. None of the
Company's employees are represented by a union, and the Company considers its
employee relations to be excellent.
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Properties
General
The Company manages its operations through its corporate headquarters, located
in Vancouver, Washington. In addition, the Company has local offices and
warehouse facilities in Portland, Seattle, Sacramento, Phoenix and Salt Lake
City. Currently, all of the Company's office and warehouse space is leased. The
Company also leases network hub and network equipment installation sites in
various locations throughout the metropolitan areas in which it provides
products and services. The office, warehouse and other facilities leases expire
on various dates through July 2014. Additional facilities will be needed as
the Company expands its markets. Management believes that the Company will be
able to lease space as needed on acceptable terms. The Company owns a 6.6-acre
parcel of land in Vancouver, Washington, on which it is constructing its new
corporate headquarters building. The Company believes its facilities are, and
the new building will be, suitable and adequate for its purposes.
Lease
In June 1995 the Company entered into agreements to lease certain equipment to
be constructed for the Company (the "Lease"). The lessor has agreed to commit up
to a maximum of $110,000,000 of the cost of purchasing and installing the
equipment. Rental obligations for the equipment commenced in June 1995, and,
with renewal options, will expire on April 30, 2002. The Company may, at its
option, purchase the equipment either at or before the end of the Lease at a
price approximating the amounts expended by the lessor to acquire and install
the leased equipment. If the Company does not purchase the equipment by April
30, 2002, it will be sold to a third party and the Company will guarantee that
the sales price to be received by the lessor will equal the acquisition and
installation costs, subject generally to a maximum payment under the guarantee
of 80% of such costs. Payments under the Lease depend on then current interest
rates, and assuming continuation of current interest rates and full utilization
of the lease facility, payments would amount to approximately $6,500,000
annually through April 30, 2002 and, assuming exercise of the purchase option,
approximately $110,000,000 in 2002. Citizens has guaranteed all obligations of
ELI under the Lease and ELI will pay Citizens a guarantee fee at the rate of
3.25% per annum based on the amount of the lessor's investment in the leased
assets. See "Relationship with Citizens-Citizens' Guarantee of ELI's
Obligations."
Credit Facility
On October 23, 1997, ELI and Citizens entered into a commitment letter for a
$400 million revolving Credit Facility with Citibank acting for a group of
lending banks. Under the Credit Facility the lending banks have agreed to lend
to ELI up to $400 million principal amount outstanding at any one time for a
five-year period. The Credit Facility will provide that ELI may elect to borrow
amounts at the then current short-term Eurodollar rate plus a spread, or at
Citibank's publicly announced base lending rate plus a spread, both spreads
being based on Citizens' long-term unsecured debt ratings, or at a competitive
bid option. Facility fees of .05% on the overall commitment are payable. For an
initial 90-day period, borrowings will be guaranteed by certain subsidiaries of
Citizens. Citizens has agreed, subject to receiving regulatory authorization,
that it will replace these guarantees during the 90-day period with the
guarantee of Citizens. The Credit Facility will require that Citizens maintain a
minimum net tangible worth of at least $1 billion and continue to own at least
51% of the outstanding Common Stock of ELI. The proceeds of the first drawdown
under the Credit Facility will be used to repay $100 million (plus any
additional amounts incurred since September 30, 1997) of the amount due to
Citizens, as noted under "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources" and under
"Capitalization." ELI has agreed to pay to Citizens an annual guarantee fee at a
rate of 3.25% per annum based on the balance outstanding.
Legal Proceedings
On June 30, 1997, the Company filed a lawsuit in the U.S. District Court in
Seattle, Washington, against U S WEST, Electric Lightwave v. U S WEST
Communications, Inc., alleging that U S WEST was illegally blocking competition
in local telephone service. The lawsuit charges that U S WEST was violating
federal and state antitrust laws, as well as various federal and state
regulatory statutes, by failing to provide adequate interconnection services and
facilities to enable ELI to provide quality services to its customers. ELI is
seeking an unspecified amount of damages to be determined by a jury. In
addition, ELI is seeking an injunction to prohibit U S WEST from discriminating
against ELI and its customers when it provides interconnection facilities and
equipment. As indicated under "Risk Factors - Dependence Upon Interconnection
and Relationship with ILECs," to the extent ELI interconnects with and uses U S
WEST's networks to service the Company's customers, ELI is dependent upon the
technology and capabilities of U S WEST to meet the telecommunications
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needs of the Company's customers and to maintain ELI's service standards. ELI
will become increasingly dependent on interconnection with U S WEST as switched
services become a greater percentage of ELI's business. In the event the outcome
in the lawsuit is unfavorable it would not have a materially adverse effect on
the Company's financial condition and results of operations since the Company
expects that U S WEST would continue to provide at least the current level of
interconnection services and facilities to the Company.
GOVERNMENT REGULATION
ELI's services are subject to federal and state regulation. In general, ELI's
interstate and international telecommunications services are regulated by the
FCC. ELI's intrastate services are regulated by the public utilities commission
of each state in which ELI operates. Nationally, the recent trend has been for
federal and state legislators and regulators to permit and encourage additional
competition in the local telecommunications industry. ELI believes this public
policy trend should contribute to an increase in the Company's market
opportunities, although the pace and extent of such positive benefits cannot be
predicted with any precision.
Federal Regulation
The FCC exercises regulatory jurisdiction over all facilities of, and services
offered by, telecommunications common carriers to the extent those facilities
are used to provide, originate or terminate interstate or international
communications. The FCC has established through its rules different levels of
regulation for "dominant" carriers and "nondominant" carriers. For domestic
interstate telecommunications services, only the ILECs (subject to limited
exceptions that are not material) are classified as dominant carriers, and all
other carriers are classified as nondominant carriers. Additionally, to the
extent a BOC is engaged in out-of-region long distance services it is also
classified as nondominant as to those services. Non-BOC ILEC-affiliated long
distance services are classified as nondominant regardless of whether conducted
inside or outside the ILEC service area. The FCC regulates many of the rates,
charges and services of dominant carriers to a greater degree than those of
nondominant carriers. As a result of its nondominant carrier status, the
Company believes it has significant flexibility to respond to changes in
interstate market conditions on a timely basis.
As a nondominant carrier, ELI may install and operate facilities for domestic
interstate communications without prior FCC authorization. ELI is presently
required to tariff certain of its domestic interstate tariff services. The FCC
has promulgated rules to eliminate tariffing of interstate long distance
services. Those rules have been stayed during the pendency of judicial review.
If and when these rules are allowed to go into effect, the Company will no
longer be required to file FCC tariffs for its interstate long distance
services. Additionally, under a recent FCC order, CLECs, including ELI, are no
longer required to file tariffs for interstate exchange access services. As a
provider of international long distance services, ELI obtained FCC operating
authority and maintains an international tariff. ELI is also required to submit
certain periodic reports to the FCC and to pay regulatory fees.
Telecommunications Act of 1996
The national public policy framework for telecommunications was changed
dramatically by the 1996 Act. A central focus of this sweeping policy reform
was to open local telecommunications markets to workable competition. ELI
believes that the 1996 Act has begun
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and will continue to result in substantial changes in the marketplace that
largely are favorable for the Company.
The 1996 Act preempts state and local laws to the extent that they prevent
competitive entry into the provision of any telecommunications service. Under
the 1996 Act, however, states retain authority to impose on carriers, including
ELI, requirements necessary to preserve universal telecommunications service,
protect public safety and welfare, ensure quality of service and protect
consumers. States are also responsible for mediating and arbitrating
interconnection agreements between CLECs and ILECs if voluntary negotiations
fail.
In order to create an environment in which local competition is a practical
possibility, the 1996 Act imposes a number of access and interconnection
requirements on all local telecommunications providers. All local carriers,
including ELI, must interconnect with other carriers, permit resale of their
services, provide local telephone number portability and dialing parity, provide
access to poles, ducts, conduits, and rights-of-way, and complete calls
originated by competing carriers under reciprocal compensation or mutual
termination arrangements.
The 1996 Act also imposes some additional specific obligations on ILECs
(although certain small and rural ILECs may qualify for exemption from some of
these obligations). In particular, ILECs must allow interconnection at any
technically feasible point, provide interconnection service quality at least
equal to that provided to their own customers and other carriers, provide
nondiscriminatory access to unbundled network elements at any technically
feasible point at cost-based rates, provide wholesale discounts to carriers who
wish to resell ILEC services, give notice of network changes, provide physical
co-location, and negotiate in good faith with competitors. ELI believes its
opportunity for success in local telephone service markets is enhanced as a
result of these obligations imposed by federal law on ILECs. The access offered
by the 1996 Act to physical co-location, unbundled local loops and resale
discounts will give the Company the opportunity to expand the geographic reach
of its services in advance of facilities construction. Full implementation of
these provisions of the 1996 Act will require further federal and state rule
makings, industry negotiations, and possible legal enforcement actions and
remedies. Portions of the FCC's rules implementing interconnection, particularly
those related to the FCC's imposition of pricing methodology upon state
regulators, have been vacated by a federal appellate court (as discussed below
under "-Court of Appeals Decision." The appellate court found that, under the
1996 Act, the states are the primary arbiters of charges for interconnection,
unbundled access, resale and the prices for the transport and termination of
calls. However, ELI should be able to continue and expand its CLEC operations
under a variety of negotiated interconnection arrangements and state
interconnection rules and policies, state arbitrated agreements, public policy
processes and judicial proceedings.
RBOCs have generally been barred from participating in the market for interLATA
(primarily long distance) services since the break up of the Bell System in
1984. Under the 1996 Act, an RBOC now is allowed to provide interLATA services
outside of its local telephone service region. RBOC interLATA long distance
entry will increase the level of competition faced by ELI's retail long distance
services. However, ELI believes that RBOCs providing long distance service
outside their telephone service areas may represent new potential customers of
ELI's wholesale services.
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The 1996 Act also authorizes the FCC to allow an RBOC to provide interLATA
services within its local telephone service area in a state in which the RBOC
has satisfied certain conditions.
During 1996 and 1997 the FCC took several additional actions with respect to
competitive local telecommunications pursuant to the 1996 Act.
On August 1, 1996, the FCC issued an order amending its pole attachment rules to
reflect the 1996 Act by requiring utilities, including ILECs and most electric
companies, to make poles, conduit and rights-of-way available to certain
carriers, including CLECs, at reasonable cost and on a nondiscriminatory basis.
Several utilities have appealed the FCC order to the U.S. Court of Appeals,
which has not yet issued a decision.
On August 8, 1996, the FCC issued an order containing rules providing guidance
to the ILECs, CLECs, long distance companies and state public utility
commissions ("PUCs") on several provisions of the 1996 Act. The rules include,
among other things, FCC guidance on: (i) discounts for end-to-end resale of ILEC
local exchange services; (ii) availability of unbundled local loops and other
unbundled ILEC network elements; (iii) the use of Total Element Long Run
Incremental Costs in the pricing of these unbundled network elements; (iv)
average default proxy prices for unbundled local loops in each state; (v) mutual
compensation proxy rates for termination of ILEC/CLEC local calls; and (vi) the
ability of CLECs and other interconnecters to opt into portions of
interconnection agreements negotiated by the ILECs with other parties on the
basis of the ability to "pick and choose" among the provisions of an existing
agreement. See below for a discussion of the Eighth Circuit Court of Appeals
decision overturning certain aspects of this order.
The 1996 Act requires the FCC to establish explicit mechanisms for subsidizing
service to rural areas, low-income customers, schools and libraries, and rural
health care providers. On May 8, 1997, the FCC adopted an Order in its
universal service proceeding to implement this mandate. All telecommunications
carriers, including ELI and other CLECs, are required under that Order to
contribute to a federal universal service fund. Schools, libraries and other
entities eligible for universal service support represent a potential target
market for the Company. The availability of such support will assist such
entities in obtaining advanced telecommunications and information services, thus
potentially increasing demand for services of the type the Company provides.
Most states are expected to implement state-specific universal service funds to
supplement the federal programs. All carriers, including ELI, will be required
to contribute to those state and federal funds. At this time, the Company is
unable to quantify the total amount of these payments it will be required to
make or the effect these required payments will have on its financial condition.
In a combined Report and Order and Notice of Proposed Rulemaking released on
December 24, 1996, the FCC made changes and proposed further changes in the
interstate access charge structure. In the Report and Order, the FCC removed
restrictions on the ILECs' ability to lower access prices and proposed the
relaxation of the regulation of new switched access services in those markets
where there are other providers of access services. If any such increased
pricing flexibility is allowed but is not effectively monitored by federal
regulators, it could have a material adverse effect on the Company's revenues
from interstate access services. However, the Company believes this potential
impact will be limited by the fact that its private line revenues are only
partially derived from bypass of ILEC switched access services. On May 16,
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1997, the FCC released an order revising its access charge rate structure. The
new rules substantially increase the costs that ILECs subject to the FCC's price
cap rules ("price cap LECs") recover through monthly, non-traffic sensitive
access charges and substantially decrease the costs that price cap LECs recover
through traffic sensitive access charges. In the May 16 order, the FCC also
announced its plan to bring interstate access rate levels more in line with
cost. The plan will include rules to be established sometime this year that
grant price cap LECs increased pricing flexibility upon demonstrations of
increased competition (or potential competition) in relevant markets. The
manner in which the FCC implements this approach to lowering access charge
levels may have a material adverse effect on the Company's ability to compete in
providing interstate access services. However, the Company also believes it may
benefit from certain aspects of the FCC's access charge restructuring. Under
the FCC's rules, which are the subject of a petition for reconsideration, the
Company will no longer be required to pay a portion of ILEC access charges (the
terminating interconnection charge) by connecting directly to ILEC end offices.
Additionally, the Company may be able to differentiate its access prices from
those of competing ILECs by eliminating certain other rate elements. Several
parties have appealed the May 16 order. Those appeals have been consolidated
and transferred to the United States Court of Appeals for the Eighth Circuit
where they are currently pending.
As part of the overall plan to lower interstate access rates, the FCC also
released an order on May 21, 1997, in which the FCC revised its price cap rules.
In the order, the FCC increased the so-called X-Factor (the percentage by which
price cap LECs must lower their interstate access charges every year, net of
inflation and exogenous cost increases) and made it uniform for all price cap
LECs. The results of these rule changes will be both a one-time overall
reduction in price cap ILEC interstate access charges and an increase in the
rate at which those charges will be reduced in the future. Several parties have
appealed the May 21 order. Those appeals have been consolidated and transferred
to the United States Court of Appeals for the Tenth Circuit where they are
currently pending.
Court of Appeals Decision
Various parties, including ILECs and state PUCs, filed appeals of the FCC's
August 8, 1996 interconnection order, many of which were consolidated and
transferred to the U.S. Court of Appeals for the Eighth Circuit. On July 18,
1997, the Eight Circuit rendered its decision, which held that, in general, the
FCC does not have jurisdiction over prices for interconnection, resale, leased
unbundled network elements and traffic termination. The Eighth Circuit also
overturned the FCC's "pick and choose" rules as well as certain other FCC rules
implementing the 1996 Act's local competition provisions. In addition, the
Eighth Circuit decision substantially limits the FCC's authority to enforce the
local competition provisions of the 1996 Act. The FCC has indicated that it
will seek Supreme Court review of the decision.
In the short term the Company believes that the Eighth Circuit decision will not
have a material adverse effect on it, because the Company already has
interconnection agreements in place, or expects to have such agreements in
place, under the provisions of the FCC's order and the 1996 Act which were not
invalidated by the Court. The decision does not delay the implementation of the
1996 Act by the parties and by the state PUCs, but rather eliminates the
guidance on pricing and pick and choose as well as other issues that the FCC
sought to provide to the parties and the state PUCs.
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In the long term, the Eighth Circuit's decision makes it more likely that the
rules governing local competition will vary from state to state. Most states
have already begun to establish rules for local competition that are consistent
with the FCC rules overturned by the Eighth Circuit. If a patchwork of state
regulations were to develop, it could increase the Company's costs of regulatory
compliance and could make competitive entry in some markets more difficult and
expensive than in others.
State Regulation
Most state public utilities commissions require telecommunications providers
such as ELI to obtain operating authority prior to initiating intrastate
services. Most states also require the filing of tariffs or price lists and/or
customer-specific contracts. In the states in which ELI currently operates, ELI
is not subject to rate-of-return or price regulation. ELI is subject, however,
to state-specific quality of service, universal service, periodic reporting and
other regulatory requirements, although the extent of such requirements is
generally less than that applicable to ILECs. ELI currently has intrastate
operating authority in the following states:
Arizona: ELI is authorized as a competitive provider to provide intrastate long
distance statewide and other intrastate services in all U S WEST service
territories pursuant to tariff.
California: ELI is authorized as a Competitive Local Carrier to provide basic
local service within PacBell and GTE Corp. service territories and other
intrastate services statewide pursuant to tariff. ELI has a pending application
to provide basic local service within the service territory of Roseville
Telephone Co.
Idaho: ELI is authorized to provide basic local service to business customers
with more than five lines in U S WEST service territory in Southern Idaho and
other intrastate services statewide pursuant to tariff.
Minnesota: ELI is authorized to provide intrastate long distance statewide and
local services in the greater Minneapolis-St. Paul metropolitan area pursuant to
tariff.
Nevada: ELI is authorized to provide intrastate services statewide, excluding
points within the Citizens Telecommunications Company of Nevada service
territory, pursuant to price list.
Oregon: ELI is authorized as a Competitive Telecommunications Provider to
provide intrastate long distance service statewide and local exchange services
in the greater Portland metropolitan area. ELI is not required to file tariffs,
price lists or contracts.
Utah: ELI is authorized as a Competitive Telecommunications Company to provide
intrastate services statewide pursuant to price list or customer-specific
contracts.
Washington: ELI is authorized as a Competitive Telecommunications Company to
provide intrastate services statewide pursuant to price list or customer-
specific contracts.
Local Government Authorizations
ELI generally is required to obtain street opening and construction permits from
city and county authorities prior to installing or expanding its fiber optic
network facilities. In most states in which ELI currently operates as a CLEC,
it must first obtain a franchise or license from each incorporated city and
town, and sometimes from each county, in which it wishes to utilize public
rights of way. The franchise or license establishes the overall terms,
conditions and fees for use
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of the rights of way in the particular jurisdiction. In California, ELI and
other holders of certification from the California Public Utilities Commission
are not required to obtain municipal franchises nor pay franchise fees.
The 1996 Act now provides that while local governments may continue to manage
the public rights of way, they may not impose conditions on companies like ELI
which constitute barriers to entry in the telecommunications market. Further,
the 1996 Act requires that municipal right-of-way authorizations be granted on a
nondiscriminatory basis and that any fees be reasonable.
THE LOCAL TELECOMMUNICATIONS SERVICES INDUSTRY
On January 1, 1984, AT&T (then referred to as the "Bell System") divested itself
of the Bell Operating Companies (the "BOCs"), which were transferred to seven
holding companies. Following this divestiture (the "Divestiture"), each BOC
continued to conduct local telephone and other telecommunications business in
geographically defined areas, referred to as "Local Access and Transport Areas"
or "LATAs."
Prior to the Divestiture, the BOCs and "independent" local exchange telephone
companies not affiliated with the Bell System had government-regulated
monopolies for most local telephone services. The Divestiture encouraged the
growth of competition for long distance services and equipment manufacturing by
prohibiting the BOCs from entering these markets. However, the BOCs retained
monopoly control over the market for local telephone services. Competition in
the long distance market accelerated dramatically and, by the end of 1995,
AT&T's long distance competitors had captured approximately 40% of the
interstate long distance market.
The Divestiture did not directly provide for competition in local markets.
After the Divestiture, however, a number of factors served to promote
competition in some local telecommunications market segments, including (i)
increasing customer desire for an alternative to the ILEC monopoly, particularly
among business customers, prompted in part by competition in the long distance
market, (ii) technological advances in the transmission of data and video
requiring greater capacity and reliability levels than copper-based ILEC
networks were able to accommodate, (iii) a monopoly position and rate of return-
based pricing structure that provided little incentive for the ILECs to upgrade
their networks or meet specialized customer needs, (iv) the development of fiber
optics and digital electronic technology, which combined the ability to
economically build a high-capacity digital network with the ability to transmit
voice, data and video signals at high speeds and (v) the significant "access
charges" that long distance carriers were required to pay to the ILECs to
originate and terminate long distance telephone calls on the ILECs' networks.
The first competitors in the local market were designated as "competitive access
providers" or "CAPs" by the FCC because they provided special access services
(e.g., dedicated lines for local access links to long distance networks).
Initially, CAPs provided special access (dedicated access lines) by installing
fiber optic facilities connecting long distance carriers' POPs within a
metropolitan area and, in some cases, connecting end users (primarily large
businesses) to long distance carriers' POPs. CAPs also provided private line
services connecting multiple locations of a single end user within a local
market area with dedicated fiber optic lines. CAPs used the technological
advantage and substantial capacity and economies of scale inherent in
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fiber optic technology to offer customers service that initially was generally
less expensive and of higher quality than could be obtained from the ILECs, due
in part to the ILECs' copper-based facilities and higher overhead costs. In
addition, CAPs generally offered shorter installation and repair intervals and
improved reliability in comparison to the ILECs. In recent years, the ILECs
steadily have been increasing the amount of fiber used in their networks,
thereby decreasing the competitive advantage held by the CAPs in the special
access and private line markets.
As CAPs proliferated during the latter part of the 1980s, federal and some state
regulators issued rulings which permitted and sometimes encouraged local
competition and opened some local market segments to new entrants. These
rulings allowed CAPs to offer a number of new services, including, in certain
states, certain switched services (but not basic local exchange telephone
service). A series of state public utility commission decisions beginning in
1989 and FCC decisions beginning in 1991 requiring expanded interconnection (or
"co-location") permitted CAPs to interconnect their networks with the largest
ILECs' networks. This expanded interconnection gave CAPs the option to access
customers by either leasing facilities from an ILEC through a co-location
arrangement or installing extensions to the CAP's own network, depending on the
relative cost and other factors. Beginning in 1994, a few states permitted
CAPs, including ELI, to become "competitive local exchange carriers" or "CLECs,"
and thus to begin providing local exchange services, primarily to business
customers. By the time the 1996 Act was adopted, approximately half the states
had removed legal prohibitions on the provision of competitive local exchange
service. Legal and regulatory restrictions in the remaining states will be
significantly reduced by the 1996 Act.
While many companies have been organized over the last decade to provide CAP or
CLEC services, only a few have grown to significant size. These large CAPs and
CLECs operate in multiple local markets and have acquired a number of smaller
CAPs. Recently, new CAPs or CLECs have been created, primarily to serve small
markets.
The competitive position of the CAPs and CLECs has been improved by the
regulatory commissions of an increasing number of states, which have encouraged
competition in various aspects of the intrastate local telecommunications
market. The intrastate local market consists of intrastate access services,
basic local exchange services and local private line special access services.
While the majority of state initiatives were originally limited to intrastate
private line and special access services, many states are in the process of
changing their statutes or regulations to permit competition for switched
services, including basic local exchange telephone services. Those states that
have not made these changes will be required to do so under the 1996 Act.
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company and their respective ages
and positions are set forth below.
58
<PAGE>
Name Age Title
- ---- --- -----
Leonard Tow 69 Chairman of the Board
Daryl A. Ferguson 58 Vice Chairman of the Board and Chief
Executive Officer
David B. Sharkey 47 President, Chief Operating Officer
and Director
Robert J. DeSantis 41 Vice President, Chief Financial
Officer and Treasurer
James Berthot 52 Vice President - Marketing and
Product Development
Todd Hanson 36 Vice President - Engineering
Randall Lis 38 Vice President - Staff Operations
Michael J. Miller 41 Vice President - Planning
Kerry Rea 39 Vice President and Controller
John Wolff 51 Vice President - Sales
Ernest D. Yates 52 Vice President - Operations
Stanley Harfenist 66 Director
Robert A. Stanger 57 Director
Maggie Wilderotter 42 Director
Leonard Tow has been a director and Chairman of the Board of the Company since
August 1994. Mr. Tow has been a director of Citizens since April 1989. In June
1990, he was elected Chairman of the Board and Chief Executive Officer of
Citizens. In October 1991, he was appointed to the additional position of Chief
Financial Officer of Citizens. He has also been a Director, Chief Executive
Officer and Chief Financial Officer of Century Communications Corp. since its
incorporation in 1973, and Chairman of its Board of Directors since October
1989.
Daryl A. Ferguson, has been a director of the Company since September 1995 and
Vice Chairman of the Board and Chief Executive Officer of the Company since
October 1997. Mr. Ferguson has been President and Chief Operating Officer of
Citizens since June 1990. Mr. Ferguson was Vice President, Administration of
Citizens from July 1989 through March 1990 and Senior Vice President, Operations
and Engineering of Citizens from March 1990 through June 1990. From April 1987
through July 1989, Mr. Ferguson was President and Chief Executive Officer of
Microtecture Corporation. He is currently also a Director of Centennial
Cellular Corp.
David B. Sharkey joined ELI as President and Chief Executive Officer in August
1994, has been a director since September 1995, and Chief Operating Officer
since October 1997. Mr. Sharkey has 29 years of telecommunications experience.
Prior to joining ELI, from 1989 to 1994, he held the position of Vice President
and General Manager at Mobile Media, Inc., a radio common carrier provider. Mr.
Sharkey spent 21 years with New Jersey Bell Telephone and AT&T in technical
operations and sales & marketing.
Robert J. DeSantis, Vice President, Chief Financial Officer and Treasurer of the
Company since August 1994, has been Vice President and Treasurer of Citizens
since October 1991. Mr. DeSantis was Assistant Treasurer of Citizens from June
1986 through September 1991 and was Assistant to the Treasurer of Citizens from
January 1986 to June 1986.
James Berthot joined ELI as Vice President of Marketing and Product Development
in July 1995. Prior to joining ELI, from January 1990 to July 1995, Mr. Berthot
was Director of Marketing and Public Relations for Century Telephone
Enterprises, Inc.'s Telephone Group, where he led marketing, sales and public
relations activities. Mr. Berthot has served as Sales Director for The
Information Line, a joint venture with United Telecommunications (Sprint) and
59
<PAGE>
Volt Information Sciences Inc. He has more than 25 years experience in the
high-technology industry including management positions with Southwestern Bell
Corporation and AT&T.
Todd Hanson joined ELI as Vice President of Engineering in June 1995. Prior to
joining ELI, from 1993 to 1995, Mr. Hanson served as Vice President of Network
Engineering for MFS Telecom, where he was responsible for network planning and
technology on a national basis. Mr. Hanson was Senior Director of Project
Management and Access Engineering at AT&T Canada in 1992 and 1993. Mr. Hanson's
experience comprises 13 years of telecommunications management including
positions with Sprint, AT&T Canada and MFS in the areas of engineering,
operations and project management.
Randall Lis joined ELI as Vice President-Operations in February 1995 and has
served as Vice President-Staff Operations since April 1996. Prior to joining
ELI, from 1993 to 1995, Mr. Lis was General Manager of the Mid-Atlantic Region
of Nextel Communications. His nearly 20 years of telecommunications experience
includes positions with Southwestern Bell Corporation and Ram Mobil Data. From
1985 through 1993, Mr. Lis held several positions with Metromedia and Metromedia
Paging, in which he served as Business Manager, General Manager and Senior
Director of Operations.
Michael J. Miller joined ELI as Director of Accounting in March 1994, was
promoted to Vice President of Finance in October 1995 and became Vice President-
Planning in September 1997. Prior to joining ELI, from February 1988 to
December 1993, Mr. Miller was Manager of Financial Planning and Analysis for
NERCO, Inc., a diversified natural resource company in Portland, Oregon. At
NERCO, Mr. Miller performed economic analyses and evaluations for the
operations, accounting and marketing groups. He is a Certified Public
Accountant.
Kerry D. Rea joined ELI as Vice President and Controller in October 1997. Prior
to joining ELI, Mr. Rea served as Controller for the Portland, Oregon-based
operations of Mattel, Inc. (since March 1997), and its predecessor Tyco Toys,
Inc. (from November 1989 to March 1997). Mr. Rea, a certified public
accountant, previously worked in various accounting and finance positions for
Tyco's predecessor as well as working seven years in public accounting.
John Wolff joined ELI as Vice President-Sales in October 1994. Mr. Wolff has
25 years in the telecommunications industry with experience in sales, marketing,
operations, and training. Mr. Wolff was employed by New Jersey Bell and AT&T
for 16 years. From 1980 to 1983, Mr. Wolff acted as the personal representative
of the Vice President of Sales of AT&T on the Divestiture Reorganization
Committee. After the breakup of the Bell System in 1983, he served as General
Sales Manager at AT&T Communications. Mr. Wolff left AT&T in 1985 to join
Metromedia Paging Service, Inc., as Director of Sales and Marketing, where he
remained until 1987, when he left to join SBC. Mr. Wolff was with SBC from 1987
until 1992, and Mobil Media from 1992 until 1994, at which time he joined the
Company.
Ernest D. Yates joined ELI as Senior Director of Sales in February 1995. In
September 1995 he was promoted to Vice President-Administration and has served
as Vice President-Operations since April 1996. Prior to joining ELI, Mr. Yates,
from 1965 through 1995, was employed by AT&T and Southwestern Bell Corporation
where he held various sales, technical and general management positions. Mr.
Yates is currently responsible for the implementation of ELI's new order
tracking, provisioning and billing systems as well as operations in all ELI-
staffed cities.
60
<PAGE>
Stanley Harfenist has been a director of the Company since October 1997. Mr.
Harfenist has been a director of Citizens since 1992. He has been President and
Chief Executive Officer of Adesso, Inc., a manufacturer of hardware for the
Macintosh computer since 1994. He was President, Chief Operating Officer and
Director of Players International, Inc. from 1985 to 1993, an Officer of Sega
Enterprises from 1982 to 1984 and an Officer of Knickerbocker Toy Company, Inc.
from 1978 to 1982.
Robert A. Stanger has been a director of the Company since October 1997. Mr.
Stanger has been a director of Citizens since 1992. He has been Chairman of
Robert A. Stanger & Company, an investment banking and consulting service since
1978. Mr. Stanger is Publisher of The Stanger Real Estate Report. Mr. Stanger
has been a director of Callon Petroleum Company, Inc. since 1995, which is in
the business of exploration and production of oil and natural gas.
Maggie Wilderotter has been a director of the Company since October 1997. Ms.
Wilderotter has been President and Chief Executive Officer of Wink
Communications since 1997. From 1995 to 1997, Ms. Wilderotter was the Executive
Vice President of National Operations for AT&T Wireless Services, Inc. and Chief
Executive Officer of AT&T's Aviation Communications Division. From 1991 to
1995, she served as Senior Vice President of McCaw Cellular Communications, Inc.
and Regional President of its California/Nevada/Hawaii Region. Ms. Wilderotter
was with U.S. Computer Services, Inc./Cable Data, as Senior Vice President and
General Manager from 1985 to 1991. She is also a director of Gaylord
Entertainment Corporation, ANTEC Corporation, Airborne Express, Jacor and the
California Cable Television Association.
Each executive officer of the Company who is also an executive officer of
Citizens expects to dedicate as much time as is necessary to the Company and its
business, which will necessarily vary from time to time.
Board Composition
Directors are elected annually. The Board presently consists of six members,
four of whom are associated with Citizens and one of whom is independent of
both Citizens and ELI. Following the Offering, the Board will be increased to
consist of seven members to add an additional independent director. At each
annual meeting of the Company's stockholders at which directors are elected, the
holders of Class A Common Stock and Class B Common Stock (all of which will be
held by Citizens) may vote for directors. The holders of Class A Common Stock
are entitled to one vote per share of Class A Common Stock and the holders of
Class B Common Stock are entitled to ten votes per share of Class B Common
Stock. Each director who is not an employee of either the Company or Citizens is
entitled to receive an annual retainer of $20,000, an additional $1,000 plus
reasonable expenses for attending each meeting of the Board of Directors, $1,000
annually for each committee of the Board of Directors for which such director
serves as chairman and an annual grant of options for 5,000 shares of Class A
Common Stock of the Company, exercisable at an exercise price per share equal to
the market price of the Class A Common Stock on the date of grant. In
connection with the Offering, each director who is not an employee of either the
Company or Citizens will also receive a grant of options for 10,000 shares of
Class A Common Stock of the Company, exercisable at an exercise price per share
equal to the initial public offering price of the Class A Common Stock.
61
<PAGE>
Compensation Committee
The Board of Directors of ELI has established a Compensation and Benefits
Committee to address and make recommendations with respect to the compensation
of executive officers and the establishment of compensation and benefit plans.
There was no Compensation Committee of the Company during fiscal year 1996. Mr.
Sharkey, as a member of the Board of Directors of the Company, participated in
deliberations regarding executive officer compensation.
Audit Committee
The Board of Directors has established an Audit Committee to meet with and
consider suggestions from members of management, as well as with the Company's
independent accountants, concerning matters of internal controls. The Audit
Committee also will have the responsibility to review the audited financial
statements of the Company and consider and recommend the employment of, and
approve the fee arrangements with, independent accountants for both audit
functions and for advisory and other consulting services.
Executive Compensation
The following table shows compensation paid to, deferred or accrued for the
benefit of, the Company's Chief Executive Officer during 1996 and each of the
four remaining most highly compensated executive officers (the "Named Executive
Officers") for all services rendered to ELI during the three most recent fiscal
years ended December 31, 1996.
62
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-term Compensation
------------------------------------------ ----------------------------------------
Awards Payouts
------------------------
Securities
Underlying Long-term All Other
Other Annual Restricted Options/ Incentive Plan Compensation
Salary Salary Bonus(2) Compensation Stock Awards SARs (3) Payouts (4)
Name and Position(1) Year $ $ $ $ (#) $ $
- -------------------- ------ -------- --------- ------------ ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David B. Sharkey 1996 155,833 80,000 - - 17,039 - 26,703
President and CEO 1995 150,000 75,000 - - - - -
1994 79,612 - - - 23,267 - -
John Wolff 1996 127,500 40,000 - - 7,987 - 4,750
VP-Sales 1995 120,000 40,000 - - - - 15,535
1994 30,000 - - - 11,326 - 4,681
Randall Lis 1996 114,125 40,000 - - 7,987 - 32,163
VP-Staff Operations 1995 99,634 30,000 - - 11,327 - 18,450
1994 - - - - - - -
Todd Hanson 1996 131,401 40,000 - - - - 3,651
VP-Engineering 1995 95,804 40,000 - - 16,490 - 30,338
1994 - - - - - - -
Ernest Yates 1996 107,833 40,000 - - 7,987 - 3,997
VP-Operations 1995 71,942 18,000 - - - - 34,907
1994 - - - - - - -
</TABLE>
__________________
(1) Messrs. Ferguson and DeSantis are executive officers of Citizens. Their
1996 compensation for services to ELI does not place either of them among
the five most highly compensated executive officers of the Company. Mr.
Sharkey was Chief Executive Officer of the Company from August 1994 until
October 1997, when Mr. Ferguson became Chief Executive Officer.
(2) Bonus amounts awarded were for performance for the stated Salary Year,
notwithstanding determination of the bonus amount in the subsequent year.
(3) All Options in this column are exercisable for shares of common stock, par
value $.01 per share, of Citizens. Options are adjusted to reflect stock
dividends paid subsequent to date of grant. All awards shown are options
granted under the Citizens Utilities Company Management Employee Incentive
Plan or its successor Plan, the Employee Incentive Plan. In 1996, no
compensation was paid to any executive officer or employee in stock or
restricted stock of ELI, and no stock options or SARs denominated in stock
of ELI were awarded or granted to any executive officer or employee of ELI.
(4) Represents the Company's matching contribution to each executive's 401(k)
plan. Additionally represents $25,453 which represents the 1996 economic
benefit of split-dollar life insurance for Mr. Sharkey, $28,271 and $222
for relocation allowances paid to Mr. Lis and Mr. Yates, respectively, in
1996, and $9,935, $18,450, $28,898 and $33,610 for relocation allowances
paid to Messrs. Wolff, Lis, Hanson and Yates in 1995.
The following table sets forth the options granted to the Named Executive
Officers in 1996. All of the options listed below relate only to options to
purchase shares of Citizens' common stock. No options or stock appreciation
rights relating to the Company's Common Stock, and no stock appreciation rights
relating to Citizens' common stock, were granted in 1996. Options relating to
the Company's Common Stock will be granted as of the effective date of the
Offering to the Named Executive Officers. See "-Equity Incentive Plan."
63
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS/SARs EMPLOYEES IN PRICE AT EXPIRATION PRESENT
NAME GRANTED (#)(1) FISCAL YEAR GRANT ($/SH)(2) DATE VALUE $(3)
- ------------------- -------------- ------------ --------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
David B. Sharkey 16,000 1% $12.19 02/15/06 $39,030
John Wolff 7,500 .3% 12.19 02/15/06 12,456
Randall Lis 7,500 .3% 12.19 02/15/06 12,456
Todd Hanson - - - - -
Ernest Yates 7,500 .3% 12.19 02/15/06 12,456
</TABLE>
______________
(1) All options are for shares of common stock of Citizens. All options become
exercisable at the rate of 20% per year on February 15, 1997, 1998, 1999, 2000
and 2001.
(2) Fair Market Price at time of grant.
(3) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, an executive may realize
will depend on the excess of the stock price over the exercise price on the date
the option is exercised, so that there is no assurance the value realized, if
any, by an executive will be at or near the value estimated by the Black-Scholes
model. The estimated values under that model are based on arbitrary assumptions
as to variables such as interest rates, stock price volatility and future
dividend yield. The pricing model assumes a dividend yield of 6.2%, a riskless
rate of return of 5.6%, a seven-year term of exercise and volatility of 0.198.
The following table sets forth option and stock appreciation rights exercised by
the Named Executive Officers during 1996 and the number and value of options
held by them at December 31, 1996. All of the options listed below relate only
to Citizens' common stock. There were no outstanding stock appreciation rights
relating to Citizens' common stock at December 31, 1996. No exercises occurred
during 1996 of options or stock appreciation rights relating to the Company's
Common Stock and, at December 31, 1996 there were no outstanding options or
stock appreciation rights relating to the Company's Common Stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SHARES VALUE UNEXERCISED IN-THE-MONEY
ACQUIRED ON REALIZED OPTIONS/SARs AT OPTIONS/SARs AT
NAME EXERCISE(#) $ FISCAL YEAR-END (#) FISCAL YEAR-END($)
-------------------- ---------------- ------------- ------------------------------ ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
David B. Sharkey 0 0 9,304 31,001 0 0
John Wolff 0 0 4,453 14,783 0 0
Randall Lis 0 0 2,265 17,050 0 0
Todd Hanson 0 0 3,298 13,192 0 0
Ernest Yates 0 0 0 7,987 0 0
</TABLE>
All numbers are as of December 31, 1996 and reflect adjustment for stock
dividends paid subsequent to the date of grant. The closing price of Citizens'
common stock on December 31, 1996 was $11.125.
64
<PAGE>
Equity Incentive Plan
The Board of Directors established an Equity Incentive Plan (the "Plan") in
October 1997. The purpose of the Plan is to provide incentives for high levels
of performance and productivity by employees of the Company or a company
controlled by or controlling the Company or under common control with the
Company or an individual who performs services for the Company as a director,
consultant or otherwise. The Plan is intended to strengthen the Company's
existing operations through its ability to attract and retain outstanding
employees and others upon whose judgment, initiative and efforts the continued
efficiency, productivity, growth and development of the Company is dependent.
The Plan became effective on October 16, 1997 and will remain in effect for 10
years. No awards will be granted more than 10 years after the effective date of
the Plan.
As of the effective date of the Offering, (i) Randy Lis, John Wolff, Earnest
Yates, Todd Hansen, James Berthot and Michael Miller, executive officers of the
Company, will each be granted options for 146,000 shares of Class A Common Stock
of the Company, (ii) Robert J. DeSantis, an executive officer of both the
Company and Citizens, and Stanley Harfenist, a director of both the Company and
Citizens, will each be granted options for 90,000 shares of Class A Common Stock
of the Company, (iii) options for 680,000 shares of Class A Common Stock will be
granted to other officers of ELI, (iv) options for an aggregate of 116,000
shares of Class A Common Stock will be granted to four officers of Citizens who
are expected to render services to ELI either directly or through the
Administrative Services Agreement and (v) options for 464,000 shares of Class A
Common Stock will be granted to other employees of ELI. All of such options are
exercisable at an exercise price per share equal to the initial public offering
price of the Class A Common Stock.
Grants of restricted performance shares of Class A Common Stock were made to the
following directors and named executive officers: Daryl Ferguson 125,000 shares;
David Sharkey 125,000 shares; Leonard Tow 125,000 shares; Todd Hanson 15,000;
Randall Lis 15,000 shares; John Wolff 15,000 shares; and Ernst Yates 15,000
shares. Seven other key employees of the Company received grants of a total of
100,000 shares. The restrictions will lapse, as to one-third of the shares, on
the later of the first anniversary of the date of this Prospectus or the
attainment of the Company of at least $100,000,000 of revenues in a trailing 12-
month period; as to the second-third of the shares, on the later of the second
anniversary of the date of this Prospectus or the attainment of at least
$125,000,000 of revenues of a trailing 12-month period; and as to the remainder
of the shares, on the later of the third anniversary of the date of this
Prospectus or the attainment of at least $155,000,000 of revenues of a trailing
12-month period; (in each case, provided that the officer is an employee of the
Company or Citizens on the "lapse" date) except that the restrictions on Dr.
Tow's shares will lapse only if the Company attains revenues of at least
$13,000,000 for the month of January 2001 or for any month thereafter until
January 2005. Dr. Tow's continued employment on the lapse date is not a
condition to the lapse of the restrictions.
All employees of the Company and its affiliate companies and persons who render
services directly or indirectly to the Company as director, consultant or
otherwise are eligible for selection to participate in the Plan. Awards granted
under the Plan consist of stock options or other stock-based awards relating to
shares of the Company's Class A Common Stock. The maximum number of shares of
Common Stock which may be issued pursuant to awards is no more than 4,170,600
shares. Under the Plan, no individual may be granted share-denominated
performance awards in any calendar year covering more than 500,000 shares and
dollar value-
65
<PAGE>
denominated awards in any calendar year covering more than $750,000 in dollar
value. No awards will be granted more than ten years after the effective date of
the Plan.
The Plan is administered by the Compensation Committee of the Board of
Directors. Subject to the express provisions of the Plan, the Compensation
Committee is authorized, among other things, to (a) grant awards to eligible
individuals; (b) determine the terms and conditions of each award; (c) establish
and modify performance objectives; and (d) modify or amend any award unless the
effect adversely and materially affects the rights of any recipient. If the
Compensation Committee so determines, any action or discretion delegated in the
Plan to the Compensation Committee, including the grant of awards, may be
carried out by, or delegated to, the Board of Directors or the stockholders.
Under the Plan, a Stock Option, which may be a nonqualified or an incentive
stock option, may be granted either alone or in conjunction with one or more
other awards. The exercise price, except in the discretion of the Compensation
Committee in the case of new employees or others who commence to render
services, shall be equal to or greater than the 85% of the fair market value of
the underlying Common Stock on the date of grant. The term of each Stock Option
shall be also determined by the Compensation Committee but may not exceed ten
years from the date of grant. Upon exercise, the option price of each Stock
Option is payable by the option holder in cash or, in the sole discretion of the
Compensation Committee, through the delivery of shares of the Company's Common
Stock valued at their fair market value, or in a combination of cash and shares.
The Compensation Committee may grant a replacement Stock Option to an option
holder to replace the shares which the option holder delivered to Company. The
Compensation Committee may also accept the surrender of the right to exercise
any Stock Option for payment in cash or shares or any combination thereof. The
Compensation Committee may also grant stock appreciation rights, free standing
or in tandem with Stock Options, which entitle the holder thereof to receive a
similar payment at his or her election.
The Plan also authorizes the Compensation Committee to grant other stock-based
awards to eligible individuals, which consist of awards that are valued in whole
or in part by reference to, or otherwise based on, the Company's Common Stock
and may include, but are not limited to, restricted stock, performance shares,
phantom shares, and deferred stock. Subject to the terms of the Plan, the
Compensation Committee may determine any and all terms and conditions of other
stock-based awards. The performance objectives determined by the Committee for
each performance share award shall be based on: stock price; market share;
sales; earnings per share; operating cash flow; free cash flow; net income or
loss; net income or loss adjusted to exclude specified items such as gain or
losses from extraordinary or non-recurring items and non-cash expense and income
and before specified expense items such as interest, depreciation, amortization
and income taxes; EBITDA; revenues; return on equity or assets; cost control; or
a combination of any of the foregoing. Payment or settlement of other stock-
based awards will be in cash or in shares of the Company's Common Stock or in
any combination thereof as the Compensation Committee determines in its sole
discretion. The Compensation Committee may permit the payment of withholding
taxes due in connection with awards under the Plan by the withholding of shares
to be issued under the award or by the participant's delivery of other shares of
Common Stock of the Company.
Awards may include terms which provide that any or all of the following actions
may occur as a result of, or in anticipation of, any "Change in Control" (as
defined below) to assure fair and equitable treatment of participants: (i)
acceleration of time periods for purposes of
66
<PAGE>
vesting, or realizing gain from, any outstanding award; (ii) purchase of any
outstanding award from the holder for its equivalent value, as determined by the
Compensation Committee; (iii) adjustments or modifications to outstanding
awards, including the modification or elimination of restrictions and
performance goals, as the Compensation Committee deems appropriate to maintain
and protect the rights and interests of participants. A "Change in Control" is
defined to mean the occurrence of any of the following events: (i) a person or
group (other than Citizens) becomes the owner of stock having 20% or more of the
total number of votes that may be cast for the election of directors of the
Board; (ii) a consolidation or merger or sale of assets in which the Company is
not the surviving corporation or pursuant to which the Company's stock will be
converted into cash, securities or other property or a sale, lease, exchange or
other transfer of 51% or more of the assets of the Company; or (iii) as a result
of any cash tender or exchange offer, merger or other business combination, sale
of assets or contested election, or any combination of the foregoing
Transactions, the persons who are members of the Board before the Transaction
shall cease to constitute a majority of the Board of the Company.
These provisions in the Plan allowing the Compensation Committee and the Board
to award accelerated vesting upon a Change in Control could in some
circumstances have the effect of an "antitakeover" defense because, as a result
of these provisions, a Change in Control of the Company could be more difficult
or costly.
The Plan is subject to suspension, amendment, modification or termination at any
time by the Company's Board of Directors or the stockholders. However, no
amendment or modification would become effective unless approved by the
affirmative vote of the stockholders of the Company if such approval is
necessary or deemed desirable for the continued validity of the Plan or its
compliance with any tax or securities law rule or regulation of any stock
exchange or stock market, or other legal or regulatory, requirement.
PENSION PLAN
Citizens has a noncontributory qualified retirement plan covering Mr. Sharkey
that provides benefits based on formulas related to base salary and years of
service. Benefits shown are not subject to reduction for Social Security
payments. The following table illustrates the estimated annual plan pension
benefits available to Mr. Sharkey upon retirement at age 65 assuming a
preretirement death benefit election of 100% joint and survivorship benefits.
The remuneration classifications are based on the highest five-year average
annual salary (subject to the limitation of the Internal Revenue Code of 1986 on
the amount of annual compensation which may be credited to a participant's
retirement benefits) and the years of service represent years of credited
service.
Pension Plan Table
Years of Service
----------------
Remuneration 5 10 15 20
----- ------ ------ ------
(000 Omitted)
-------------
$160..................... 12 25 37 49
Full years of credited service for Mr. Sharkey are two.
67
<PAGE>
RELATIONSHIP WITH CITIZENS
General
Upon completion of the Offering, Citizens will own 100% of the outstanding Class
B Common Stock of the Company which will represent approximately 97.5% of the
combined voting power of all of the outstanding Common Stock (or approximately
97.16% if the Underwriters' over-allotment options are exercised in full). For
so long as Citizens continues to own shares of Common Stock representing more
than 50% of the combined voting power of the Common Stock of the Company,
Citizens will be able, among other things, to determine any corporate action
requiring approval of holders of Common Stock, including the election of the
entire Board of Directors of the Company, certain amendments to the Certificate
of Incorporation and By-Laws of the Company and approval of certain mergers and
other control transactions, without the consent of the other shareholders of the
Company. See "Description of Capital Stock."
In addition, through its beneficial ownership of Common Stock and, following the
Offering, its control of the Board of Directors, Citizens will be able to
control certain decisions, including decisions with respect to the Company's
dividend policy, the Company's access to capital (including borrowing from
third-party lenders and the issuance of additional equity securities), mergers
or other business combinations involving the Company, the acquisition or
disposition of assets by the Company and any change in control of the Company.
Citizens has advised the Company that Citizens has no present plan or intention
other than to hold all of the Class B Common Stock beneficially owned by it for
the foreseeable future. Citizens has no agreement with the Company not to sell
or distribute such shares, other than pursuant to the Underwriting Agreement in
which Citizens has agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities exchangeable into or
exercisable or exchangeable for Common Stock or file any registration statement
under the Securities Act with respect to any of the foregoing for a period of
180 days from the date of this Prospectus without the prior written consent of
Lehman Brothers Inc. on behalf of the Representatives. There can be no
assurance concerning the period of time during which Citizens will maintain its
beneficial ownership of Common Stock.
Beneficial ownership of at least 80% of the total voting power and value of the
outstanding Common Stock is required in order for Citizens to continue to
include the Company in its consolidated group for federal income tax purposes.
Completion of the Offering made by this Prospectus may terminate the
consolidated group which includes the Company. Beneficial ownership of at least
80% of the total voting power and at least 80% of any class of nonvoting capital
stock is required in order for Citizens to be able to effect a tax-free spin-
off. The Company's relationship with Citizens will also be governed by
agreements to be entered into in connection with the Offering with Citizens,
including an Administrative Services Agreement, a Tax Sharing Agreement, an
Indemnification Agreement, a Customers and Service Agreement and a Registration
Rights Agreement, the material terms of which are described below. In addition,
by virtue of its controlling beneficial ownership and the terms of the Tax
Sharing Agreement between the Company and Citizens, Citizens will effectively
control all of the Company's tax decisions, and conflicts of interest regarding
tax matters between the Company and Citizens may arise. See "-Tax Sharing
Agreement".
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The descriptions set forth below are intended to be summaries, and while
material terms of the agreements are set forth herein, the descriptions are
qualified in their entirety to reference to the relevant agreement filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Administrative Services Agreement
The Administrative Services Agreement (the "Administrative Services Agreement")
provides for Citizens to continue to provide certain financial management
services, information services, legal and contract services, human resources
services and corporate planning services to the Company. Under the terms of the
Administrative Services Agreement, all of the services will be rendered by
Citizens subject to the oversight, supervision and approval of ELI, acting
through its Board of Directors.
The administrative costs to be paid by ELI to Citizens pursuant to the
Administrative Services Agreement are not expected to exceed the fees that would
be paid if such services were to be provided by an independent third party.
The Administrative Services Agreement will become effective upon the public
offering of shares of Class A Common Stock, and shall terminate on December 31,
2005, unless earlier terminated by Citizens or ELI. The Administrative Services
Agreement will 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 and will be terminated upon a change of control of ELI. A
change of control shall be deemed to have occurred if (i) Citizens or the
companies controlled by Citizens should own shares representing less than a
majority of the voting power of the then outstanding common stock; (ii) majority
of the seats of the board of directors shall be occupied by persons who are
neither (a) nominated by Citizens or by the board of directors of ELI, nor (b)
appointed by directors of ELI so nominated or (iii) any person or group other
than Citizens and companies controlled by Citizens shall otherwise directly or
indirectly have the power to exercise a controlling influence over ELI.
Tax Sharing Agreement
The Company has heretofore been included in Citizens' federal consolidated
income tax group. After the Offering it is expected that the Company will no
longer be included in the federal consolidated income tax group although,
depending upon the aggregate value of the Common Stock owned by Citizens after
the Offering, the Company may continue to be so included. In such case the
Company's federal income tax liability would be included in the consolidated
federal income tax liability of Citizens and its subsidiaries. The Company may
also be included with certain Citizens subsidiaries in combined, consolidated or
unitary income tax groups for state and local tax purposes. The Company and
Citizens will enter into a federal, state and local tax-sharing agreement (the
"Tax Sharing Agreement"). Pursuant to the Tax-Sharing Agreement, the Company and
Citizens will make payments between them such that, with respect to any period,
the amount of taxes to be paid by the Company, subject to certain adjustments,
will generally be determined as though the Company were to file separate
federal, state and local income or franchise tax returns (including, except as
provided below, any amounts determined to be due as a result of a
redetermination of the tax liability of Citizens arising from an audit or
otherwise). The Company will be responsible for any tax liability due any
foreign jurisdiction arising from its business activities. The Tax Sharing
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Agreement will remain in effect so long as any taxing jurisdiction requires the
filing of a combined tax return by both Citizens and ELI.
If the Company continues to be included in Citizens' federal consolidated income
tax group, Citizens will continue to have all the rights of a parent of a
consolidated group. If so provided for by applicable state and local law with
respect to a parent of a combined, consolidated or unitary group Citizens will
have similar rights. Citizens will have sole and exclusive responsibility for
(i) preparing any tax returns (including amended returns or claims for refund)
of the Company; (ii) representing the Company with respect to any tax audit or
tax contest; (iii) engaging outside counsel and accountants with respect to tax
matters regarding the Company; and (iv) performing such other acts and duties
with respect to the Company's tax returns as Citizens determines is appropriate.
Under the Administrative Services Agreement, the amounts that the Company will
pay Citizens will encompass reimbursement to Citizens for all direct and
indirect costs and expenses incurred with respect to the Company's share of the
overall costs and expenses incurred by Citizens with respect to tax related
services.
In general, the Company will be included in Citizens' consolidated group for
federal income tax purposes for so long as Citizens beneficially owns at least
80% of the total voting power and value of the outstanding common stock. Each
member of a consolidated group is jointly and severally liable for the federal
income tax liability of each other member of the consolidated group.
Accordingly, although the Tax Sharing Agreement allocates tax liabilities
between the Company and Citizens, during the period in which the Company is
included in Citizens' consolidated group, the Company could be liable in the
event that any federal tax liability is incurred, but not discharged, by any
other member of Citizens' consolidated group. See "Risk Factors - Control by
Citizens."
Indemnification Agreement
The Company and Citizens have entered into an indemnification agreement (the
"Indemnification Agreement"). The Indemnification Agreement provides that each
party thereto (the "Indemnifying Party") will indemnify the other party thereto
and its directors, officers, employees, agents and representatives (the
"Indemnified Party") for liabilities under federal or state securities laws as a
result of the Offering, including liabilities arising out of or based upon
alleged misrepresentations in or omissions from the Registration Statement, of
which this Prospectus is a part, and for liabilities that may be incurred by the
Indemnified Party relating to, resulting from or arising out of (i) the
businesses and operations conducted or formerly conducted, or assets owned or
formerly-owned, by the Indemnifying Party and its subsidiaries (except, in the
case where Citizens is the Indemnifying Party, such businesses, operations and
assets of the Company and its subsidiaries) or (ii) the failure by the
Indemnifying Party to comply with any other agreements executed in connection
with the Offering, except to the extent caused by the Indemnified Party.
The Indemnification Agreement also provides that the Company will indemnify
Citizens for any liabilities incurred by Citizens under any guarantees of ELI's
obligations or liabilities of the Company and that the Company will pay Citizens
for its direct costs, if any, of maintaining such guarantees.
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Registration Rights Agreement
The Company and Citizens have entered into a Registration Rights Agreement (the
"Registration Rights Agreement"). The Registration Rights Agreement provides
that, upon the request of Citizens, the Company will use its best efforts to
effect the registration under the applicable federal and state securities laws
of any of the shares of Common Stock (and any other securities issued in respect
of or in exchange therefor) held by Citizens for sale in accordance with
Citizens' intended method of disposition thereof and will take such other
actions necessary to permit the sale thereof in other jurisdictions, subject to
certain specified limitations. Although as of the date of this Prospectus,
Citizens has advised the Company that Citizens has no current plan or intention
other than to hold its shares of Class B Common Stock for the foreseeable
future, Citizens will also have the right, which it may exercise at any time and
from time to time, to include the shares of Common Stock held by it in certain
other registrations of common equity securities of the Company initiated by the
Company on its own behalf or on behalf of its other shareholders. Citizens will
pay the out-of-pocket costs and expenses of registration for registrations which
it initiates. The Company has agreed to pay all out-of-pocket costs and
expenses (other than underwriting discounts and commissions) in connection with
registrations initiated by the Company or others in which Citizens participates.
Subject to certain limitations specified in the Registration Rights Agreement,
such registration rights will be assignable by Citizens and its assigns. The
Registration Rights Agreement contains indemnification and contribution
provisions (i) by Citizens and its permitted assigns for the benefit of the
Company and related persons and (ii) by the Company for the benefit of Citizens
and the other persons entitled to effect registrations of Common Stock and
related persons.
Customers and Service Agreement
The Company and Citizens have entered into a Customers and Service Agreement
(the "Customers and Service Agreement"). The Customers and Service Agreement
contains provisions prohibiting the Company from offering services to retail
customers in (i) Citizens' existing service areas and (ii) certain new less
dense territories which Citizens will have been first to enter after the
Offering. Outside of such service areas and territories, the Company will not
offer service to existing retail customers of Citizens. Less dense territories
are defined as territories acquired by Citizens after the Offering and before
ELI acquires the territory, which territories are comprised of cities, towns,
villages and other metropolitan areas with populations of less than 50,000. The
term also includes certain more dense territories which are acquired by Citizens
in transactions which primarily include less dense territories. Citizens will
not offer services to existing retail customers of the Company in (i) the
Company's existing service territories and (ii) certain new more dense
territories which the Company will have been first to enter after the Offering.
Outside of such service areas and territories, Citizens will not offer services
to existing retail customers of ELI. Neither Citizens nor ELI may solicit an
existing wholesale customer of the other company for services which such
customer is currently receiving under contract from the other company. The
relevant provisions are intended to permit the Company to continue all
activities in which it currently engages, and to expand into related markets.
The Customers and Service Agreement will remain in effect until Citizens ceases
to own a majority of the voting interest of the capital stock of the Company or
its designees cease to constitute a majority of the directors.
Citizens' Guarantees of ELI's Obligations
Citizens has guaranteed all obligations of ELI under a lease of certain
equipment described under "Business-Properties." Effective with the Offering,
ELI has agreed to pay Citizens a guarantee fee at the rate of 3.25% per annum
based on the amount of the lessor's investment in the leased assets. See
"Business-Properties-Lease."
In October, 1997, the Company arranged for a bank commitment for a five-year
$400 million revolving Credit Facility. Citizens has agreed, subject to
receiving regulatory authorization, to substitute its guarantee of all debt
obligations under such Credit Facility
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for that of certain subsidiaries of Citizens within 90 days of the Closing of
the Credit Facility. Effective with the Offering, ELI has agreed to pay Citizens
a guarantee fee at a rate of 3.25% per annum based on the balance
outstanding.
Citizens and ELI have agreed that, if Citizens intends to reduce its economic
interest in ELI to less than 51%, Citizens will be entitled to request ELI to
refinance its obligations under the Lease and the Credit Facility and ELI
shall be obligated to use its best efforts to do so. This refinancing would
occur when Citizens reduces its economic interest in ELI to less than 51%.
Telecommunications Services
Citizens has leased "dark" fiber optic lines from ELI for which Citizens has
agreed to pay an annual fee of $360,000. Also, Citizens and ELI have agreed to
combine their purchases of long-haul services in an arrangement with a long
distance company in order to receive a lower unit cost. ELI has agreed to
reimburse Citizens for the cost of ELI's usage and pay an additional fee
consisting of 5% of such cost. In 1996, ELI paid Citizens a total of
approximately $7.6 million under such agreement. The agreement was replaced
effective May 1, 1997 with a 24-month term agreement which removed the 5%
additional fee.
Conflicts of Interest
Conflicts of interest may arise between the Company and Citizens in a number of
areas relating to their past and ongoing relationships, including potential
acquisitions of businesses or properties or other corporate opportunities,
potential competitive business activities, the election of a new or additional
directors, payment of dividends, incurrence of indebtedness, tax matters,
financial commitments, marketing functions, indemnity arrangements, registration
rights, administration of benefits plans, service arrangements, issuances of
capital stock of the Company, sales or distributions by Citizens of its
remaining shares of Common Stock and the exercise of Citizens of its ability to
control the management and affairs of the Company. The Customers and Service
Agreement contains certain noncompete provisions; however, in many
circumstances, the Company and Citizens are free to engage in competition with
one another.
The Company and Citizens may enter into material transactions and agreements in
the future in addition to those described above. The Board will utilize such
procedures in evaluating the terms and provisions of any material transactions
between the Company and Citizens or its affiliates as the Board may deem
appropriate in light of its fiduciary duties under the state law. In any such
evaluation, the Board may rely on management's statements and opinions and may
or may not utilize outside experts or consultants or obtain independent
appraisals or opinions.
The six current directors of the Company include Leonard Tow, Chairman of the
Board and Chief Executive Officer of Citizens, who is Chairman of the Board of
the Company, Daryl A. Ferguson, President and Chief Operating Officer of
Citizens, who is Vice Chairman of the Board of the Company, and Stanley
Harfenist and Robert Stanger, directors of Citizens. Also, Mr. Ferguson is
Chief Executive Officer of the Company and Robert J. DeSantis, an executive
officer of Citizens is an executive officer of the Company. Directors and
officers of the Company who are also directors and officers of Citizens will
have conflicts of interest with respect to matters potentially or actually
involving or affecting the Company or Citizens, such as acquisitions, financing
and other corporate opportunities that may be suitable for the Company and
Citizens. To the extent that such opportunities arise, such directors may
consult with their legal advisors and make a determination after consideration
of a number of factors, including whether such opportunity is within the
Company's line of business or consistent with its strategic objectives and
whether the Company will be able to undertake or benefit from such opportunity.
In addition, determination may be made by the Board, when appropriate, by the
vote of the
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disinterested directors only. Notwithstanding the foregoing, there can be no
assurance that conflicts will be resolved in favor of the Company.
So long as the Company remains a subsidiary of Citizens, the directors and
officers of the Company will, subject to certain limitations, be indemnified by
Citizens and insured under insurance policies maintained by Citizens against
liability for actions taken or omitted to be taken in their capacities as
directors and officers of the Company, including actions or omissions that may
be alleged to constitute breaches of the fiduciary duties owed by such persons
to the Company and its shareholders. This insurance may not be applicable to
certain of the claims which Citizens may have against the Company pursuant to
the Indemnification Agreement or otherwise.
SECURITIES OWNERSHIP
ELI Common Stock
No shares of Class A Common Stock were outstanding or beneficially owned prior
to the Offering. Immediately after the Offering, the only shares of Class A
Common Stock that will be outstanding are those that will be issued in the
Offering (including any shares issued upon exercise of the Underwriters' over-
allotment options) and the 535,000 restricted shares to be issued at the
offering date to directors, officers and employees under the Equity Incentive
Plan. All of the 41,165,000 shares of Class B Common Stock outstanding are
beneficially owned by Citizens. Accordingly, upon consummation of the Offering,
Citizens will own Common Stock representing approximately 79.62% of the economic
interest in the Company (77.38% if the Underwriters' over-allotment options are
exercised in full) and representing approximately 97.5% of the combined voting
power of the Company's outstanding Common Stock (or 97.16% if the Underwriters'
over-allotment options are exercised in full).
The following table provides information, as of September 30, 1997, and as
adjusted to reflect the sale of 10,000,000 shares of Class A Common Stock by ELI
in the Offering, with respect to the beneficial ownership of the Company's
Common Stock by each person known by ELI to be the beneficial owner of more than
5% of any class of the Company's voting securities. As of September 30, 1997
none of the directors nor any of the executive officers of the Company
beneficially owned any shares of Class A Common Stock or Class B Common Stock.
See "Management-Equity Incentive Plan" for a discussion of the grant of
restricted shares of Class A Common Stock to directors and officers in
connection with the Offering.
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
----------------------- ---------------------- Percent of Vote of
Number of Number of All Classes of
Name and Address(1) Shares % Shares % Common Stock
- ------------------- ------------ ---------- ----------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
Citizens Utilities
Company................. 0 0% 41,165,000 100% 97.5%
</TABLE>
- ---------------------
(1) The address of Citizens is High Ridge Park, Stamford, Connecticut 06905.
Citizens Common Stock
The following table reflects shares of common stock of Citizens beneficially
owned (or deemed to be beneficially owned pursuant to the rules of the
Securities and Exchange Commission) as of September 15, 1997 by each director
and Named Executive Officer of the Company and all executive officers and
directors of the Company as a group.
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<TABLE>
<CAPTION>
Acquirable Percentage of
Name Title Shares Owned Within 60 Days(1) Common Stock(2)
- ---- ----- ------------ ----------------- ---------------
<S> <C> <C> <C> <C>
Daryl A. Ferguson Vice Chairman and CEO 325,874 306,875 *
Todd Hanson Vice President 10,829 6,880 *
Stanley Harfenist Director 51,074 37,787 *
Randall Lis Vice President 7,661 6,390 *
David B. Sharkey President and Director 18,519 18,115 *
Robert A. Stanger Director 40,206 37,787 *
Leonard Tow Chairman 8,929,254/(3)(4)/ 2,835,530/(4) 3.6%
John Wolff Vice President 7,738 6,391 *
Earnest Yates Vice President 5,743 1,666 *
All Officers and Directors as
a group 9,544,529/(5)/ 3,393,249/(5)/ 3.9%
</TABLE>
_____________________________
* Represents less than 1% of Citizens' common stock.
(1) Reflects number of shares that could be purchased by exercise of options
available as of September 15, 1997 or within 60 days thereafter under Citizens'
stock option plans.
(2) Based on number of shares outstanding at, or acquirable within 60 days of,
September 15, 1997.
(3) Includes 4,812,549 shares of Citizens' common stock owned by Century
Communications Corp. of which Leonard Tow is Chairman of Board, Chief Executive
Officer, Director and, together with his wife, the holder of a majority
ownership interest in its common stock. These shares are included in the above
table as required by the definition of beneficial ownership of the Securities
and Exchange Commission. Except to the extent of such indirect interest,
Leonard Tow disclaims beneficial ownership of any of these shares of common
stock of Citizens.
(4) Includes 17,438 shares of Citizens' common stock held by his wife as
custodian for her minor grandchildren and 37,787 shares of Citizens' common
stock acquirable by his wife within 60 days. Leonard Tow disclaims beneficial
ownership of all such shares.
(5) Share information is qualified as described in the previous footnotes.
DESCRIPTION OF CAPITAL STOCK
On November 11, 1997, ELI amended its Certificate of Incorporation to change its
authorized capital stock to 180,000,000 shares, including 110,000,000 shares of
Class A Common Stock, $.01 par value per share, 60,000,000 shares of Class B
Common Stock, $.01 par value per share, and 10,000,000 shares of preferred
stock, $.01 par value per share (the "Preferred Stock"). Upon completion of the
Offering, there will be no preferred stock outstanding and Citizens will own all
of the outstanding shares of Class B Common Stock. See "Securities
Ownership."
The following summary description relating to the capital stock of the Company
does not purport to be complete. The rights of the holders of ELI's capital
stock will be set forth in ELI's Certificate of Incorporation, the form of which
is filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. The summary set forth below is qualified by reference to such
exhibit and to the applicable provisions of the Delaware General Corporation Law
(the "DGCL").
Common Stock
The preferences and relative rights of the Class A Common Stock and Class B
Common Stock are substantially identical in all respects, except for voting
rights and exchange rights.
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Voting Rights
Each share of Class A Common Stock entities the holder to one vote and each
share of Class B Common Stock entities the holder to 10 votes on each matter to
be voted upon by the holders of the Common Stock. The holders of the shares of
Class A Common Stock and Class B Common Stock vote as one class on all matters
to be voted on by stockholders, including, without limitation, the election of
directors and any proposed amendment to the Certificate of Incorporation of ELI
that would increase the authorized number of shares of Common Stock or any class
thereof or any other class or series of stock or decrease the number of
authorized shares of any class or series of stock (but not below the number
thereof then outstanding), except as required by the DGCL.
Neither the holders of Class A Common Stock nor the holders of Class B Common
Stock have cumulative voting rights. For a discussion of the effects of the
disproportionate voting rights of the Class A Common Stock and Class B Common
Stock, see "Risk Factors--Control by Principal Stockholder" and "--Conflicts of
Interest."
Dividends
Each share of Common Stock is entitled to receive dividends from funds legally
available therefor if, as and when declared by the Board of Directors of ELI.
Class A Common Stock and Class B Common Stock share equally, on a share-for-
share basis, in any dividends declared by the Board of Directors. If at any
time a distribution of the Class A Common Stock or Class B Common Stock is to be
paid in shares of Class A Common Stock, Class B Common Stock or any other
securities of the Company or any other person, such dividends may be declared
and paid only as follows: (1) a share distribution consisting of Class A Common
Stock to holders of Class A Common Stock and Class B Common Stock, on an equal
per share basis; or to holders of Class A Common Stock only, but in such event
there shall also be a simultaneous share distribution to holders of Class B
Common Stock consisting of shares of Class B Common Stock on an equal per share
basis; (2) a share distribution consisting of Class B Common Stock to holders of
Class B Common Stock and Class A Common Stock, on an equal per share basis; or
to holders of Class B Common Stock only, but in such event there shall also be a
simultaneous share distribution to holders of Class A Common Stock consisting of
shares of Class A Common Stock on an equal per share basis; and (3) a share
distribution of shares of any class of securities of the Company or of any other
person other than the Common Stock, either on the basis of a distribution of
identical securities, on an equal per share basis to the holders of Class A
Common Stock and Class B Common Stock, or on the basis of a distribution of one
class of securities to the holders of Class A Common Stock and another class of
securities to holders of Class B Common Stock, provided that the securities so
distributed do not differ in any respect, other than relative voting rights and
related differences, in designations, exchange and share distribution
provisions, with the holders of Class B Common Stock receiving the class having
the higher relative voting rights, provided that if the securities so
distributed constitute capital stock of a subsidiary of the Company, such rights
shall not differ to a greater extent than the corresponding existing differences
in voting rights, designations, exchange and distribution provisions between
Class A Common Stock and Class B Common Stock. If the Company shall in any
manner subdivide or combine the outstanding shares of Class A Common Stock or
Class B Common Stock, the outstanding shares of the other class of Common Stock
shall be proportionally subdivided or combined in the same manner and on the
same basis as the outstanding shares of
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Class A Common Stock or Class B Common Stock, as the case may be, that have been
subdivided or combined.
Exchange
Under the Certificate of Incorporation, each share of Class B Common Stock is
exchangeable at any time and from time to time at the option of the holder
thereof into one share of Class A Common Stock. The Class A Common Stock has no
exchange rights.
Other
Stockholders of ELI have no preemptive or other rights to subscribe for
additional shares. All holders of Common Stock, regardless of class, are
entitled to share equally on a share-for-share basis in any assets available for
distribution to stockholders on liquidation, dissolution or winding up of ELI.
No shares of the Common Stock are subject to redemption or a sinking fund. All
outstanding shares are, and all shares offered by this Prospectus will be, when
sold, validly issued, fully paid and nonassessable. ELI may not subdivide or
combine shares of Common Stock without at the same time proportionally
subdividing or combining shares of the other classes.
Preferred Stock
The Company's Board of Directors is authorized to provide for the issuance of
Preferred Stock in one or more series and to fix the designations, preferences,
powers and relative, participating, optional and other rights, qualifications,
limitations and restrictions thereof, including the dividend rate, exchange
rights, voting rights, redemption price and liquidation preference and to fix
the number of shares to be included in any such series. Any such Preferred
Stock so issued may rank senior to the Common Stock with respect to the payment
of dividends or amounts upon liquidation, dissolution or winding up, or both.
In addition, any such shares of Preferred Stock may have class or series voting
rights.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is the Illinois Stock
Transfer Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, there will be 10,535,000 shares of Class A
Common Stock issued and outstanding (12,035,000 if the Underwriters' over-
allotment options are exercised in full) and 41,165,000 shares Class B Common
Stock issued and outstanding. The 10,000,000 shares of Class A Common Stock to
be sold in the Offering will be tradable without restriction by persons other
than "affiliates" of ELI. The shares of Class B Common Stock and any Class A
Common Stock issued upon exchange of Class B Common Stock held or to be held by
Citizens will be deemed "restricted securities" within the meaning of the
Securities Act, and, as such, may not be sold in the absence of registration
under the Securities Act or an exemption therefrom, including the exemptions
contained in Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are required to be aggregated) who has been deemed to have beneficially
owned shares of an issuer for at least one year, including an "affiliate," is
entitled to sell, within any three-month period, a
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number of shares that does not exceed the greater of 1% of the then outstanding
number of shares of such class or the average weekly trading volume in composite
trading in all national securities exchanges during the four calendar weeks
preceding the filing of the required notice of such sale, provided that such
issuer has been a reporting company for at least 90 days. As defined in Rule
144, an "affiliate" of an issuer is a person that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under
common control with, such issuer. Citizens would be deemed an "affiliate" of ELI
under the Securities Act.
The Company and Citizens, as the holder of the Class B Common Stock, have agreed
not to offer, sell, contract to sell, file a registration statement pursuant to
the Securities Act (except for certain registration statements relating to the
issuance of stock and stock options to employees) or otherwise dispose of any
shares of Common Stock without the prior written consent of Lehman Brothers Inc.
on behalf of the Representatives, for a period of 180 days after the date of
this Prospectus.
The shares of the Company's Class B Common Stock are exchangeable into shares of
Class A Common Stock and, in the event of exchange of such shares and expiration
of the 180-day lock-up period described above, over 500,000 of the aggregate
shares of Class A Common Stock issuable upon exchange of the Class B Common
Stock would be immediately eligible for sale pursuant to the provisions of Rule
144 under the Securities Act or upon registration under the Securities Act.
Citizens has advised ELI that Citizens has no current plan or intention other
than to hold the shares of Class B Common Stock owned by it for the foreseeable
future. However, no assurance can be given that Citizens will not decide in the
future to register its shares under the Securities Act and to dispose of all or
a portion of such stock on the public market from time to time, in an
underwritten transaction, or privately or otherwise. See "Relationship with
Citizens--Registration Rights Agreement." Alternatively, Citizens could dispose
of shares periodically pursuant to Rule 144. Any such offers or dispositions
could have a material adverse effect on the market price of the Class A Common
Stock.
Prior to the Offering, there has been no public market for the Class A Common
Stock, and no predictions can be made about the effect, if any, that market
sales of shares of Class A Common Stock or the availability of such shares for
sale would have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of Class A Common Stock in the public market, or
the perception that such sales could occur, may have a material adverse impact
on the market price for the shares of Class A Common Stock offered hereby or on
the ability of the Company to raise capital through a public offering of its
equity securities. See "Risk Factors--Shares Eligible for Future Sale."
CERTAIN TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income and estate
tax consequences of the ownership and disposition of Common Stock. This
discussion is intended only as a descriptive summary and does not purport to be
a complete analysis or listing of all possible tax considerations. The
discussion deals only with Common Stock held as capital assets and does not
address any special United States tax consequences that may be applicable to
holders that are subject to special treatment under the United States Internal
Revenue Code of 1986, as amended (the "Code"). Furthermore, the following
discussion is based on provisions of the Code and administrative and judicial
interpretations as of the date hereof, all of which are
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subject to change. Each prospective holder is urged to consult a tax advisor
with respect to the federal tax consequences of holding and disposing of Common
Stock in light of its particular situation, as well as any tax consequences that
may arise under the laws of any U.S. state, municipality or other taxing
jurisdiction.
Certain Tax Considerations Applicable to A Non-U.S. Holder
As used herein, a "non-U.S. holder" is a holder that is not (i) a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States or any political subdivision
thereof, (iii) an estate the income of which is subject to United Sates federal
income taxation regardless of its source, or (iv) a trust which is subject to
the supervision of a court within the United States and the control of one or
more United States persons. An individual may, among other ways, be deemed to
be a resident alien (as opposed to a non-resident alien) by virtue of being
present in the United States on at least 31 days in the calendar year and for an
aggregate of 183 days during a three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are
generally subject to U.S. federal tax as if they were U.S. citizens.
Dividends
As indicated above, the Company has no current intention to pay dividends on its
Common Stock. The following discussion of U.S. federal income taxes would apply
in the event taxable dividends are declared in the future and are paid to non-
U.S. holders. In general, dividends payable in cash or property (or which are
otherwise taxable) received by a non-U.S. holder of Common Stock will be subject
to withholding of U.S. federal income tax at a 30% rate or such rate as may be
specified by an applicable income tax treaty, unless the dividends are
effectively connected with the conduct of a trade or business by the non-U.S.
holder within the United States. Dividends that are effectively connected with
such holder's conduct of a trade or business in the United States are subject to
tax on a net income basis at rates applicable to U.S. holders and are not
generally subject to withholding. Any such effectively connected dividends
received by a non-U.S. corporation may also, under certain circumstances, be
subject to an additional "branch profits tax" at a 30% rate or such rate as may
be specified by an applicable income tax treaty.
Under current U.S. Treasury regulations, dividends paid to an address outside
the United States are presumed to be paid to a resident of such country for
purposes of the withholding rules discussed above, and, under the current
interpretation of U.S. Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. Under final U.S. Treasury regulations
issued October 6, 1997, and generally effective for payments made after December
31, 1998 (the "New Regulations"), however, a non-U.S. holder of Common Stock who
wishes to claim the benefit of an applicable treaty rate will be required to
satisfy applicable certification and other requirements. Currently certain
certification and disclosure requirements must be complied with in order to
claim an exemption from withholding under the effectively connected income
exemption.
A non-U.S. holder of Common Stock that is eligible for a reduced rate of U.S.
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts
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currently withheld by filing an appropriate claim for refund with the U.S.
Internal Revenue Service (the "IRS").
Gain on Disposition of Common Stock
A non-U.S. holder generally will not be subject to U.S. federal income tax in
respect of gain recognized on a disposition of Common Stock including stock
dividend shares unless (i) the gain is effectively connected with a trade or
business of the non-U.S. holder in the United States, (ii) in the case of a non-
U.S. holder who is an individual and holds the Common Stock as a capital asset,
such holder is present in the United States for 183 or more days in the taxable
year of the sale and certain other conditions are met, (iii) the non-U.S. Holder
is subject to tax pursuant to the provisions of U.S. tax law applicable to
certain U.S. expatriates (including certain former citizens and residents of the
United States), or (iv) the Company is or has been a "U.S. real property holding
corporation" for federal income tax purposes. The Company has not been, is not
and does not anticipate becoming, a "U.S. real property holding corporation" for
U.S. federal income tax purposes.
An individual non-U.S. holder described in clause (i) or (iii) above will be
subject to tax on the net gain derived from the sale under regular graduated
U.S. federal income tax rates. An individual non-U.S. holder described in
clause (ii) above will be subject to a flat 30% tax on the gain derived from the
sale, which may be offset by U.S. source capital losses (even though the
individual is not considered a resident of the United States). If a non-U.S.
holder that is a foreign corporation falls under clause (i) above, it will be
subject to tax on its gain under regular graduated U.S. federal income tax rates
and, in addition, may be subject to the branch profits tax equal to 30% of its
effectively connected earnings and profits within the meaning of the Code for
the taxable year, as adjusted for certain items, unless it qualifies for a lower
rate under an applicable income tax treaty.
Federal Estate Taxes
Common Stock owned or treated as owned by an individual who is neither a citizen
or a resident (as specifically defined for United States federal estate tax
purposes) of the United States at the time of death will be included in such
holder's gross estate for U.S. federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
U.S. Reporting Requirements and Backup Withholding Tax
Under U.S. Treasury regulations, the Company must report annually to the IRS and
to each non-U.S. holder the amount of dividends payable in cash or property
received by such holder and the tax withheld with respect to such dividends,
regardless of whether withholding was required. Copies of the returns reporting
such dividends and withholding may also be made available to the tax authorities
in the country in which the non-U.S. holder resides under the provisions of an
applicable income tax treaty.
Backup withholding (which generally is a withholding tax imposed at the rate of
31% on certain payments to persons that fail to furnish certain information
under the U.S. information reporting requirements) will generally not apply to
dividends paid to a non-U.S. holder at an address outside the United States
(unless the payer has knowledge that the payee is a U.S. person). Under the New
Regulations, however, a non-U.S. holder will be subject to back-up withholding
unless applicable certification requirements are met. Backup withholding and
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information reporting generally will apply to dividends paid to addresses inside
the United States on shares of Common Stock to beneficial owners that are not
"exempt recipients" and that fail to provide in the manner required by
regulation certain identifying information.
In general, backup withholding and information reporting will not apply to a
payment of the proceeds of a sale of Common Stock to or through a foreign office
of a broker. If, however, such broker is, for U.S. federal income tax purposes,
a U.S. person, a controlled foreign corporation, or a foreign person that
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the United States, such payments will not be subject to
backup withholding but will be subject to information reporting, unless (i) such
broker has documentary evidence in its records that the beneficial owner is a
non-U.S. holder and certain other conditions are met, or (ii) the beneficial
owner otherwise establishes an exemption. Under the New Regulations, such
payments by a U.S.-related broker will be subject to back up withholding if such
broker has actual knowledge that the payee is a U.S. person.
Payment to or through a U.S. office of a broker of the proceeds of a sale of
Common Stock is subject to both backup withholding and information reporting
unless the beneficial owner certifies under penalties of perjury that it is a
non-U.S. holder, or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
In general, the New Regulations do not alter significantly the substantive
requirements of the rules pertaining to U.S. federal income tax withholding,
backup withholding and information reporting, but, rather, modify certification
procedures and forms and clarify reliance standards. Prospective non-U.S.
holders should consult their own tax advisors regarding the New Regulations and
the effect, if any, the New Regulations will have on their ownership of Common
Stock.
UNDERWRITING
The Underwriters of the U.S. Offering named below (the "U.S. Underwriters"), for
whom Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Morgan Stanley & Co. Incorporated and Deutsche Morgan Grenfell Inc., are acting
as representatives (the "Representatives") have severally agreed, subject to the
terms and conditions set forth in the U.S. Underwriting Agreement (the "U.S.
Underwriting Agreement") with the Company, to purchase from the Company, and the
Company has agreed to sell to each U.S. Underwriter, the aggregate number of
shares of Class A Common Stock set forth opposite their respective names below.
Number
of
U.S. Underwriters Shares
- ----------------- ------
Lehman Brothers Inc.
Merrill Lynch Pierce, Fenner & Smith
Incorporated
Morgan Stanley & Co. Incorporated
Deutsche Morgan Grenfell Inc.
Total................................................ 8,000,000
=========
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The managers of the International Offering named below (the "International
Managers"), for whom Lehman Brothers International (Europe), Merrill Lynch
International, Morgan Stanley & Co. International Limited and Morgan Grenfell &
Co. Limited are acting as lead managers (the "Lead Managers"), have severally
agreed, subject to the terms and conditions of the International Underwriting
Agreement (the "International Underwriting Agreement"), to purchase from the
Company, and the Company has agreed to sell to each International Manager, the
aggregate number of shares of Class A Common Stock set forth opposite their
respective names below.
Number
of
International Managers Shares
- ---------------------- ------
Lehman Brothers International (Europe)
Merrill Lynch International
Morgan Stanley & Co. International Limited
Morgan Grenfell & Co. Limited
Total.............................................. 2,000,000
=========
The U.S. Underwriting Agreement and the International Underwriting Agreement
(collectively, the "Underwriting Agreements") provide that the obligations of
the U.S. Underwriters and the International Managers, respectively, to purchase
shares of Class A Common Stock are subject to the approval of certain legal
matters by counsel and to certain other conditions. Each Underwriting Agreement
provides that, if any shares of Class A Common Stock are purchased pursuant to
such Underwriting Agreement, all the shares of Class A Common Stock agreed to be
purchased pursuant to such Underwriting Agreement must be so purchased. The
offering price and underwriting discounts and commissions for the U.S. Offering
and the International Offering are identical. The closing of the International
Offering is a condition to the closing of the U.S. Offering and the closing of
the U.S. Offering is a condition to the closing of the International Offering.
The Company has granted to the U.S. Underwriters and the International Managers
options to purchase up to an additional 1,200,000 and 300,000 shares of Class A
Common Stock, respectively, at the initial public offering price less the
aggregate underwriting discount, solely to cover over-allotments. The options
may be exercised at any time up to 30 days after the date of this Prospectus. To
the extent that the U.S. Underwriters and International Managers exercise such
options, each of the U.S. Underwriters or International Managers, as the case
may be, will be committed, subject to certain conditions, to purchase a number
of option shares proportionate to such U.S. Underwriter's and International
Manager's initial commitment.
The Company has been advised that the U.S. Underwriters and the International
Managers propose to offer the shares of Class A Common Stock directly to the
public initially at the public offering price set forth on the cover page of
this Prospectus, and to certain selected dealers (who may include the U.S.
Underwriters and the International Managers) at such public offering price less
a selling concession not in excess of $__ per share. The selected dealers may
reallow a concession not in excess of $____ per share on sales to certain other
dealers. After the initial offering of the Class A Common Stock, the public
offering price, concession to selected dealers and reallowance to other dealers
may be changed.
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The Company and Citizens have agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including liabilities under
the Securities Act of 1933, and to contribute to payments which the U.S.
Underwriters and the International Managers may be required to make in respect
thereof.
The U.S. Underwriters and the International Managers have entered into an
Agreement Among U.S. Underwriters and International Managers (the "Agreement
Among") pursuant to which each U.S. Underwriter has agreed that, as part of the
distribution of the shares of Class A Common Stock offered in the U.S. Offering,
(a) it is not purchasing any of such shares for the account of anyone other than
a U.S. or Canadian Person (as defined below) and (b) it has not offered or sold,
and will not offer, sell, resell or deliver, directly or indirectly, any of such
shares or distribute any prospectus relating to the U.S. Offering outside the
United States or Canada or to anyone other than a U.S. or Canadian Person. In
addition, pursuant to the Agreement Among, each International Manager has agreed
that, as part of the distribution of the shares of Class A Common Stock offered
in the International Offering, (a) it is not purchasing any of such shares for
the account of any U.S. or Canadian Person and (b) it has not offered or sold,
and will not offer, sell, resell or deliver, directly or indirectly, any of such
shares or distribute any prospectus relating to the International Offering
within the United States or Canada or to any U.S. or Canadian Person. The
foregoing limitations do not apply to stabilization transactions or to certain
other transactions specified in the Underwriting Agreements and the Agreement
Among, including: (i) certain purchases and sales between the U.S. Underwriters
and the International Managers; (ii) certain offers, sales, resales, deliveries
or distributions to or through investment advisors or other persons exercising
investment discretion; (iii) purchases, offers or sales by a U.S. Underwriter
who is also acting as an International Manager or by an International Manager
who also is acting as a U.S. Underwriter and (iv) other transactions
specifically approved by the U.S. Underwriters and International Managers. As
used herein, "U.S. or Canadian Person" means any resident or citizen of the
United States or Canada, any corporation, pension, profit sharing or other trust
or other entity organized under or governed by the laws of the United States or
Canada or any political subdivision thereof (other than the foreign branch of
any United States or Canadian Person), any estate or trust the income of which
is subject to United States or Canadian federal income taxation regardless of
the source of its income, and any United States or Canadian branch of a person
other than a United States or Canadian Person. The term "United States" means
the United States of America (including, the states thereof and the District of
Columbia) and its territories, its possessions and other areas subject to its
jurisdiction. The term "Canada" means the provinces of Canada, its territories,
its possessions and other areas subject to its jurisdiction.
Pursuant to the Agreement Among, sales may be made among the U.S. Underwriters
and the International Managers of such number of shares of Class A 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 Class A Common Stock being sold by the U.S.
Underwriters and International Managers, less an amount not greater than the
selling concession unless otherwise determined by mutual agreement. To the
extent that there are sales pursuant to the Agreement Among, the number of
shares initially available for sale by the U.S. Underwriters and the
International Managers may be more or less than the amount specified on the
cover page of this Prospectus.
Each International Manager has represented and agreed that: (i) it has not
offered or sold and, prior to the date six months after the date of issue of the
shares of Class A Common Stock,
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will not offer or sell any shares of Class A 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 purpose of their business 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; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the
Class A Common Stock in, from or otherwise involving the United Kingdom; and
(iii) 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 Class A Common Stock if that person is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995.
Purchasers of the shares offered hereby may be required to pay stamp taxes and
other charges in accordance with the laws and practices of the country of
purchase in addition to the public offering price.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of Class A Common Stock to accounts over which they
exercise discretionary authority.
The Company and Citizens, as the holder of the Class B Common Stock, have agreed
not to offer, sell, contract to sell, file a registration statement pursuant to
the Securities Act (except for certain registration statements relating to the
issuance of stock and stock options to employees) or otherwise dispose of any
shares of Common Stock without the prior written consent of Lehman Brothers Inc.
on behalf of the Representatives, for a period of 180 days after the date of
this Prospectus.
Prior to the Offering, there has been no public market for the Class A Common
Stock. The initial public offering price of the Class A Common Stock has been
determined by negotiations among the Company and the Underwriters. Among the
principal factors considered in making such determination were the past and
present operations of the Company, the historical results of operations of the
Company and the trend of its revenues and earnings, the prospects for future
earnings of the Company, an assessment of the Company's management, the history
of and prospects for the industry in which the Company competes, the prices of
similar securities of generally comparable companies and the general condition
of the securities markets at the time of the Offering. There can be no
assurance that an active trading market will develop for the Class A Common
Stock or that the Class A Common Stock will trade in the public market
subsequent to the Offering at or above the initial public offering price.
The Class A Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "ELIX."
Until the distribution of the Class A Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase shares of Class A Common
Stock. As an exception to these rules, the Representatives are permitted to
engage in certain transactions that stabilize the price of the Class A Common
Stock. Such transactions may consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Class A Common Stock.
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If the Underwriters create a short position in the Class A Common Stock in
connection with the Offering (i.e., if they sell more shares of Class A Common
Stock than are set forth on the cover page of this Prospectus), the
Representatives may reduce that short position by purchasing Class A Common
Stock in the open market. The Representatives may also elect to reduce any
short position by exercising all or part of the over-allotment options described
herein.
The Representative may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Representatives purchase shares
of Class A Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Class A Common Stock, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security by purchasers in the Offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Class A Common Stock. In addition,
neither the Company nor any of the Underwriters makes any representation that
the Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
At the Company's request, the U.S. Underwriters have reserved up to ____% of the
shares for sale at the initial public offering price to certain of the Company's
employees. The number of shares available for sale to the general public will
be reduced to the extent these individuals purchase such reserved shares. Any
reserved shares not purchased will be offered by the U.S. Underwriters to the
general public on the same basis as the other shares offered hereby.
Certain of the U.S. Underwriters and International Managers have provided, from
time to time, and expect to provide in the future, brokerage and investment
banking services to the Company and its affiliates for which they receive
customary fees and compensation.
LEGAL MATTERS
The legality of the Class A Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Winthrop, Stimson, Putnam &
Roberts, New York, New York, and for the Underwriters by Simpson Thacher &
Bartlett (a partnership which includes professional corporations), New York, New
York. Legal matters relating to required authorization, if any, of the Common
Stock Series A by the public utilities commissions in the various states will be
passed upon by local counsel to the Company in the states of Washington, Oregon,
California, Utah, Nevada, Arizona and Idaho. Winthrop, Stimson, Putnam &
Roberts and Simpson Thacher & Bartlett may rely upon such counsel as to certain
matters governed by the laws of such states.
EXPERTS
The financial statements of Electric Lightwave, Inc. as of December 31, 1995 and
1996 and for each of the years in the three-year period ended December 31, 1996
have been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP,
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independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
ELI has filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form S-1 under the Securities Act with respect to the
Class A Common Stock being offered in the Offering. For the purposes hereof,
the term "Registration Statement" means the original Registration Statement and
any and all amendments thereto, including the schedules and exhibits to such
original Registration Statement or any such amendment. This Prospectus does not
contain all of the information set forth in the Registration Statement, to which
reference hereby is made. Each statement made in this Prospectus concerning a
document filed as an exhibit to the Registration Statement is qualified in its
entirety by reference to such exhibit for a complete statement of its
provisions.
ELI is not currently subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). As a result of the
Offering, ELI will become subject to the informational requirements of the
Exchange Act and in accordance therewith will file periodic reports, proxy and
information statements and other information relating to its business, financial
statements and other matters. Any interested party may inspect the Registration
Statement, the reports, proxy and information statements and other information
without charge, at the public reference facilities of the SEC at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at its regional offices in Chicago (Citicorp Center, Suite 1400, 500
West Madison Street, Chicago, Illinois 60601), and in New York (Seven World
Trade Center, Suite 1300, New York, New York 10048). Any interested party may
obtain copies of all or any portion of the Registration Statement, the reports,
proxy statements and other information at prescribed rates from the Public
Reference Section of the SEC at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The SEC also maintains a
web site (http://www.sec.gov.) that contains reports, proxy and information
statements and other information regarding Citizens.
Citizens is subject to the informational requirements of the Exchange Act and
its periodic reports, proxy statements and other information relating to its
business, financial statements and other matters may be inspected and obtained
as described above.
The Company intends to distribute to all holders of the shares of Class A Common
Stock offered hereby annual reports containing audited consolidated financial
statements and a report thereon by its independent certified public accountants
and quarterly reports containing unaudited consolidated financial information
for each of the first three quarters of each fiscal year.
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GLOSSARY
Access. 1) Point at which entry is gained into a circuit or a network
interconnection may be switched or dedicated. 2) Ability to obtain data from a
storage device or peripheral. 3) Type of connection between customer premises
equipment and an interexchange carrier's network.
Access Charge. When the local facilities of the local exchange carrier are used
for the origination or termination of long distance calls, the access charge is
the fee paid by the long distance carrier to the local telephone companies for
the use of local facilities to gain access to or make connection with, the
originating and terminating telephone subscribers.
Access Line. 1) Circuit between a subscriber and a switching center. 2)
Private lines feeding a common control switching arrangement or enhanced private
switched communications service switch from a PBX.
Asynchronous Transfer Mode (ATM). 1) High bandwidth, low-delay packet switching
and multiplexing technique used to transfer voice, video, images and character-
based data. 2) Method of formatting, multiplexing, cross-connecting and
switching information in 53-byte cells (see below). 3) Transmission method that
operates over various physical media. including Synchronous Optical Network
(SONET), Synchronous Digital Hierarchy (SDH) and digital cross-connect (DCS)
systems. ATM is recently commercialized switching and transmission technology
that is one of a general class of packet technologies that relay traffic by way
of an address contained within the first five bits of a standard fifty-three
bit-long packet or cell. ATM-based packet transport was specifically developed
to allow switching and transmission of mixed voice, data and video at varying
rates. The ATM includes a protocol that specifies how diverse kinds of traffic,
mixed voice, data and video, are transformed into standardized packets whose
transport can be managed uniformly within the network. The ATM format can be
used by many different information systems, including LANs.
Backbone. The core high-density infrastructure of a network. The portion of
the network that transports information from one central location to another
central location where it is off-loaded onto a local system.
Bandwidth. Difference between the top and bottom limiting frequency band. 2)
Indicates the information-carrying capacity of a channel. Analog transmission
is usually expressed in kHz or MHz. Digital transmission in bps or Mbps.
Fiber-optic bandwidth is usually given as its capacity to transmit information
in a specific time period for a specific length (e.g., 10 Mbps/km).
BOC (Bell Operating Company). A local exchange carrier owned by any of the
seven Regional Bell Operating Companies, which are holding companies established
following the Divestiture to serve as parent companies for the BOCs.
Broadband. 1) Transmission facility having a bandwidth greater than 20 kHz.
capable of high-speed data transmission. 2) Analog transmission technique used
with data and video transmission that provides multiple channels for uses
through frequency division multiplexing. Broadband communications systems can
transmit large quantities of voice, data and video by way of digital or analog
signals. Examples of broadband communication systems include DS-3 fiber optic
systems, which can transmit 672 simultaneous voice conversations, or a broadcast
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television station signal, that transmits high resolution audio and video
signals into the home. Broadband connectivity is also an essential element for
interactive multimedia applications.
CAP (Competitive Access Provider). A company that provides its customers with
an alternative to the local telephone company for local transport of private
line, special access and interstate transport of switched access
telecommunications services. CAPs are also referred to in the industry as
alternative local telecommunications service providers (ALTs) and metropolitan
area network providers (MANs) and were formerly referred to as alternative
access vendors (AAVs).
Central Office. 1) Location of telephone switching equipment at which
customer's lines are terminated and interconnected. 2) Switching center that
provides local access to the public network. Synonyms: end office, local
office, wire center, or switching center. CAPs may connect with local telephone
company networks either at this location or through a remote location.
Centrex(TM). A telephone company switched service that uses central office
switching equipment to route internal calls from one extension to another, to
route incoming calls directly to the appropriate extension, to handle direct
dialing of outbound calls, and to provide many PBX-like service features.
Centrex offers dial tone and other features similar to those of Private Branch
Exchange ("PBX"), except the switching equipment is located at the carrier's
premises and not at the customer's premises. Centrex uses a separate dedicated
line between each telephone at the customer premises and the switch at the
telephone company's central office. Centrex features include direct dialing
within a given telephone system, direct dialing of outgoing telephone calls and
automatic identification of incoming telephone calls. This is a value-added
service that carriers can provide to a wide range of business customers.
CLEC (Competitive Local Exchange Carrier). A CAP that also provides switched
local services, such as local dial tone and Centrex, in competition with the
incumbent local exchange carrier.
Co-location. The ability of a telecommunications carrier, such as a CAP or
CLEC, to interconnect its network to the ILEC's network by extending its
facilities to the ILEC's central office. Physical co-location occurs when the
interconnecting carrier places its network equipment within the ILEC's central
offices. Virtual co-location is an alternative to physical co-location under
which the ILEC permits a carrier to interconnect its network to the ILEC's
network in a manner which is technically, operationally and economically
comparable to physical co-location, even though the interconnecting carrier's
network connection equipment is not physically located within the central
offices.
Common Carrier. Government-regulated, private company that furnishes the
general public with telecommunications services and facilities (e.g., telephone
or telegraph company).
Customer Premises Equipment. Equipment employed on the premises of a person
(other than a carrier) to originate, route, or terminate telecommunications.
Dedicated Lines. Telecommunications lines dedicated to, or reserved for use by,
a particular customer along predetermined routes and charged on a flat, usually
monthly basis (in contrast to links which are temporarily established and in
contrast to telecommunications lines within the ILEC's public switched network.
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Dedicated Access. Connection between a customer's premises and a long distance
carrier. All transmissions on this dedicated line are automatically routed to
the carrier. Provided by a local phone company, alternate access provider or
long distance carrier.
Dialing Parity. "Dialing Parity" means that a person that is not an affiliate
of a local exchange carrier is able to provide telecommunications services in
such a manner that customers have the ability to route automatically, without
the use of any access code, their telecommunications to the telecommunications
services provider of the customer's designation from among two or more
telecommunications services providers (including such local exchange carrier).
Digital. A means of storing, processing and transmitting information by using
distinct electronic or optical pulses that represent the binary digits 0 and 1.
Digital transmission and switching technologies use a sequence of these pulses
to represent information as opposed to the continuously variable analog signal.
The precise digital numbers preclude any distortion (such as graininess or snow
in the case of video transmission, or static or other background distortion in
the case of audio transmission). Digital transmission and switching
technologies offer a threefold improvement in speed and capacity over analog
techniques, allowing much more efficient and cost-effective transmission of
voice, video, and data.
Diverse routing. A telecommunications network configuration in which signals
are transmitted simultaneously along two different paths so that if one path is
cut or impaired, traffic can continue on the other path without interrupting
service.
Divestiture. The 1984 divestment of AT&T of its wholly owned BOCs from its Long
Lines Division and manufacturing operations and generally prohibited BOCs from
providing long distance telephone service between LATAs.
Dominant Carrier. A carrier found by the FCC [or a local state commission] to
have market power, i.e., the power to control prices for its services.
DS-0, DS-1, DS-3. Standard North American telecommunications industry digital
signal formats, which are distinguishable by bit rate (the number of binary
digits (0 and 1) transmitted per second). DS-0 service has a bit rate of 64
kilobits per second. DS-1 service (also referred to as T1) has a bit rate of
1.544 megabits per second (the equivalent of 24 DS0 circuits) and DS-3 service
(also referred to as T-3) has a bit rate of 44.736 megabits per second (the
equivalent of 28 DS1 circuits). A DS-0 can transmit a single uncompressed voice
conversation.
Enhanced Service. Any for-profit telecommunications service that adds value to
users' voice and data messages during the course of transmission. Examples of
enhanced services would include storage of a spoken message within the network
for forwarding or retrieval at some future time, or processing data within the
network and sending the results to the intended recipient.
Ethernet. A local area network technology used for connecting computers,
printers, workstations terminals, etc., within the same building. Ethernet
operates over twisted wire or coaxial cable at speeds up to 100 megabits per
second. Ethernet is the most popular LAN technology.
Exchange. A central office telephone switch.
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<PAGE>
Exchange Access. The offering of access to telephone exchange services or
facilities for the purpose of the origination or termination of telephone toll
services i.e., intraLATA and long distance.
FCC. Federal Communications Commission.
FDDI (Fiber Distributed Data Interface). Based on fiber optics, FDDI is a 100
megabit per second local area network technology used to connect computers,
printers, and workstations at very high speeds. FDDI is also used as backbone
technology to interconnect other LANs.
Fiber mile. The number of route miles installed (excluding pending
installations) along a telecommunications path multiplied by the number of
fibers along that path. See the definition of "route mile" below.
Fiber Optics. Means of providing a high-speed transmission, using light to send
images through a flexible bundle of glass fibers. The technology involves
sending coded laser light pulses across glass strands in order to transmit
digital information. Fiber optic cable is the medium of choice for the
telecommunications and cable industries. Fiber is immune to electrical
interference and environmental factors that affect copper wiring and satellite
transmission.
Frame Relay. Frame Relay is a high-speed data packet switching service used to
transmit data between computers. Frame relay employs statistical multiplexing
over a shared network, intended for use between intelligent end-points and
implemented over high-quality transmission facilities that connect programmable
switches. Frame Relay supports data units of variable lengths at access speeds
ranging from 56kbs to 1.5mbs. This service is ideal for connecting LANS, but is
not appropriate for voice and video applications due to the variable delays
which can occur. Frame Relay was designed to operate at higher speeds on modern
fiber optic networks. Frame relay reduces redundant processing within the
packet network by relieving intermediate relay nodes of responsibility for
ensuring that data is transmitted accurately. The intermediate nodes check only
the outer "frame" of a data packet that gives the addresses and routing
instructions. Accuracy of packet "payload" is checked only after the packet
arrives at the terminating location. Frame relay is being used in private data
networks. Some U.S. interexchange carriers offer frame relay in data networking
applications and many manufacturers offer frame relay equipment.
Hubs. Collection centers located centrally in an area where telecommunications
traffic can be aggregated at a central point for transport and distribution.
ILECs (Incumbent Local Exchange Carrier). The local phone companies either a
BOC or an independent (such as GTE), which provides local exchange services.
Interconnection. Connection of a piece of telephone equipment to the telephone
network, or a data terminal to a data communications network. Also refers to
the connection of one communications network to another so that users of one
network can communicate with users of another network.
IntraLATA Long Distance. IntraLATA long distance calls, also known as short-
haul calls, are those calls that originate and terminate within the same LATA,
but are outside the local calling area. Such calls are usually priced on a
measured basis. At present, the RBOCs are prohibited from providing IntraLATA
long distance service within their service areas.
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<PAGE>
InterLATA service. Telecommunications between a point located in a local access
and transport area and a point located outside such area.
Internet. The name used to describe the global open network of computers that
permits a person with access to the Internet to exchange information with any
other computer connected to the network.
ISDN (Integrated Services Digital Network). ISDN is an internationally agreed
standard which, through special equipment, allows two-way, simultaneous voice
and data transmission in digital formats over the same transmission line. ISDN
permits video conferencing over a single line, and other enhanced services, such
as high-speed data file transfer, desk top videoconferencing, telepublishing,
telecommuting, telepresence learning (distance learning), remote collaboration
(screened sharing), data network linking and home information services. It also
supports a multitude of value-added switched service applications such as
Incoming Calling Line Identification. ISDN's combined voice and data networking
capabilities reduce costs for end users and result in more efficient use of
available facilities. ISDN combines standards for highly flexible customer to
network signaling with both voice and data within a common facility.
IXC (Inter-Exchange Carriers). Usually referred to as long distance providers.
There are many facilities-based IXCs including AT&T, MCI, WorldCom, Sprint and
Frontier, as well as a select few CAPs that are authorized for IXC service.
Kilobit. One thousand bits of information. The information-carrying capacity
(i.e., bandwidth) of a circuit may be measured in "kilobits per second." One
kilobit is approximately sufficient to encode a standard telegram.
LAN (Local Area Network). The interconnection of computers for the purpose of
sharing files, programs and peripheral devices such as printers and high-speed
modems. More generally, a private data communications network linking a
variety of data devices, such as computer terminals, personal computers and
minicomputers, all housed in a defined building, plant or geographic area. LANs
are generally confined to a single customer's premises and may be extended or
interconnected to other locations through the use of bridges and routers. LANs
range widely in size and complexity, from simple user-installable networks
connecting together a few personal computers to vast networks tying thousands of
terminals to multiple mainframe computers. LANs will allow a computer user to
access a computer other than the user's own in order to send and retrieve
electronic mail and data files at transmission rates generally between 100Kbps
and 50Mbps. LANs are owned or leased by customers; they generally do not employ
circuits from telephone common carriers or other network service provider. LANs
may, however, provide a bridge or gateway to other public or private networks.
Some telephone common carriers offer data communications services with
capabilities resembling those of LANs, as an alternative to the purchase of a
LAN.
LATA (Local Access Transport Area). The approximately 164 geographic areas
which define the regions in which each RBOC is allowed to provide service, as
defined in the divestiture order known as the Modified Final Judgment ("MFJ")
unless and until redefined by the FCC pursuant to the Telecommunications Act of
1996. These LATAs roughly reflect the population density of their respective
states (California has 11 LATAs while Wyoming has only one). The BOCs are
generally prohibited from providing long distance service between LATA in their
territory.
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<PAGE>
LEC (Local Exchange Carrier). A company providing local telephone services,
also referred to in the industry as a "local exchange telephone company." These
include the BOCs, GTE and more than 1,000 other independents. The term includes
ILECs and CLECs, that is, Incumbent and Competitive Local Exchange Carriers.
Local competition. The term "local competition" describes the events which are
presently in an early state in the local arena to afford true "co-carrier"
status to CAPs. Specifically, the ILECs, who once had a monopoly on local
exchange telephone service, are beginning to experience competition at the local
level from CAPs, CLECs, and other providers of local exchange services.
Critical issues such as number portability, dialing parity, reciprocal
compensation arrangements, and number assignments must be negotiated in order to
ensure that true co-carrier status is achieved for CAPs and CLECs.
Local exchange. (1) A geographic area defined by the appropriate state
regulatory authority in which telephone calls generally are transmitted without
toll charges to the calling or called party. (2) An exchange where subscribers'
lines are terminated.
Local exchange carrier. Any person that is engaged in the provision of
telephone exchange service or exchange access.
Local Exchange Services. Local Exchange Services generally refers to all
services provided by an ILEC or CLEC including local dial tone, the provision of
telephone numbers, calling within the local exchange area, Centrex and Long
Distance Access Services. Sometimes also referred to as Local Telephone
Services and Local Telecommunications Services.
Local Loop. Communications lines/services between the telephone subscriber and
the phone company switching center.
Local Telecommunications or Local Telephone Services. See Local Exchange
Services.
Long distance access services. Long distance access services are the services
provided by an ILEC or CLEC to a long distance company that connect the IXC POP
to end users, including special access services and switched access services.
Long Distance Carrier. A company providing inter-LATA or long distance services
between local exchanges on an intrastate or interstate basis. Long distance
carriers may also be long distance reseller companies. A long distance carrier
may offer services over its own or another carrier's facilities. Major long
distance carriers include AT&T, MCI, Sprint, WorldCom and Frontier, and may also
include resellers of long distance capacity.
Megabit. One million bits of information. The information-carrying capacity
(i.e., bandwidth) of a circuit may be measured in "megabits per second." One
megabit is approximately sufficient to encode a 3-inch by 5-inch photograph.
Multiplex. 1) To interleave or simultaneously transmit two or more messages on
a single channel. 2) Optical or electronic communications arrangements whereby
multiple devices share a common transmission channel, though only one may
transmit at a time. 3) Process or equipment that combines data from two or more
individual circuits onto a higher speed circuit for transmission. Two methods
are used; (a) splitting the total available bandwidth into narrower bands and
transmitting all channels at the same time (frequency division) or (b) allotting
a common channel to several different messages or transmitting devices, one at a
time in sequence (time division).
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<PAGE>
Network. Any system designed to provide one or more access paths for
communications between users at different geographic locations. Communications
networks may be designed for voice, text, data, facsimile image and/or video.
They may feature limited access (private networks) or open access (public
networks) and will employ whatever switching and transmission technologies are
appropriate.
NNI. Network-to-Network Interfaces.
Node. An individual point of origination and termination of data on the network
transported using frame relay or similar technology.
Number portability. The ability of users of telecommunications services to
retain, at the same location, existing telecommunications numbers without
impairment of quality, reliability, or convenience when switching from one
telecommunications carrier to another. If number portability does not exist,
customers will have to change phone numbers when they change local exchange
carriers.
Off-net. A customer of the Company that is not physically connected to one of
the Company's networks but who is accessed through interconnection with an ILEC
network.
On-net. A customer of the Company that is physically connected to one of the
Company's networks.
PBX. A Private Branch Exchange is a switching system within the user's premises
which allows calls from outside to be routed directly to the individual instead
of through a central number. PBX also provides for the automatic selection of
outgoing lines in accordance with user-defined criteria. PBX may also allow for
calling within an office by way of four digit extensions. Centrex is a service
which can simulate this service from an outside switching source, thereby
eliminating the need for a large capital expenditure on a PBX.
Physical Co-location. Physical Co-location occurs when a CAP or CLEC places its
own network connection equipment inside the ILEC central office. A recent Court
of Appeals decision found that, while ILECs must allow CAPs or CLEC to
interconnect with their facilities, ILECs are not required by law to allow CAPs
or CLECs to place its own equipment inside the ILEC central office. The 1996
Act overturned the decision.
Points of Presence (POPs). Physical locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier and connects
with the lines of the local telephone company serving the LATA within which the
POP is located.
PRI. Primary rate interface, a service offering of ISDN which operates at T-1
bandwidth. See ISDN.
Private line. 1) A telephone access line provided to a single subscriber
connecting different locations of the same subsidiaries and used exclusively by
that subscriber (does not include long distance carriers' POPs). 2) A
dedicated, non-switched telecommunications channel provided between two or more
points and leased or purchased by a telecom subscriber for high-volume voice,
data, audio or video transmissions. 3) Leased, owned or otherwise dedicated
channel. 4) Channel and channel equipment furnished to a user as a unit for
exclusive use without interexchange switching arrangements.
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<PAGE>
Public switched network. That portion of a ILEC's network available to all
users generally on a shared basis (i.e., not dedicated to a particular user).
Traffic along the public switched network is generally switched at the ILEC's
central offices.
Public Utility Commission (PUC). A state regulatory body, established in most
states, which regulates utilities, including telephone companies providing
intrastate services.
Regional Bell Operating Company (RBOC). One of regional companies created by
the AT&T divestiture to take over ownership of the Bell operating companies
within their region. They are Ameritech, Bell Atlantic, BellSouth, NYNEX, SBC
Corporation (formerly Southwestern Bell) and U S WEST. The RBOCs also have set
up numerous unregulated subsidiaries engaged in variety of communications-
related and non-communications businesses. The divestiture agreement barred
RBOCs from providing inter-LATA services within their service areas and from
manufacturing telecommunications equipment and certain other business
activities, such as providing long distance service, but provided mechanisms for
review, waiver, modification or removal of the prohibitions. The RBOCs are also
known as regional holding companies. In this Prospectus, the term RBOC may
include the Bell operating companies.
Redundant. A telecommunications facility using two separate electronic devices
to transmit a telecommunications signal so that if one device malfunctions, the
signal may continue without interruption.
Resale. To hire circuits or services from a major carrier and resell them to
individual users.
Reseller. A carrier that does not operate its own transmission facilities
(although it may own its own switches or other equipment), but obtains
communications services from another carrier for resale to the public for
profit.
Route Mile. A geographical measure defined as one physical mile of fiber optic
cable, regardless of the number of fibers or telecommunications paths within
that cable.
Signaling System #7. Sophisticated network signaling system that utilizes out-
of-band signaling where signaling information is sent over a separate channel
than the call itself. improves call processing set-up times and frees circuits
for voice, data and video transmissions.
Special access services. The lease of private, dedicated telecommunications
lines or "circuits" along the network of an ILEC or a CAP, which lines or
circuits run to or from the long distance carrier POPs. Examples of special
access services are telecommunications lines running between POPs of a single
long distance carrier, from one long distance carrier POP to the POP of another
long distance carrier or from an end user to its long distance carrier POP.
Special access services do not require the use of switches.
Switch. A mechanical or electronic device that opens or closes circuits or
selects the paths or circuits to be used for the transmission of information.
Switching is a process of interconnecting different circuits to create a
temporary transmission path between users. In operation a switch may be a
sophisticated computer that accepts instructions from a caller in the form of a
telephone number. Like an address on an envelope, the numbers tell the switch
where to route the call. The switch opens or closes circuits or selects the
paths or circuits to be used for transmission of information. Switches allow
local telecommunications service providers to connect calls directly to their
destination, while providing advanced features and recording
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<PAGE>
connection information for future billing. Nortel DMS-500, Cascade, Titan 3/1
and Alcatel 1/0 are brand names for switches and related equipment.
Switched access. 1) Method to test telecommunications circuits using
electromechanical circuitry. 2) Calls transmitted partially on shared or common
transport circuits. Used primarily by residential or small business companies
using regular home or business lines.
Switched access services. Switched access services are the services provided by
an ILEC or CLEC through its switching facilities to a long distance carrier, in
addition to switched access transport, to connect the IXC POP to end users, for
the purpose of originating or terminating toll calls. Long distance companies
pay switched access charges to the ILECs and CLEC for each switched call
originated or terminated on the ILEC's or CLEC's network.
Switched access transport. Transportation of switched traffic along dedicated
lines between the ILEC central offices and long distance carrier POPs.
Switched traffic. Telecommunications traffic along the public switched network
that is charged on a per-minute or other range sensitive basis. This traffic is
generally switched at the ILEC's central offices.
Synchronous Optical Network (SONET). SONET is the electronics and network
architecture which enable transmission of voice, video and data (multimedia) at
very high speeds. This state-of-the-art self-healing ring network offers
advantages over older linear networks in that a cut line or equipment failure
can be overcome by rerouting calls within the network. If the line is cut, the
traffic is simply reversed and sent to its destination around the other side of
the ring.
Telephone Exchange Service. The term "telephone exchange service" means (A)
service within a telephone exchange, or within a connected system of telephone
exchanges within the same exchange area operated to furnish to subscribers
intercommunicating service of the character ordinarily furnished by a single
exchange, and which is covered by the exchange service charge, or (B) comparable
service provided through a system of switches, transmission equipment, or other
facilities (or combination thereof) by which a subscriber can originate and
terminate a telecommunications service.
Telephone Toll Service. The term "telephone toll service" means telephone
service between stations in different exchange areas for which there is made a
separate charge not included in contracts with subscribers for exchange service.
Token Ring. A local area network technology used to interconnect personal
computers, file servers, printers, and other devices. Token Ring LANs typically
operate at either 4 megabits per second or 16 megabits per second.
Toll services. Otherwise known as EAS or intraLATA toll services are those
calls that are beyond the local calling area but originate and terminate within
the same LATA; such calls are usually priced on a measured basis.
Traffic. A generic term that includes any and all calls, messages and data sent
and received by means of telecommunications.
Trunk. 1) Group of circuits that carry call traffic in and out of the switch;
2) Circuit or channel connecting two exchanges or two switching devices; 3)
Circuit capable of being switched at both ends.
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<PAGE>
Unbundling. 1) The separate pricing of hardware, software and related services.
2) The separate pricing of each component or element of a communications product
or service, so that the customer may select only those components or elements it
needs without having to accept unnecessary element or components.
800 Service. A telecommunications service for businesses that allows calls to
be made to a specific location at no charge to the calling party. Use of the
"800" service code denotes calls that are to be billed to the receiving party.
A computer database in the provider's network translates the 800 number into a
conventional telephone number.
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<TABLE>
<CAPTION>
ELECTRIC LIGHTWAVE, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
<S> <C>
Independent Auditors' Report.....................................................................F-1
Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996
and for the Nine Months Ended September 30, 1996 and 1997 (unaudited).......................F-2
Balance Sheets at December 31, 1995 and 1996 and September 30, 1997 (unaudited)..................F-3
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996
and for the Nine Months Ended September 30, 1996 and 1997 (unaudited).......................F-4
Statements of Changes in Stockholder's Equity (Deficiency) for the Years Ended
December 31, 1994, 1995 and 1996 and for the Nine Months Ended
September 30, 1997 (unaudited)..............................................................F-5
Notes to Financial Statements....................................................................F-6
</TABLE>
96
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Electric Lightwave, Inc.
We have audited the balance sheets of Electric Lightwave, Inc. (a wholly-
owned subsidiary of Citizens Utilities Company) as of December 31, 1995 and 1996
and the related statements of operations, stockholder's equity (deficiency)
and cash flows for each of the years in the three-year period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Electric Lightwave, Inc. as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
September 4, 1997
F-1
<PAGE>
ELECTRIC LIGHTWAVE, INC.
Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the nine months ended
For the years ended December 31, September 30,
------------------------------------------------- --------------------------------
1994 1995 1996 1996 1997
-------------- ---------- ----------- ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $ 8,152 $ 15,660 $ 31,309 $ 24,965 $ 41,843
---------- ---------- ----------- ------------ -----------
Operating expenses:
Network access expenses 6,155 8,728 24,081 16,533 24,217
Sales and marketing expenses 4,534 5,704 8,462 6,303 8,716
Depreciation and amortization 2,476 7,064 7,192 4,997 7,601
Administrative services expenses 1,300 1,511 2,254 1,648 2,945
Other operating expenses 3,228 12,603 18,703 15,067 23,886
---------- ---------- ----------- ------------ -----------
Total operating expenses 17,693 35,610 60,692 44,548 67,365
---------- ---------- ----------- ------------ -----------
Loss from operations (9,541) (19,950) (29,383) (19,583) (25,522)
Interest expense, net 873 372 - - 513
---------- ---------- ----------- ------------ -----------
Net loss $ (10,414) $ (20,322) $ (29,383) $ (19,583) $ (26,035)
========== ========== =========== ============ ===========
Pro forma weighted average shares
outstanding 41,700,000 41,700,000 41,700,000
========== ========== ===========
Pro forma net loss per share $ .70 $ .47 $ .62
========== ========== ===========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
F-2
<PAGE>
ELECTRIC LIGHTWAVE, INC.
Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
-------------------------------- ---------------
1995 1996 1997
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash $ 143 $ 611 $ 1,147
Trade receivables, net 3,097 4,610 10,187
Other receivables 45 8,329 85
Other current assets 168 224 306
----------- ----------- -----------
Total current assets 3,453 13,774 11,725
----------- ----------- -----------
Property, plant and equipment 127,297 189,334 249,499
Less accumulated depreciation and
amortization (11,307) (17,337) (23,144)
----------- ----------- -----------
Property, plant and equipment, net 115,990 171,997 226,355
Other assets 9,458 9,885 10,490
----------- ----------- -----------
Total assets $ 128,901 $ 195,656 $ 248,570
=========== =========== ===========
LIABILITIES and SHAREHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 18,596 $ 18,892 $ 12,427
Taxes other than income taxes 1,577 2,329 4,996
Other current liabilities 1,177 2,493 2,036
------------ ----------- -----------
Total current liabilities 21,350 23,714 19,459
------------ ----------- -----------
Deferred credits 1,313 1,435 1,793
Capital lease obligation - - 10,374
Deferred income taxes payable 2,628 5,826 14,522
Due to Citizens Utilities Company 64,941 155,395 219,171
Shareholder's equity (deficiency) 38,669 9,286 (16,749)
------------ ----------- -----------
Total liabilities and shareholder's
equity (deficiency) $ 128,901 $ 195,656 $ 248,570
=========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
F-3
<PAGE>
ELECTRIC LIGHTWAVE, INC.
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For nine months ended
For the years ended December 31, September 30,
--------------------------------------------- --------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net loss $ (10,414) $ (20,322) $ (29,383) $ (19,583) $ (26,035)
Adjustments to reconcile net loss
to net cash used for operating
activities:
Depreciation and
amortization 2,476 7,064 7,192 4,997 7,601
Administrative services expenses
charged by Citizens 1,300 1,511 2,254 1,648 2,945
Changes in operating assets and liabilities:
Receivables (805) (1,698) (9,797) (10,075) 2,667
Accounts payable and other
accrued liabilities 3,056 10,444 295 (10,427) (6,465)
Taxes other than income taxes 520 967 765 1,681 2,667
Other (230) 464 (219) 1,320 (1,420)
--------- ---------- --------- --------- ---------
Net cash used for operating activities (4,097) (1,570) (28,893) (30,439) (18,040)
--------- ---------- --------- --------- ---------
Cash flow used for investing activities:
Capital expenditures (60,774) (16,129) (59,169) (47,840) (48,717)
--------- ---------- --------- --------- ---------
Cash flow from financing activities:
Citizens fundings 67,636 26,862 88,530 78,626 67,293
Repayment of debt (2,729) (9,111) - - -
--------- ---------- --------- --------- ---------
Net cash provided by financing
activities 64,907 17,751 88,530 78,626 67,293
--------- ---------- --------- --------- ---------
Change in cash 36 52 468 347 536
Cash at beginning of period 55 91 143 143 611
--------- ---------- --------- --------- ---------
Cash at end of period $ 91 $ 143 $ 611 $ 490 $ 1,147
========= ========= ========= ========= =========
Supplemental cash flow information:
Cash paid for interest $ 1,086 $ 630 $ -
========= ========= =========
Other non-cash transactions:
Issuance of preferred stock in
exchange for reduction of amount
due to Citizens $ 57,255 $ - $ -
========= =========== =========
Acquisition of minority interest by
Citizens $ - $ 3,000 $ -
========= ========== =========
Deferred income taxes charged to
due to Citizens $ 519 $ 1,160 $ 3,198
========= ========== =========
Capitalized interest added to due
to Citizens $ 2,466 $ 2,619 $ 2,868
========= ========== =========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
F-4
<PAGE>
ELECTRIC LIGHTWAVE, INC.
Statements of Shareholder's Equity (Deficiency)
For the years ended December 31, 1994, 1995 and 1996
and for the nine months ended September 30, 1997 (unaudited)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Class A Common Stock, Class B Common Stock,
Preferred Stock $ .01 par value $ .01 par value Additional
------------------------- -------------------- -------------------- Paid-in-
Shares Amount Shares Amount Shares Amount Capital
------ -------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1994 23 $ - - $ - 411,650 $ 4 $ 18,996
Issuance of preferred
shares to Citizens 76 - - - - - 57,255
Net loss - - - - - - -
------- -------- ------- -------- ------- -------- ---------
Balance December 31, 1994 99 - - - 411,650 4 76,251
Acquisition of minority
interest by Citizens - - - - - - 3,000
Net loss - - - - - - -
------- -------- ------- -------- ----------- -------- ---------
Balance December 31, 1995 99 - - - 411,650 4 79,251
Conversion of preferred
stock to common stock (99) - - - 40,753,350 408 (408)
Net loss - - - - - - -
------- -------- ------- -------- ----------- -------- ---------
Balance December 31, 1996 - - - - 41,165,000 412 78,843
Net loss (unaudited) - - - - - - -
------- -------- ------- -------- --------- -------- ---------
Balance September 30, 1997
(unaudited) - $ - - $ - 41,165,000 $ 412 $ 78,843
======== ======== ======= ======== ========== ======== =========
<CAPTION>
Shareholder's
Equity
Deficit (Deficiency)
--------- -----------
<S> <C> <C>
Balance January 1, 1994 $ (9,850) $ 9,150
Issuance of preferred
shares to Citizens - 57,255
Net loss (10,414) (10,414)
--------- ---------
Balance December 31, 1994 (20,264) 55,991
Acquisition of minority
interest by Citizens - 3,000
Net loss (20,322) (20,322)
--------- ---------
Balance December 31, 1995 (40,586) 38,669
Conversion of preferred
stock to common stock - -
Net loss (29,383) (29,383)
--------- ---------
Balance December 31, 1996 (69,969) 9,286
Net loss (unaudited) (26,035) (26,035)
--------- ---------
Balance September 30, 1997
(unaudited) $ (96,004) $ (16,749)
========= =========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
F-5
<PAGE>
ELECTRIC LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 1994, 1995 AND 1996
(Information as of September 30, 1997 and for the nine months ended
September 30, 1997 and 1996 is unaudited)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
The Company is a full service, facilities based provider of
communications services in five major market clusters in and around the
western United States cities of Portland, Oregon; Seattle, Washington;
Salt Lake City, Utah; Sacramento, California; and Phoenix, Arizona. The
Company targets retail customers, primarily large- and medium-sized
communications-intensive businesses, and wholesale customers, primarily
telecommunications service providers, that require state-of-the-art
communications and data services.
The Company is a subsidiary of Citizens Utilities Company ("Citizens").
The Company has invested solely in its telecommunications networks and
is experiencing significant recurring losses and negative cash flows
during the construction and start up phase of its business. Since the
Company does not presently generate operating profits or sufficient
operating cash flows to meet operating and capital requirements, the
Company is dependent upon its ability to obtain financing from either
Citizens or external sources. Currently, the Company's sources of
funding are Citizens and a lease facility guaranteed by Citizens.
Citizens has indicated its intent to continue to provide the necessary
operating and capital funding through the successful completion of the
Company's initial public offering ("Offering"), currently expected to
be completed before the end of 1997. In October 1997, the Company
obtained a commitment for a revolving Credit Facility (see
note 8).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and Use of Estimates
The financial statements have been prepared in accordance with
Generally Accepted Accounting Principles ("GAAP"). The
preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions which
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results
could differ from those estimates.
(b) Revenue Recognition
Revenues from telecommunications services are recognized when
the services are provided. The revenue from long-term leases
of fiber optic cable is recognized on a straight line basis
over the terms of the related leases.
(c) Trade and Other Receivables
The Company's trade customers are primarily large- and
medium-sized communications-intensive businesses and
telecommunications service providers that require
state-of-the-art communications and data services. Trade
accounts receivable is shown net of an allowance for doubtful
accounts in amounts of approximately $75,000, $1,166,000 and
$2,130,000 at December 31, 1995, 1996 and September 30, 1997,
respectively. At December 31, 1996, the Company's trade
receivables are concentrated in and around the five cities
referred to in note 1. Other receivables at December 31, 1996
include approximately $6.7 million due under a construction
agency agreement, which amount was received by the Company in
January 1997.
F-6
<PAGE>
ELECTRIC LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 1994, 1995 AND 1996
(Information as of September 30, 1997 and for the nine months ended
September 30, 1997 and 1996 is unaudited)
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost and include
certain costs which are capitalized during the installation
and expansion of telecommunications networks including
interest costs related to construction of approximately
$2,466,000, $2,619,000, and $2,868,000 for the years ended
December 31, 1994, 1995 and 1996, respectively. Depreciation
is computed using the straight line method over the estimated
useful lives of the assets. Leasehold improvements are
amortized using the straight line method over the shorter of
the estimated useful lives of the assets or the remaining
terms of the leases. A capital lease included in
telecommunications networks is being amortized using the
straight line method over the life of the capital lease. The
estimated useful lives of owned assets are as follows:
Telecommunications networks 25 years
Electronics and related equipment 7 - 8 years
Office equipment and other 5 - 7 years
The Company's telecommunications networks are subject to
technological risks and rapid market changes due to new
products and services and changing customer demand. These
changes may result in future adjustments to the estimated
useful lives of these assets.
(e) Other Assets
Other assets include third party direct costs incurred in
connection with negotiating and securing initial rights-of-way
and developing network design for new market clusters or
locations, which costs are deferred until service is ready to
commence. Such costs are then amortized over a 5 year period
utilizing the straight line method. Also included in other
assets at December 31, 1995 and 1996 is goodwill of $4,866,000
and $4,680,000, respectively, resulting from the acquisition
of the minority interests in the Company by Citizens, which
amounts were recorded in the Company's accounts. Goodwill is
being amortized utilizing the straight line method over a 25
year period.
(f) Income Taxes
The Company is included in the consolidated federal income tax
return of Citizens. The Company utilizes the asset and
liability method of accounting for income taxes. Under the
asset and liability method, deferred income taxes are recorded
for the tax effect of temporary differences between the
financial statements and the tax bases of assets and
liabilities using tax rates expected to be in effect when the
temporary differences are expected to turn around. Citizens'
policy has been to record tax provisions, assets and
liabilities at the subsidiary level on a stand alone basis.
However, Citizens reimburses the Company on an annual basis
(through reductions in the "Due to Citizens" account) for the
benefit of the Company's changes in temporary differences
utilized by Citizens in its consolidated federal income tax
return, but not for the book losses or permanent tax
adjustments until such items can be used on a stand alone
basis.
F-7
<PAGE>
ELECTRIC LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 1994, 1995 AND 1996
(Information as of September 30, 1997 and for the nine months ended
September 30, 1997 and 1996 is unaudited)
(g) Impairment
In accordance with Statement of Financial Accounting Standards
No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
of," the Company reviews for the impairment of long-lived
assets and certain identifiable intangibles to be held and
used by the Company whenever events or changes in
circumstances indicate that the carrying amount of the asset
may not be recoverable.
The Company assesses the recoverability of an asset by
determining whether the amortization of the asset balance over
its remaining life can be recovered through projections of
undiscounted future cash flows of the related asset. The
amount of asset impairment, if any, is measured based on
projected discounted future cash flows using a discount rate
reflecting the Company's average cost of funds.
(h) Employee Stock Plans
The Company currently participates in the Management Equity
Incentive Plan ("MEIP") of Citizens, which may grant awards of
Citizens Common Stock to eligible officers, management
employees and non-management exempt employees of Citizens and
its subsidiaries in the form of incentive stock options,
non-qualified stock options, stock appreciation rights,
restricted stock or other stock-based awards and in the
Employee Stock Purchase Plan ("ESPP") of Citizens in which
employees of Citizens and its subsidiaries may subscribe to
purchase shares of Citizens' common stock at 85% of the lower
of the average market price on the first or last day of the
purchase period.
Prior to January 1, 1996, the Company accounted for the
Citizens employee stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense is recorded on
the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted SFAS 123, "Accounting for
Stock-Based Compensation", which permits entities to recognize
as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS
123 also allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value
based method defined in SFAS 123 had been applied. The Company
elected to continue to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosure provisions of SFAS 123
(see Note 6). The Company had no stock plans involving its own
stock as of December 31, 1996.
(i) Pro Forma Net Loss Per Share
Net loss per share is not presented because it is not
meaningful. Pro forma weighted average shares outstanding have
been determined giving retroactive effect to the stock split
as described in Note 5, assuming that the conversion of
preferred stock into common stock occurred on January 1, 1996
and as adjusted for the effects of application of Securities
and Exchange Commission Staff Accounting Bulletin ("SAB") No.
83. Pursuant to SAB No. 83, all stock issued within one year
of the Offering at less than the offering price and all
options granted within one year of the Company's Offering
which have an exercise price less than the Offering price are
treated as outstanding for all periods presented (using the
treasury stock method at the assumed Offering price) even
though the effect is to reduce the pro forma net loss per
share. The application of SAB No. 83 had the effect of
increasing outstanding shares by 535,000 for all periods. Pro
forma net loss per common share has been presented for the
year ended December 31, 1996 and for the nine-month periods
ended September 30, 1997 and 1996 and is based on the pro
forma weighted average number of common shares outstanding.
F-8
<PAGE>
ELECTRIC LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 1994, 1995 and 1996
(Information as of September 30, 1997 and for the nine months ended September
30, 1997 and 1996 is unaudited)
j) Interim Financial Information
The financial statements and notes related thereto as of
September 30, 1997 and for the nine months ended September 30,
1996 and 1997 are unaudited, but in the opinion of management,
include all normal recurring adjustments necessary for a fair
presentation of financial position and results of operations.
The operating results for the interim periods are not
necessarily indicative of a full year's operations.
(3) Property, Plant and Equipment:
-----------------------------
The components of property, plant and equipment at December 31,
1995 and 1996 and at September 30, 1997 are as follows:
<TABLE>
<CAPTION>
------------------ (in thousands) ------------------
December 31, September 30,
--------------------------------- -------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Telecommunications networks $ 80,501 $ 113,997 $ 134,204
Electronics and related equipment 14,997 20,417 21,264
Office equipment, leasehold improvements and
other 4,414 11,201 12,842
Construction work in progress 24,980 37,433 77,448
Inventory 2,405 6,286 3,741
------------- ------------- -------------
Property, plant and equipment 127,297 189,334 249,499
Accumulated depreciation and amortization (11,307) (17,337) (23,144)
------------- ------------- --------------
Property, plant and equipment, net $ 115,990 $ 171,997 $ 226,355
============= ============= =============
</TABLE>
Telecommunications networks include a capital lease at September 30,
1997 in the amount of $11,320,000.
Inventory consists primarily of new and reusable parts to maintain and
build fiber optic networks.
The Company has leased fiber optic cable included in its
telecommunications networks to an unrelated long distance carrier for
10 years beginning in 1995 and to Citizens for 10 years. The lease
agreement with the long distance carrier provided for $1,500,000 in
cash at inception, which amount is being amortized utilizing the
straight line method over the lease period, and $144,000 per month over
the 10 year lease period. The lease agreement with Citizens calls for
monthly rentals of $30,000 over the 10 year lease period (see note 6).
F-9
<PAGE>
ELECTRIC LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 1994, 1995 AND 1996
(Information as of September 30, 1997 and for the nine months ended
September 30, 1997 and 1996 is unaudited)
(4) Income Taxes:
------------
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
------ (in thousands) -------
December 31,
------------------------------
1995 1996
---- ----
<S> <C> <C>
Income tax benefit of operating loss carryforwards $ 14,108 $ 24,348
Less valuation allowance (14,108) (24,348)
----------- ----------
$ - $ -
=========== ==========
Deferred income tax liability,
primarily property, plant and equipment $ 2,628 $ 5,826
=========== ==========
</TABLE>
The benefit of the operating loss carryforwards represent amounts due
from Citizens for the utilization by Citizens of the Company's
operating losses in the consolidated federal income tax return, and is
net of amounts reimbursed to the Company by Citizens for the benefit of
the Company's changes in temporary differences. A 100% valuation
allowance has been recognized to offset the benefit of the operating
loss carryforwards since Citizens' policy is to reimburse the Company
for such losses only when the Company becomes profitable. Since the
Company has a history of recurring losses, a full valuation allowance
has been provided each year against the benefit of the operating loss
carryforwards.
The effective income tax rates were zero for the years ended December
31, 1994, 1995 and 1996 as a result of the Company incurring net
operating losses for which the tax benefit thereon was fully reserved.
The tax expense consisted of deferred tax expenses of $519,000,
$1,160,000 and $3,198,000 net of current tax benefits of $519,000,
$1,160,000 and $3,198,000 for the years ended December 31, 1994, 1995
and 1996, respectively.
Upon consummation of the Offering it is expected that, the Company may
no longer be included in the consolidated federal income tax return of
Citizens, and in such case would file its own federal income tax
return. The Company intends to enter into a federal, state and local
tax sharing agreement with Citizens whereby the Company's income tax
liability (federal liability only in the event the Company is included
in Citizens' federal consolidated income tax group) would be computed
on a stand alone basis. Additionally, upon completion of the Offering,
if the Company is no longer included in Citizens consolidated federal
income tax returns, the Company, on a stand alone basis, may not have
any federal net operating loss carryovers, and in such case Citizens
would not reimburse the Company for losses incurred prior to the
Offering, except as described above.
(5) Capital Stock:
-------------
At December 31, 1993, the Company had authorized 1,750,000 shares of
preferred stock, $.01 par value, and 2,000,000 shares of common stock,
$.01 par value. The preferred shares were convertible into common stock
on a one-for-one basis and contained voting rights whereby each share
entitled the holder to one vote on all matters. At December 31, 1993,
the Company had 1,750,000 shares of preferred stock outstanding, all of
which were owned by Citizens, and 125,009 shares of common stock
outstanding, of which 66,259 were owned by Citizens. In 1994, the
Company increased its authorized preferred to 10,750,000 shares and
issued 5,725,527 additional shares of preferred stock to Citizens for
$57,255,000,
F-10
<PAGE>
ELECTRIC LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 1994, 1995 AND 1996
(Information as of September 30, 1997 and for the nine months ended
September 30, 1997 and 1996 is unaudited)
raising the number of outstanding preferred shares to
7,475,527. The shares were paid for by recording $57,255,000 of the
amount due to Citizens as additional paid-in-capital.
During 1995, Citizens acquired 58,750 shares of common stock from the
minority shareholder of the Company for $3,000,000 giving Citizens 100%
ownership of the Company. Such amount has been recorded in the
Company's accounts as goodwill and additional paid-in-capital.
During 1996, all of the preferred stock was converted into 7,475,527
shares of common stock. On June 14, 1996 there was a reverse stock
split of common stock in the amount of 100 for 7,600,536. The split
reduced the shares of common stock outstanding from 7,600,536 to 100
shares, and the number of authorized shares was reduced to 500 shares
of preferred and 500 shares of common.
On November 11, 1997, the Company amended its Certificate of
Incorporation to change its authorized capital stock to 180 million
shares, including 110 million shares of Class A Common Stock, $.01 par
value per share, 60 million shares of Class B Common Stock, $.01 par
value per share, and 10 million shares of preferred stock, $.01 par
value per share. At that time, the outstanding common stock was
converted to Class B Common Stock and the Company declared a stock
split of 411,650 for one. The November 11, 1997 stock split increased
the number of shares of Class B Common Stock outstanding to 41,165,000.
Upon completion of the Offering of 10 million shares of Class A Common
Stock to the public, assuming no exercise of the underwriters'
overallotment option, there will be no preferred stock outstanding and
Citizens will own all of the outstanding shares of Class B Common
Stock. Each share of Class A Common Stock will entitle the holder to
one vote and each share of Class B Common Stock will entitle the holder
to 10 votes on each matter to be voted upon by the holders of the
Common Stock. As a result, after the completion of the Offering,
Citizens will have 97.5% of the voting control of the Company (97.16%
if the underwriters' overallotment options are exercised in full). With
the exception of voting rights, the rights and privileges of Class A
and Class B Common Stock are identical. Class B Common Stock is
convertible into Class A Common Stock on a one-for-one basis.
The financial statements give retroactive effect to the above stock
splits.
(6) Related Party Transactions:
--------------------------
Transactions with Citizens
The Company has been a subsidiary of Citizens since 1990. In connection
with this ownership interest, Citizens has advanced funds to the
Company to finance operations, construction and capital expenditures.
Interest is not charged on Citizens advances for operations and capital
expenditures, except for intercompany advances used to fund
construction-in-progress. Subsequent to the construction period, the
advances become non-interest bearing. Interest on Citizens advances are
recorded as an increase to the amount due to Citizens. The amount of
interest charged on construction-in-progress has in turn been
capitalized as part of property, plant and equipment.
The Company is also charged by Citizens for administrative services
which includes an allocation of Citizens' corporate overhead. The
overhead allocation rate is based on four factors: the Company's plant
assets, operating expenses, number of customers and payroll expenses.
Effective with the completion of the Offering, the Company will enter
into an Administrative Services Agreement ("Agreement") under which
Citizens will provide administrative services to the Company, including
but not limited to, certain financial management services, information
services, legal and contract services and human resources services.
Under the terms of such Agreement, the Company will pay Citizens for
reimbursable costs as defined in the Agreement plus an administrative
charge.
F-11
<PAGE>
ELECTRIC LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 1994, 1995 AND 1996
(Information as of September 30, 1997 and for the nine months ended
September 30, 1997 and 1996 is unaudited)
A summary of the activity in the amount due to Citizens is as follows:
<TABLE>
<CAPTION>
------------------------(in thousands) ------------------------
Years Ended December 31, Nine months ended
------------------------ September 30,
--------------
1994 1995 1996 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance beginning of period $ 21,481 $ 35,109 $ 64,941 $ 155,395
Cash advances from Citizens, net 67,636 26,862 88,530 67,293
Acquisition of preferred stock (57,255) - - -
Deferred income taxes (519) (1,160) (3,198) (8,696)
Interest 2,466 2,619 2,868 2,234
Administrative services fees 1,300 1,511 2,254 2,945
------------- -------------- ---------- -----------
Balance end of period $ 35,109 $ 64,941 $ 155,395 $ 219,171
============= ============== ========== ===========
</TABLE>
Prior to the completion of the Offering, $119.2 million of the amount
due to Citizens as of September 30, 1997 will be contributed to
additional paid-in-capital and the remaining $100 million (plus any
additional amounts incurred since September 30, 1997) will be repaid
with the proceeds from the Credit Facility (see Note 8). In 1994, 1995
and 1996, Citizens had been charging interest on the amount due to
Citizens only to the extent that the Company was allowed to capitalize
interest under Generally Accepted Accounting Principles.
Telecommunications Services
Citizens entered into a lease for fiber optic cable from the Company
for 10 years and calls for rentals of $30,000 per month. Also during
1996, Citizens and the Company combined their purchasing power of
long-haul services in arrangements Citizens entered into with a long
distance carrier in order to receive a lower unit cost. The Company
reimbursed Citizens $7.6 million in 1996 representing the cost of the
Company's usage of these long-haul services plus 5%. This arrangement
with Citizens was replaced effective May 1, 1997 with a 24-month term
agreement which removed the 5% additional fee.
Stock Plans
At December 31, 1996, Company employees participated in two Citizens
stock based compensation plans which are described below. The Company
applies APB Opinion No. 25 and related interpretations in accounting
for the Citizens employee stock plans. Accordingly, no compensation
cost has been recognized in the financial statements for options issued
pursuant to the MEIP or ESPP. The following tables reflect MEIP and
ESPP information for Company employees and exclude full time employees
and officers of Citizens. Had the Company determined compensation cost
based on the fair value at the grant date for the MEIP and ESPP under
SFAS 123, the Company's pro forma net loss would have been as follows:
<TABLE>
<CAPTION>
($ in thousands) 1995 1996
-------------------------------------------------- ------------ ----- ------------
<S> <C> <C>
Net loss As reported $ (20,322) $ (29,383)
Pro forma $ (20,343) $ (29,474)
</TABLE>
F-12
<PAGE>
ELECTRIC LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 1994, 1995 AND 1996
(Information as of September 30, 1997 and for the nine months ended
September 30, 1997 and 1996 is unaudited)
Under the Citizens' MEIP, the exercise price of stock options and SARs
shall be equal to or greater than the fair market value of the
underlying Citizens common stock on the date of grant. Stock options
are generally not exercisable on the date of grant but vest over a
period of time. A summary of Citizens shares subject to option for
Company employees is as follows:
Shares Weighted
Subject to Average Option
Option Price Per Share
Balance at January 1, 1994 36,184 $ 13.52
Options granted 73,138 11.56
Options exercised - -
Options canceled or lapsed - -
-------------- -------------
Balance at December 31, 1994 109,322 12.60
Options granted 27,831 10.57
Options exercised - -
Options canceled or lapsed 19,722 12.29
-------------- -------------
Balance at December 31, 1995 117,431 12.19
Options granted 102,877 11.08
Options exercised - -
Options canceled or lapsed 5,909 11.52
============== =============
Balance at December 31, 1996 214,399 $ 11.84
============== =============
The following table summarizes information about Citizens shares
subject to option for Company employees under the MEIP at December 31,
1996.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Number Range of Exercise Life in Number Exercise
Outstanding Exercise Prices Price Years Exercisable Price
--------------- ----------------- ------------- ------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
214,399 $9.85 - $14.96 $11.84 6.5 45,817 $12.06
</TABLE>
The weighted-average fair value of options granted during 1995 and 1996
were $2.12 and $1.51, respectively. For purposes of the pro forma
calculation under SFAS 123, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants
in 1995 and 1996:
1995 1996
---------------------------------------------- ---------------------
Dividend yield 5.6% 6.2%
Expected volatility 20% 20%
Risk-free interest rate 6.25% 5.63%
Expected life 7 years 7 years
F-13
<PAGE>
ELECTRIC LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 1994, 1995 AND 1996
(Information as of September 30, 1997 and for the nine months ended
September 30, 1997 and 1996 is unaudited)
The ESPP allows eligible employees of Citizens and its subsidiaries to
subscribe to purchase shares of Citizens Common Stock at 85% of the
lower of the average market price on the first or last day of the
purchase period. An employee may elect to have up to 20% of annual base
pay withheld in equal installments throughout the designated payroll-
deduction period for the purchase of shares. The value of an employee's
subscription may not exceed $25,000 in any one calendar year. As of
December 31, 1996, 175 Company employees were participating in the
ESPP.
The weighted-average fair value of purchase rights granted in 1995 and
1996 was $3.18 and $3.30, respectively. For purposes of the pro forma
calculation under SFAS 123, compensation cost is recognized for the
fair value of the employees' purchase rights, which was estimated using
the Black-Scholes Model with the following assumptions for subscription
periods beginning in 1995 and 1996:
1995 1996
---------------------------------------------- ---------------------
Dividend yield 6.2% 6.4%
Expected volatility 20% 20%
Risk-free interest rate 5.56% 5.30%
Expected life 6 months 6 months
(7) Commitments and Contingencies:
-----------------------------
In 1995, the Company entered into a $110 million construction agency
agreement and an operating lease agreement in connection with the
construction of certain telecommunications networks and fiber cable
links. The Company serves as agent for the construction of these
projects and upon completion of each project has agreed to lease the
facilities for a three year term, with one year renewals available
through April 30, 2002. At December 31, 1995, 1996 and at September 30,
1997, the Company was leasing assets with an original cost of $36.8
million, $57.3 million and $87.4 million, respectively, under this
agreement. The Company has the option to purchase the facilities at the
end of the lease terms for the amount of the lessor's investment in the
facilities, which is expected to be $110 million. In the event the
Company chooses not to exercise this option, the Company is obligated
to arrange for the sale of the facilities to an unrelated party and is
required to pay the lessor any difference between the net sales
proceeds and the lessor's investment in the facilities. However, any
amount required to be paid to the lessor is subject generally to a
maximum of 80% of the lessor's investment, giving effect to lease
payments previously made. The performance of these lease obligations is
guaranteed by Citizens. Effective with the completion of the Offering,
the Company has agreed to pay to Citizens an annual guarantee fee at
the rate of 3.25% per annum based on the amount of the lessor's
investment in the leased assets.
The Company conducts certain of its operations in leased premises and
also leases certain equipment; obligations, renewals and maintenance
costs vary by lease.
The Company has entered into an operating lease contract and a capital
lease contract with a third party in order to develop long-haul routes
between Portland, Oregon and Seattle, Washington and between Portland,
Oregon and Spokane, Washington. The operating lease agreement provides
for rental payments based on a percentage of the Company's monthly
leased traffic over such route and is expected to become operational
before the end of 1997. The capital lease agreement provides for a
monthly minimum lease payment of $105,000 plus a percentage of leased
traffic over such route in excess of certain minimums and became
operational in February, 1997. Both agreements have terms of 15 years.
F-14
<PAGE>
ELECTRIC LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 1994, 1995 AND 1996
(Information as of September 30, 1997 and for the nine months ended
September 30, 1997 and 1996 is unaudited)
The Company has entered into an operating lease contract to develop a
local network in Phoenix, Arizona. The operating lease provides for
rental payments based on a percentage of the network's operating income
for a period of 15 years.
Future minimum rental commitments for all long-term noncancelable
operating leases as of December 31, 1996 are:
Year Amount
--------------------------- ---------------------------
1997 $ 7,727,000
1998 7,364,000
1999 7,401,000
2000 7,295,000
2001 6,176,000
2002 to 2007 4,306,000
=======================================================
Total $40,269,000
=======================================================
Total rental expense included in the Company's results of operations
for the years ended December 31, 1994, 1995 and 1996 was $663,000,
$2,475,000 and $5,193,000, respectively.
The Company is also a party to contracts with several unrelated long
distance carriers. The contracts provide for fees based on leased
traffic subject to minimum monthly fees which aggregate $2.6 million
for 1997, $12.1 million for 1998 and $16.8 million for 1999.
The Company's budgeted capital expenditures for 1997 are $79.3 million
and certain commitments have been entered into in connection therewith.
Contingencies
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's results of operations, financial position or
liquidity.
(8) Subsequent Events:
Credit Facility
In October 1997, the Company arranged for a bank commitment for a
five-year $400 million revolving Credit Facility. Citizens has agreed
to guarantee all of the Company's obligations under the Credit
Facility and effective with the Offering, the Company has agreed to
pay Citizens a guarantee fee at a rate of 3.25% per annum based on the
balance outstanding under the facility. Concurrent with the completion
of the Offering, the Company intends to draw down enough funds to repay
the balance of all amounts due to Citizens at the time of the Offering
(see Note 6).
F-15
<PAGE>
ELECTRIC LIGHTWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 1994, 1995 and 1996
(Information as of September 30, 1997 and for the nine months ended September
30, 1997 and 1996 is unaudited)
Equity Incentive Plan
In October 1997, the Board of Directors adopted the 1997 Equity
Incentive Plan ("the plan"), which authorizes, among other things, the
grant of incentive stock options, nonqualified stock options, stock
appreciation rights or combinations thereof and restricted stock. The
exercise price for such awards shall be determined by the Compensation
Committee of the Board of Directors at the date of grant. The exercise
period for such awards is generally 10 years from the date of grant.
The Company has reserved 4,170,600 shares for issuance under the terms
of the plan.
Concurrent with the effective date of the Offering, the Company will
grant stock options at the Offering price to certain officers and
employees for 2,316,000 shares of Class A Common Stock exercisable at
the Offering price and will grant certain directors, officers and
employees 535,000 restricted shares of Class A Common Stock.
Indefeasible Right to Use
In October, 1997, the Company entered into a 20 year indefeasible right
to use contract for 24 optical fibers with an unrelated third party for
approximately $50.2 million. The third party intends to construct a
fiber optic communications system linking Portland, Boise, Salt Lake
City, Las Vegas and Los Angeles. The network is scheduled to be
completed by February 28, 1999 and will have approximately 1,620 route
miles.
F-16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below are the expenses (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and
distribution of the securities to be registered hereby. With the exceptions of
the Securities and Exchange Commission registration fee and the NASDAQ
registration fee, the amounts set forth below are estimates.
Securities and Exchange Commission $ 62,728
registration fee.......................
NASDAQ registration fee................. 5,000
Transfer agent and registrar fees....... 10,000
Costs of printing and engraving......... 70,000
Legal fees and expenses................. 60,000
Accounting fees and expenses............ 30,000
Blue Sky fees and expenses.............. 10,000
Miscellaneous expenses.................. 7,879
-----------
TOTAL.................................. $255,607
===========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As authorized by Section 145 of the General Corporation Law of
Delaware, Electric Lightwave, Inc. (the "Company") has agreed to indemnify each
director and officer of the Company against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the defense or settlement of any threatened,
pending or completed action, suit or proceeding, in which he is involved by
reason of the fact that he is or was a director or officer of the Company if he
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, if he had no reasonable cause to believe that his conduct
was unlawful. If, however, any threatened, pending or completed action, suit or
proceeding is by or in the right of the Company, the director or officer shall
not be indemnified in respect of any claim, issue or matter as to which he is
adjudged to be liable to the Company unless the Court of Chancery of Delaware
determines otherwise.
Article Seventh of The Company's Certificate of Incorporation provides
that no director of the Company shall be personally liable to the Company or any
of its stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its shareholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of the
law, (iii) under Section 174 of the General Corporation Law of Delaware, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Company's By-Laws provide that the Company shall indemnify its
officers and directors to the fullest extent permitted by the General
Corporation Law of Delaware.
II-1
<PAGE>
The Company participated in the directors' and officers' insurance
coverage of Citizens Utilities Company relating to loss, liabilities and
expenses incurred in connection with any legal proceeding arising from his or
her being or having been a director or officer of the Company.
The Company has agreed to indemnify and hold harmless Citizens and its
other subsidiaries and their directors, officers, employees and agents from all
losses, liabilities and costs and expenses resulting from liabilities of the
Company or material breaches by the Company arising out of the offering of the
shares of Class A Common Stock contemplated by this registration statement.
Citizens has undertaken a reciprocal obligation to indemnify the Company and its
directors, officers, employees and agents against losses, liabilities, costs and
expenses resulting from liabilities of Citizens or material breaches by Citizens
arising out of such offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In 1994, the Company issued 5,725,527 shares of preferred stock of the
Company to Citizens for $57,255,270 in a private placement. Exemption from
registration is claimed under Section 4.2 of the Securities Act of 1933. No
underwriters were involved in such issuance. In 1996, 76 shares of common stock
were issued upon conversion of such preferred stock to common stock. Exemption
from registration under the Securities Act is claimed under Section 3(a)(9) of
the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
An Exhibit Index, containing a list of all exhibits to this
registration statement, commences on page II-6.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because the information is not
required, is not material or is otherwise included in the financial statements
or related notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
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
II-2
<PAGE>
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 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:
(i) 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) hereunder the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(ii) 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has 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 Stamford, State of Connecticut, on November 18, 1997.
ELECTRIC LIGHTWAVE, INC.
/s/Daryl Ferguson
-------------------------------
By: Daryl Ferguson
Title: Chief Executive Officer
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.
SIGNATURE TITLE(S)
--------- --------
Chief Executive Officer, Vice November 18, 1997
/s/Daryl A. Ferguson Chairman and Director
- ---------------------------
Daryl A. Ferguson
President, Chief Operating November 18, 1997
*David B. Sharkey Officer and Director
- ---------------------------
David B. Sharkey
Vice President, Chief
Financial Officer and November 18, 1997
/s/Robert J. DeSantis Treasurer
- ---------------------------
Robert J. DeSantis
*Kerry Rea Vice President and Controller November 18, 1997
- ---------------------------
Kerry Rea
*Leonard Tow Chairman of the Board November 18, 1997
- ---------------------------
Leonard Tow
*Stanley Harfenist Director November 18, 1997
- ---------------------------
Stanley Harfenist
*Robert A. Stanger Director November 18, 1997
- ---------------------------
Robert A. Stanger
II-4
<PAGE>
*Maggie Wilderotter Director November 18, 1997
- ---------------------------
Maggie Wilderotter
*By__/s/Robert J. DeSantis
- ---------------------------
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
1.1 U.S. Underwriting agreement
1.2 International Underwriting Agreement
3.1*** Amended and Restated Certificate of Incorporation
3.2*** By-laws
4.1*** (Contained in Exhibit 3.1)
5.1 Opinion regarding legality of the securities being registered
10.1* License Agreement between the Company and the United States of
America Department of Energy acting by and through the
Bonneville Power Administration dated March 29, 1996
10.2* License Agreement between the Company and the United States of
America Department of Energy acting by and through the
Bonneville Power Administration dated November 11, 1996
10.3* License Agreement between the Company and the United States of
America Department of Energy acting by and through the
Bonneville Power Administration dated July 18, 1997
10.4* Optical Fiber License Agreement between the Company and Salt
River Project Agricultural Improvement and Power District dated
as of September 11, 1996
10.5 Participation Agreement between the Company, Shawmut Bank
Connecticut, National Association, the Certificate Purchasers
named therein, the Lenders named therein, BA Leasing & Capital
Corporation and Citizens Utilities Company dated as of April 28,
1995, and the related operating documents
10.6*** Agreement For Lease of Dark Fiber between the Company and
Citizens Utilities Company dated as of March 24, 1995
10.7 Form of Administrative Services Agreement between the Company
and Citizens Utilities Company dated as of _______, 1997
10.8 Form of Tax Sharing Agreement between the Company and Citizens
Utilities Company dated as of _______, 1997
10.9 Form of Indemnification Agreement between the Company and
Citizens Utilities Company dated as of _______, 1997
10.10 Form of Registration Rights Agreement between the Company and
Citizens Utilities Company dated as of _______, 1997
10.11 Form of Customers and Service Agreement between the Company and
Citizens Utilities Company dated as of _______, 1997
II-6
<PAGE>
EXHIBIT NO. DESCRIPTION
10.12 Form of Bank Credit Agreement dated _________, 1997
10.13 Equity Incentive Plan of the Company
10.15** Citizens Utilities Company 1996 Equity Incentive Plan, as
amended
10.16 Form of Guaranty Fee Agreement dated as of ___________, 1997
between the Company and Citizens Utilities Company
10.17 Pre-Construction IRU Agreement between the Company and FTV
Communications, LLC dated October 16, 1997
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Winthrop, Stimson, Putnam & Roberts (to be
contained in Exhibit No 5.1)
24.1*** Powers of attorney
27.1*** Financial Data Schedule
_____________________
* Filed herewith. Portions of such exhibit are omitted pursuant to a
request for confidential treatment.
** The 1996 Equity Incentive Plan is incorporated by reference to Citizens'
Proxy Statement dated March 29, 1996, File No. 001-11001. Amendment No. 1
to the 1996 Equity Incentive Plan is incorporated by reference to
Citizens' Current Report on Form 8-K dated August 7, 1997, File No. 001-
11001.
*** Previously filed.
II-7
<PAGE>
SCHEDULE II
Electric Lightwave, Inc.
Valuation and Qualifying Accounts
($ in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charge to
beginning Cost and other Balance at end
Accounts of period Expense accounts Deductions of period
- --------------------------------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1994:
Allowance for doubtful accounts $ - (36) - - $ (36)
Deferred income taxes valuation
allowance $ (3,442) - (3,603) - $ (7,045)
1995:
Allowance for doubtful accounts $ (36) (111) - 72 $ (75)
Deferred income taxes valuation
allowance $ (7,045) - (7,063) - $ (14,108)
1996:
Allowance for doubtful accounts $ (75) (3,010) - 1,919 $ (1,166)
Deferred income taxes valuation
allowance $ (14,108) - (10,240) - $ (24,348)
</TABLE>
II-8
<PAGE>
EXHIBIT 1.1
WSP&R
DRAFT
11/17/97
ELECTRIC LIGHTWAVE, INC.
Class A Common Stock
U.S. UNDERWRITING AGREEMENT
New York, New York
November __, 1997
To the Representatives named in Schedule
I of each of the several U.S. Underwriters named
in Schedule II hereto
Dear Sirs:
Electric Lightwave, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell severally
and not jointly to the U.S. Underwriters named in Schedule II hereto (the "U.S.
Underwriters") for whom you are acting as representatives (the
"Representatives") (i) that number of shares of Class A Common Stock, par value
$.01 per share, of the Company ("Common Stock") specified in Schedule I hereto
and (ii) an option described in Section 2 hereof to purchase all or any part of
the number of additional shares of Common Stock to cover overallotments as is
specified in Schedule I hereto. The shares of Common Stock to be purchased
initially by the U.S. Underwriters (the "Initial Shares"), together with all or
any part of the shares of Common Stock subject to the option described in
Section 2 hereof (the "Option Shares"), are collectively hereinafter called the
"Shares".
It is understood by all parties that the Company is concurrently entering
into an agreement dated the date hereof (the "International Underwriting
Agreement") providing for the sale by the Company of 2,300,000 shares of Common
Stock (including the over-allotment option thereunder) through arrangements with
certain underwriters outside the United States and Canada (the "International
Managers"), for whom Lehman Brothers International (Europe), Merrill Lynch
International, Morgan Stanley & Co. International Limited and Morgan Grenfell &
Co. Limited are acting as lead managers (the "Lead Managers"). The U.S.
Underwriters and the International Managers simultaneously are entering into an
intersyndicate agreement (the "Intersyndicate Agreement') which provides for,
among other things, the transfer of shares of Common Stock between the two
syndicates. Except as used in Sections 2, 3, 9 and 11 herein, and except as the
context may otherwise require, references herein to the Shares shall include all
<PAGE>
the shares of the Common Stock which may be sold pursuant to either this
Agreement or the International Underwriting Agreement.
1. Representations and Warranties by the Company. The Company represents
---------------------------------------------
and warrants to each U.S. Underwriter that:
(a) A registration statement on Form S-1 with respect to the
Shares has (i) been prepared by the Company in conformity with the
requirements of the Securities Act of 1933 (the "Securities Act") and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, (ii) been filed with the
Commission under the Securities Act and (iii) become effective under the
Securities Act. Copies of such registration statement have been delivered
by the Company to you as the Representatives of the U.S. Underwriters. As
used in this Agreement, "Effective Time" means the date and the time as of
which such registration statement, or the most recent post-effective
amendment thereto, if any, was declared effective by the Commission;
"Effective Date" means the date of the Effective Time of such registration
statement; "Preliminary Prospectus" means each prospectus included in any
such registration statement, or amendments thereof, before it became
effective under the Securities Act and any prospectus filed with the
Commission by the Company with the consent of the Representatives pursuant
to Rule 424(a) of the Rules and Regulations; "Prospectus" means such final
prospectus, as first filed with the Commission pursuant to paragraph (1) or
(4) of Rule 424(b) of the Rules and Regulations; and "Registration
Statement" means the registration statement referred to in this Section
1(a), as amended at its Effective Time, including all information contained
in the final prospectus filed with the Commission pursuant to Rule 424(b)
of the Rules and Regulations in accordance with Section 7(a) hereof and
deemed to be a part of the Registration Statement as of the Effective Time
of the Registration Statement pursuant to paragraph (b) of Rule 430A of the
Rules and Regulations. The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms (and the Prospectus and
any further amendments or supplements to the Registration Statement or the
Prospectus, when they become effective or are filed with the Commission, as
the case may be, will conform) in all respects to the requirements of the
Securities Act and the Rules and Regulations and do not and will not, as of
the applicable effective date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment or supplement thereto) contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
furnished to the Company through the Representatives by or on behalf of any
U.S. Underwriter specifically for inclusion therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate
2
<PAGE>
power and authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business and
is in good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on the
Company; and the Company has no subsidiaries.
(d) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth
in the Registration Statement and the Prospectus, there has not been any
material adverse change in the business, properties or financial condition
of the Company, and there have not been any transactions entered into by
the Company which is material to the Company, other than transactions in
the ordinary course of business and transactions contemplated by the
Registration Statement or Prospectus.
(e) Neither the issuance or sale of the Initial Shares nor the Option
Shares, nor the performance of the terms and provisions thereof and of this
Agreement and the International Underwriting Agreement, will conflict with,
result in a breach of or constitute a default under the terms of the
Certificate of Incorporation or By-Laws of the Company or any indenture,
mortgage, deed of trust or other agreement or instrument to which the
Company is a party or by which it is bound or any order or regulation
applicable to the Company of any Court, regulatory body, administrative
agency or governmental body having jurisdiction over the Company and no
consent, approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by the Company
of its obligations under this Agreement, except such as may be required by
the securities or Blue Sky laws of the various states in connection with
the offer and sale of the Shares.
(f) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable and conform to the description thereof contained in the
Prospectus.
(g) The Shares conform to the description thereof contained in the
Prospectus and are duly and validly authorized, and, when delivered to the
U.S. Underwriters as provided herein and the International Managers as
provided in the International Underwriting Agreement against payment of the
consideration therefor, will be validly issued and outstanding, fully paid
and non-assessable with no personal liability attaching to the ownership
thereof, and listed on The Nasdaq National Market. The issuance of such
Shares will not be subject to any preemptive or similar rights.
(h) This Agreement has been duly authorized, executed and delivered
by the Company.
(i) Except as described in the Prospectus, the Company has not sold
or issued any shares of Common Stock during the six-month period preceding
the date of the
3
<PAGE>
Prospectus, including any sales pursuant to Rule 144A under, or Regulations
D or S of, the Securities Act, other than shares issued pursuant to
employee benefit plans, qualified stock options plans, other employee
compensation plans, restricted stock grants or pursuant to outstanding
options, rights or warrants.
(j) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and who
have delivered the initial letter referred to in Section 6(a)(vi) hereof,
are independent public accountants as required by the Securities Act and
the Rules and Regulations.
(k) There are no legal or governmental proceedings pending to which
the Company is a party or of which any property or asset of the Company is
the subject which, if determined adversely to the Company might have a
material adverse effect on the consolidated financial position,
stockholders' equity, results of operations or business of the Company; and
to the best of the Company's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by others.
(l) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
2. Purchase and Sale of the Shares. Subject to the terms and conditions
-------------------------------
and in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to you and each other U.S. Underwriter, severally and not
jointly, and you and each other U.S. Underwriter agree, severally and not
jointly, to purchase from the Company, at the purchase price set forth in
Schedule I hereto, the number of Initial Shares set forth opposite such U.S.
Underwriter's name in Schedule II hereto plus any additional number of Option
Shares which such U.S. Underwriter may become obligated to purchase pursuant to
the provisions of Section 9 hereof.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the U.S. Underwriters, severally and not jointly, to
purchase up to the number of additional shares of Common Stock set forth on
Schedule I hereto at the price set forth on Schedule I hereto. The option
hereby granted will expire 30 days after the date of this Underwriting
Agreement, and may be exercised in whole or in part from time to time only for
the purpose of covering overallotments which may be made in connection with the
offering and distribution of the Initial Shares upon notice by the
Representatives to the Company setting forth the number of Option Shares as to
which the U.S. Underwriters are then exercising the option and the time, date
and place of payment and delivery for such Option Shares. Any such time and
date of delivery (a "Date of Delivery") shall be determined by the
Representatives, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Date, as
hereinafter defined, unless otherwise agreed upon by the Representatives and the
Company. If the option is exercised as to all or any portion of the Option
Shares, the Option Shares shall be sold by the Company and shall be purchased by
the U.S. Underwriters, severally and not jointly, in proportion to their
respective Initial Share underwriting obligations as set forth in Schedule II.
4
<PAGE>
3. Delivery, Payment and Offering. Delivery of and payment for the
------------------------------
Initial Shares shall be made at the place, date and time specified in Schedule I
hereto (or such other place, date and time not later than ten full business days
thereafter as the Representatives and the Company shall designate), which date
and time may be postponed by agreement between the Representatives and the
Company or as provided in Section 9 hereof (such date and time being herein
called the "Closing" or "Closing Date"). Delivery of the Initial Shares shall be
made to the Representatives for the respective accounts of the several U.S.
Underwriters against payment by the several U.S. Underwriters through the
Representatives of the purchase price thereof to or upon the order of the
Company payable in federal (same day) funds. The Initial Shares shall be in
definitive form and shall be registered in such names and in such authorized
denominations as the Representatives may request not less than three full
business days in advance of the Closing Date. The Company agrees to have the
Initial Shares available for inspection, checking and packaging by the
Representatives in New York, New York, not later than 10:00 A.M., New York City
time, on the last business day prior to the Closing Date.
In addition, in the event that any or all of the Option Shares are
purchased by the U.S. Underwriters, delivery of and payment for the Option
Shares shall be made on the Date of Delivery at the offices designated on
Schedule I at 10:00 A.M. New York City time (or such other time and place as the
Representatives and the Company shall designate), which date and time may be
postponed by agreement between the Representatives and the Company or as
provided in Section 9 hereof and which date may also be the Closing Date.
Delivery of the Option Shares shall be made to the Representatives for the
respective accounts of the several U.S. Underwriters against payment by or on
behalf of the U.S. Underwriters through the Representatives of the purchase
price thereof to or upon the order of the Company payable in federal (same day)
funds. The Option Shares shall be in definitive form and shall be registered in
such names and in such authorized denominations as the Representatives may
request not less than three full business days in advance of the Date of
Delivery.
The Company agrees to have the Option Shares available for inspection,
checking and packaging by the Representatives in New York, New York, not later
than 10:00 a.m., New York City time, on the last business day prior to the Date
of Delivery.
It is understood that each U.S. Underwriter has authorized the
Representatives, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Shares which it has agreed to purchase.
Subject to the terms and conditions of this Agreement, the U.S.
Underwriters agree to make a bona fide public offering of the Shares as soon as
the Representatives deem advisable after this Agreement has been executed and
delivered.
4. Agreements of the Company. The Company agrees with the several U.S.
-------------------------
Underwriters that:
(a) With your consent, the Company will file the Prospectus pursuant
to Rule 424 under the Act and will notify the Representatives promptly of
such filing. During the
5
<PAGE>
period for which a prospectus relating to the Shares is required to be
delivered under the Securities Act, the Company will promptly advise the
Representatives (i) when any amendment to the Registration Statement has
been filed or becomes effective, (ii) of any request by the Commission for
any amendment of or supplement to the Registration Statement or the
Prospectus or for any additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any proceedings
for that purpose, and (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company will use its best efforts to
prevent the issuance of any such stop order and, if issued, to obtain as
soon as possible the withdrawal thereof. The Company will not file any
amendment or supplement to the Registration Statement or the Prospectus
(other than a prospectus or prospectus supplement relating to an offering
of debt or additional equity securities which offering is permitted by
Section 4(f) hereof) unless the Company has furnished to the
Representatives a copy for their review prior to filing and will not file
any such proposed amendment or supplement to which they reasonably object.
(b) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act, any event occurs as a
result of which the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it shall be
necessary at any time to amend or supplement the Prospectus to comply with
the Securities Act or the Exchange Act or the respective rules thereunder,
the Company promptly will prepare and file with the Commission, subject to
paragraph (a) of this Section 4, an amendment or supplement which will
correct such statement or omission or an amendment or supplement which will
effect such compliance.
(c) The Company will furnish such information, execute such
instruments and take such action as may be required to qualify the Shares
for sale under the laws of those states specified in a writing heretofore
delivered by you and countersigned by the Company and such other
jurisdictions as the Representatives may designate in which there is a
change of law or regulation after the date hereof affecting the status of
the Shares as exempt Shares under such laws and will maintain such
qualifications in effect so long as required for the distribution of the
Shares; provided, however, that the Company shall not be required to
-------- -------
qualify to do business in any jurisdiction where it is not now so qualified
or to take any action which would subject it to general or unlimited service of
process in any jurisdiction where it is not now so subject.
(d) The Company will furnish to the Representatives a signed copy of
the Registration Statement as originally filed and of each amendment
thereto, all powers of attorney, consents and exhibits filed therewith
(other than exhibits incorporated by reference), and will deliver to the
Representatives conformed copies of the Registration Statement as
originally filed and of each amendment thereto, the Preliminary Prospectus,
the Prospectus and, so long as delivery of a prospectus by an U.S.
Underwriter or dealer
6
<PAGE>
may be required by the Securities Act, all amendments of and supplements to
such documents, in each case as soon as available and in such quantities as
the Representatives may reasonably request.
(e) For a period of five calendar years from the date of this
Agreement, the Company will furnish (or cause to be furnished) to each of
the Representatives, upon request, copies of (i) all reports to
stockholders of the Company and (ii) all reports and financial statements
filed with the Commission or with The Nasdaq National Market.
(f) During the period beginning from the date of the Prospectus and
continuing to and including the 180th day thereafter, the Company and
Citizens Utilities Company ("Citizens") each will not, directly or
indirectly, offer, sell, or otherwise dispose of any shares of Common Stock
or any securities convertible into or exchangeable or exercisable for any
such shares of Common Stock (except for stock dividends paid in the normal
course, stock splits or stock splits carried out in the form of stock
dividends, shares issued under employee or director stock option or other
benefit plans, shares issued as consideration in connection with
acquisitions which have been disclosed to you and securities under prior
contractual commitments, if any, which have been disclosed to you), without
the prior written consent of the Lehman Brothers, Inc., which consent shall
not be unreasonably withheld.
(g) The Company will make generally available to its security holders
and to the Representatives, as soon as practicable, but not later than
sixteen months after the "effective date" of the Registration Statement (as
such term is defined in Rule 158(c) under the Securities Act), a
consolidated earning statement (which need not be audited) of the Company,
covering a period of twelve-months beginning after such effective date
which will satisfy the provisions of Section 11(a) of the Securities Act.
5. Expenses. The Company will pay or cause to be paid the following:
--------
(i) the fees, disbursements and expenses of the Company's counsel and
accountants in connection with the registration of the Shares under the Act
and all other expenses in connection with the preparation, printing and
filing of the Registration Statement and the Prospectus and amendments and
supplements thereto and the furnishing of copies thereof and of any
Preliminary Prospectus to the U.S. Underwriters and dealers, all fees, if
any, payable to the National Association of Securities Dealers, Inc. or The
Nasdaq National Market;
(ii) the cost of printing this Agreement, the International
Underwriting Agreement and the Blue Sky Survey;
(iii) all expenses including fees and disbursements of counsel (up to
a maximum of $7,500) in connection with the qualification of the Shares
under the securities or Blue Sky laws of such Jurisdictions as the
Representatives and the Lead Managers shall reasonably request and the
preparation of a Blue Sky Survey;
7
<PAGE>
(iv) the cost of preparing certificates for the Shares; and
(v) all other costs and expenses incident to the performance of the
Company's obligations hereunder which are not otherwise specifically
provided for in this Section 5. Except as provided in Section 5 and Section
11 hereof, the U.S. Underwriters will pay all of their own costs and
expenses, including the fees of their counsel, transfer taxes on resale of
any of the Initial Shares by them, and any advertising expenses connected
with any offers they may make. The Company shall not in any event be
liable to any of the several U.S. Underwriters for damages on account of
loss of anticipated profits.
6. (a) Conditions to the Obligations of the U.S. Underwriters. The
------------------------------------------------------
obligations of the U.S. Underwriters to purchase the Initial Shares shall be
subject to the accuracy in all material respects of the representations and
warranties on the part of the Company contained herein (except insofar as such
representations and warranties have already been qualified as to materiality
therein) as of the date hereof and the Closing Date, to the accuracy of the
statements of Company officers made in any certificates given pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission;
(ii) No order of any governmental or regulatory body shall be
necessary for the issuance and sale of the Initial Shares on the terms set
forth or contemplated in this Agreement and the International Underwriting
Agreement;
(iii) At the Closing Date, the Company shall have received all
authorizations from any state regulatory commission (other than pursuant to
any state "Blue Sky" laws), necessary for the issuance and sale of the
Initial Shares and related transactions on the terms set forth or
contemplated in this Agreement and the International Underwriting Agreement
and containing no provision unacceptable to the Representatives, which such
authorizations shall be in full force and effect and no order or additional
order of any such Commission shall be necessary for such issuance and sale
which has not been obtained;
(iv) The Shares shall have been approved for listing on The Nasdaq
National Market;
(v) At the Closing Date, the Representatives shall have been
furnished with the following opinions, addressed to the U.S. Underwriters
(with conformed copies thereof for each of the other U.S. Underwriters), in
form and substance satisfactory to the Representatives, dated the Closing
Date or a date not more than three days prior thereto:
(A) Opinion of Winthrop, Stimson, Putnam & Roberts, New York, New
York, counsel to the Company;
8
<PAGE>
(B) Opinions of local counsel to the Company in the states of
Washington, Oregon, California, Utah, Nevada and Arizona; and
(C) Opinion of Simpson Thacher & Bartlett, New York, New York,
counsel to the U.S. Underwriters with respect to the validity of the
Shares, the Registration Statement, the Prospectus, and other related
matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters;
(vi) On each of the date hereof and the Closing Date, the
Representatives shall have been furnished a letter dated the date hereof and
the Closing Date, as the case may be, in form and substance satisfactory to
the Representatives, from KPMG Peat Marwick, the Company's independent
public accountants, containing statements and information heretofore agreed
upon with respect to the financial statements and certain financial
information contained in the Prospectus;
(vii) At the Closing Date, the Representatives shall have received a
certificate, dated the Closing Date, signed by an officer of the Company, to
the effect that, (A) since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change in the business, properties or financial condition
of the Company and (B) since such dates, there has not been any transaction
entered into by the Company other than transactions referred to in, or
contemplated by, the Registration Statement and Prospectus and transactions
which are not material to the Company; and
(viii) At the Closing Date, the Representatives shall have received a
certificate, dated the Closing Date signed by an officer of the Company, to
the effect that, since the respective dates as of which information is given
in the Registration Statement and Prospectus, the Company shall not have
sustained a loss by fire, flood, accident or other calamity which is
substantial with respect to the property of the Company. At the Closing the
Representatives shall have been furnished with certificates satisfactory to
the Representatives as to the accuracy of its representations and warranties
herein at and as of the Closing and as to the performance by the Company of
all of its obligations hereunder to be performed at or prior to the Closing,
and the Company also shall have furnished to you a certificate satisfactory
to you as to the matters set forth in subsections (i) and (ii) of this
Section 6.
(ix) The closing under the International Underwriting Agreement shall
have occurred concurrently with the closing hereunder on the Closing Date
with respect to the Initial Shares.
(b) Option Share Closing. In the event the U.S. Underwriters
--------------------
exercise their option granted in Section 2 hereof to purchase all or any portion
of the Option Shares, the representations and warranties of the Company
contained herein and the statements in any
9
<PAGE>
certificates furnished by the Company hereunder shall be true and correct as of
each Date of Delivery, and the Representatives shall have received:
(i) A certificate of the Chairman or the President or any Vice President
and of the Treasurer or Assistant Treasurer of the Company, dated such Date
of Delivery, confirming that the certificate delivered on the Closing Date
pursuant to Section 6(a)(viii) hereof remains true as of such Date of
Delivery.
(ii) A certificate of an officer of the Company, dated such Date of
Delivery confirming that the certificate delivered on the Closing Date
pursuant to Section 6(a)(vii) hereof remains true as of such Date of
Delivery.
(iii) The opinion of Winthrop, Stimson, Putnam & Roberts, counsel for
the Company, dated such Date of Delivery relating to the Option Shares and
otherwise to the same effect as the opinion required by Section 6(a)(v)(A)
hereof.
(iv) The opinion of Simpson Thacher & Bartlett, counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the Option Shares
and otherwise to the same effect as the opinion required by Section
6(a)(v)(C) hereof.
(v) A letter from KPMG Peat Marwick, dated such Date of Delivery,
substantially the same in scope and substance as the letter furnished to
the Representatives pursuant to Section 6(a)(vi) hereof, except that the
"specified date" in the letter furnished pursuant to this Section 6(b)
shall be a date not more than six days prior to such Date of Delivery.
(vi) Prior to the Date of Delivery the Company shall have furnished to
the Representatives such further information, certificates and documents
confirming as of such date the Company's representations and warranties
contained herein as they may reasonably request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, this Agreement and all
obligations of the U.S. Underwriters hereunder may be canceled at, or at any
time prior to, the Closing Date by the Representatives. Notice of such
cancellation shall be given to the Company in writing, or by telephone or
telegraph confirmed in writing.
7. Conditions of Company's Obligations. The obligations of the Company to
-----------------------------------
sell and deliver the Shares are subject to the following conditions:
(a) Prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or threatened.
(b) The conditions referred to in subsections (ii) and (iii) of
Section 6(a) shall have been met and no order or authorization referred to
therein shall contain any provision unacceptable to the Company.
10
<PAGE>
If any of the conditions specified in this Section 7 shall not have been
fulfilled, this Agreement and all obligations of the Company hereunder, except
as stated in Section 11, may be canceled on or at any time prior to the Closing
Date by the Company. Notice of such cancellation shall be given to the
Representatives in writing or by telephone or telegraph confirmed in writing.
8. Indemnification.
----------------
(a) The Company and Citizens jointly and severally agree to indemnify
and hold harmless each U.S. Underwriter, its officers and employees and
each person who controls any U.S. Underwriter within the meaning of either
the Securities Act or the Exchange Act against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, at common law or otherwise insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement for
the registration of the Initial Shares as originally filed or in any
amendment thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus or in any
amendment thereof or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
(ii) any act or failure to act, or any alleged act or failure to act, by
any U.S. Underwriter in connection with, or relating in any manner to, the
Shares or the offering contemplated hereby, and which is included as part
of or referred to in any losses, claims, damages or liabilities arising out
of or based upon matters covered by clause (i) (provided that the Company
and Citizens shall not be liable in the case of any matter covered by this
clause (ii) to the extent that it is determined in a final judgment by a
court of competent jurisdiction that such losses, claims, damages or
liabilities resulted directly from any such act or failure to act
undertaken or omitted to be taken by such U.S. Underwriter through its
gross negligence or willful conduct), and agree to reimburse each such
indemnified party for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that neither the Company
-------- -------
nor Citizens will be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company or Citizens as herein stated by or on
behalf of any U.S. Underwriter through the Representatives specifically for
use in connection with the preparation thereof and provided further that
such indemnity with respect to a Preliminary Prospectus included in the
registration statement or any amendment thereto shall not inure to the
benefit of any U.S. Underwriter (or any officer, employee or person
controlling such U.S. Underwriter)
11
<PAGE>
from whom the person asserting any such loss, claim, damage or liability
purchased the Shares which are the subject thereof if such person was not
sent or given by or on behalf of such U.S. Underwriter a copy of the
Prospectus as amended or supplemented at or prior to the confirmation of
the sale of such Shares to such person in any case where such delivery is
required by the Securities Act and the untrue statement or omission of a
material fact contained in the Preliminary Prospectus was corrected in the
Prospectus as amended or supplemented. This indemnity agreement will be in
addition to any liability which the Company or Citizens may otherwise have.
(b) Each U.S. Underwriter severally and not jointly agrees to
indemnify and hold harmless each of the Company and Citizens, each of their
directors, each of the Company's officers and employees and each person, if
any, who controls the Company and Citizens within the meaning of either the
Securities Act or the Exchange Act, to the same extent as the foregoing
indemnity from the Company and Citizens to the U.S. Underwriters but only
in relation to written information furnished to the Company or Citizens by
or on behalf of such U.S. Underwriter through the Representatives
specifically for use in the preparation of the Prospectus, and agrees to
reimburse each such indemnified party for any legal or other expenses,
reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action. This indemnity
agreement will be in addition to any liability which any U.S. Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure to so notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this Section 8. In case any such action is
brought against any indemnified party, and it notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein, and to the extent that it may elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
--------
however, if the defendants in any such action include both the indemnified
-------
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party, or parties shall
have the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying party
to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in connection with the assertion of legal defenses in
accordance with the proviso to the next preceding sentence (it being understood,
12
<PAGE>
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel, approved by the Representatives in the case of
subsection (a), representing the indemnified parties under subsection (a) or
(b), as the case may be, who are parties to such action), (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party; and except that, if clause (i) or (iii) is applicable, such
liability shall be only in respect of the counsel referred to in such claims (i)
or (iii). It is understood that all such fees and expenses shall be reimbursed
as they are incurred.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in subparagraphs
(a) and (b) is due in accordance with its terms but is for any reason
unavailable from the Company, Citizens or the U.S. Underwriters or
insufficient to hold the U.S. Underwriters, the Company, Citizens or any
party covered by the foregoing indemnification harmless in respect of any
losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, the Company, Citizens and the U.S. Underwriters shall,
in lieu of indemnifying such indemnified party, contribute to the aggregate
losses, claims, damages and liabilities (or actions in respect thereof) to
which the Company, Citizens and one or more of the U.S. Underwriters may be
subject, as a result of such losses, claims, damages or liabilities (or
actions in respect thereof), in such proportion as is appropriate to
reflect the relative fault of the Company and Citizens on the one hand and
the U.S. Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other equitable considerations,
including relative benefit. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged untrue statement of
a material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company and Citizens on the one
hand or the U.S. Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The relative benefits received by the
Company and Citizens on the one hand and the U.S. Underwriters on the other
shall be deemed to be in the same proportion as the total net proceeds from
the offering of the Shares (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received
by the U.S. Underwriters with respect to the offering of the Shares, in
each case as set forth in the table on the cover page of the Prospectus.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Company, Citizens and the U.S.
Underwriters agree that it would not be just and equitable if contribution
pursuant to this subsection (d) were determined by pro rata allocation
(even if the U.S. Underwriters were treated as one entity for such purpose)
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The
amount paid or payable by a party entitled to contribution as a result of
the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be
13
<PAGE>
deemed to include any legal or other expenses reasonably incurred by such
party in connection with investigating or defending any such action or
claim. The U.S. Underwriters' obligations under this subsection (d) are
several in proportion to their respective underwriting obligations and not
joint. Notwithstanding the provisions of this Section 8, no U.S.
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public exceeds the amount of any damages of the kind
described in Section 8(a) which such U.S. Underwriter has otherwise paid in
respect of such losses, liabilities, claims and damages. For purposes of
this subsection (d), each person, if any, who controls a U.S. Underwriter
within the meaning of either the Securities Act or the Exchange Act, and
each officer, director and employee of a U.S. Underwriter shall have the
same rights to contribution as such U.S. Underwriter, and each person, if
any, who controls the Company or Citizens within the meaning of either the
Securities Act or the Exchange Act, each officer, director and employee of
the Company and Citizens shall have the same rights to contribution as the
Company and Citizens, subject to the fourth sentence of this subsection
(d).
(e) The U.S. Underwriters severally confirm that (i) the statements
with respect to the public offering of the Shares set forth on the cover
page of the Prospectus, (ii) the last paragraph on page 2 of the
Prospectus, concerning stabilization by the U.S. Underwriters, (iii) the
statements with respect to the public offering of the Shares in the fifth
paragraph under the caption "Underwriting" in the Prospectus, (iv) the
statements with respect to the Agreement Among U.S. Underwriters and
International Managers contained in the 7th and 8th paragraphs under the
caption "Underwriting" in the Prospectus, (v) the statements concerning
certain representations made by the International Managers under the laws
of the United Kingdom contained in the 9th paragraph under the caption
"Underwriting" in the Prospectus, (vi) the statements with respect to
confirmation of sales in the 11th paragraph under the caption
"Underwriting" in the Prospectus, and (vii) the statements with respect to
transactions that stabilize the price of the Shares in the 15th, 16th,
17th, 18th and 19th paragraphs under the caption "Underwriting" in the
Prospectus, are correct and constitute the only information furnished in
writing to the Company and Citizens by or on behalf of the U.S.
Underwriters specifically for in the inclusion in the Registration
Statement and the Prospectus.
9. Default by a U.S. Underwriter. If any one or more of the U.S.
--------------------------------------------------------------
Underwriters shall fail to purchase and pay for all of the Shares agreed to be
purchased by such U.S. Underwriter or U.S. Underwriters hereunder and such
failure to purchase shall constitute a default in the performance of its or
their obligations under this Agreement, the remaining U.S. Underwriters shall be
obligated severally to take up and pay for (in respective proportions which the
amount of Shares set forth opposite their names in Schedule II hereto bears to
the aggregate amount of Shares set forth opposite the names of all the remaining
U.S. Underwriters) the Shares which the defaulting U.S. Underwriter or U.S.
Underwriters agreed but failed to purchase; provided, however, that in the event
-------- -------
that the aggregate amount of Shares which the defaulting U.S. Underwriter or
U.S. Underwriters agreed but failed to purchase shall exceed 10% of the
aggregate amount of Shares set forth in Schedule II hereto, the remaining U.S.
Underwriters
14
<PAGE>
shall have the right to purchase all, but shall not be under any obligation to
purchase any of, the Shares, and if such nondefaulting U.S. Underwriters do not
purchase all of the Shares, this Agreement will terminate without liability on
the part of any nondefaulting U.S. Underwriter or the Company. In the event of a
default by any U.S. Underwriter, as set forth in this Section, the Closing Date
shall be postponed for such period, not exceeding seven days, as the
Representatives shall determine in order that the required changes in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Nothing herein contained shall relieve any
defaulting U.S. Underwriter of its liability, if any, to the Company or any
nondefaulting U.S. Underwriter for damages occasioned by its default hereunder.
In the event of a default by a U.S. Underwriter as set forth in this
section, either the Representatives or the Company shall have the right to
postpone the Closing Date or the Date of Delivery for a period not exceeding 7
days in order that any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements may be effected.
10. Representations and Indemnities to Survive Delivery. The respective
---------------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or Citizens or their officers and of the several U.S. Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any U.S.
Underwriter or the Company or Citizens or any of their respective officers,
directors or employees or any controlling person within the meaning of the
Securities Act, and will survive delivery of and payment for the Shares.
11. Termination. This Agreement shall be subject to termination by the
-----------
U.S. Underwriters by notice given by the Representatives, to the Company prior
to the Closing Date or Date of Delivery that the Representatives elect to
terminate this Agreement on the grounds (i) trading in securities generally on
the New York Stock Exchange, the American Stock Exchange or The Nasdaq National
Market, or trading in any securities of the Company on any exchange or in the
over-the-counter market, shall have been suspended or minimum prices shall have
been established on any such exchange or such market by the Commission, by such
exchange or by any other regulatory body or governmental authority having
jurisdiction; (ii) a banking moratorium shall have been declared either by
federal or New York State authorities; or (iii) there shall have occurred any
new outbreak or material escalation of major hostilities or other calamity or
crisis the effect of which on the financial markets in the United States is such
as to make it, in the judgment of the Representatives, impracticable to sell the
Shares or enforce contracts for the sale of the Shares.
If this Agreement shall be terminated pursuant to Section 9 hereof, the
Company shall not then be under any liability to any U.S. Underwriter except as
provided in Sections 5, 8 and 10 hereof; but if for any other reason the Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the U.S. Underwriters, through you for all out-of-pocket expenses
approved in writing by you (up to a maximum of $ ), including fees and
--------
disbursements of counsel, reasonably incurred by the U.S. Underwriters in making
preparation for the purchase, sale and delivery of the Shares, but the Company
shall then be under no further liability to any U.S. Underwriter except as
provided in Sections 5, 8 and 10 hereof.
15
<PAGE>
12. Representation of the U.S. Underwriters. The Representatives
---------------------------------------
represent and warrant to the Company that they are authorized to act as the
representatives of the U.S. Underwriters in connection with this financing and
that the Representatives' execution and delivery of this Agreement and any
action under this Agreement taken by such Representatives will be binding upon
all U.S. Underwriters.
13. Notices. All communications hereunder shall be in writing and, if
-------
sent to the Representatives, shall be mailed, delivered or telegraphed and
confirmed to them at their address set forth for that purpose in Schedule I
hereto or, if sent to the Company or Citizens, will be mailed, delivered or
telegraphed and confirmed to them at 8100 N.E. Parkway Drive, Suite 200,
Vancouver, Washington 98662, attention of Robert J. DeSantis, Vice President and
Treasurer.
- ----------
14. Parties in Interest. This Agreement shall be binding upon, and inure
-------------------
solely to the benefit of, the U.S. Underwriters, the Company and Citizens and,
to the extent provided in Section 9 and Section 10 hereof, the officers and
directors and controlling persons referred to in Section 8 hereof, and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right or by virtue of this Agreement. No
purchase of any of the Shares from any U.S. Underwriter shall be deemed a
successor or assign by reason merely of such purchase.
15. Applicable Law. This Agreement will be governed by and construed in
--------------
accordance with the laws of the State of New York.
16. Counterparts. This Agreement may be executed in counterparts, all of
------------
which, taken together, shall constitute a single agreement among the parties to
such counterparts.
17. Interpretation When No Representatives. In the event no U.S.
--------------------------------------
Underwriters are named in Schedule II hereto, the term "U.S. Underwriters" shall
be deemed for all purposes of this Agreement to be the U.S. Underwriter or U.S.
Underwriters named as such in Schedule I hereto, the number of the Shares to be
purchased by any such U.S. Underwriter shall refer to that set opposite its name
in Schedule I hereto and all references to the "Representatives" shall be deemed
to refer to the U.S. Underwriter or U.S. Underwriters named in Schedule I.
16
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the
Company, Citizens and the several U.S. Underwriters.
Very truly yours,
ELECTRIC LIGHTWAVE, INC.
By__________________________________
Name: Robert J. DeSantis
Title: Vice President and Treasurer
CITIZENS UTILITIES COMPANY
By__________________________________
Name: Robert J. DeSantis
Title: Vice President and Treasurer
The foregoing Agreements hereby
confirmed and accepted as of the
date first above written.
LEHMAN BROTHERS INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
DEUTSCHE MORGAN GRENFELL INC.
By Lehman Brothers Inc.
By:________________________________
Name:
Title:
For themselves and as Representatives
of the several an U.S. Underwriters named in
Schedule II to the foregoing Agreement.
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<PAGE>
ELECTRIC LIGHTWAVE, INC.
SCHEDULE I
U.S. Underwriting Agreement dated ____________, 1997
Registration Statement No. 333-35227
Representatives and Address:
Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Deutsche Morgan Grenfell Inc.
31 West 52nd Street
New York, New York 10019
Security:
Designation: Class A Common Stock
Number of Initial Shares to be purchased by U.S. Underwriters: ___________.
Number of Option Shares to be purchased by U.S. Underwriters: ___________.
Initial Public Offering Price: $________
Purchase Price: $_________ per share being an amount equal to the initial
public offering price set forth above less $ _____ per share.
Closing Date, Time and Location: ___________________, 1997, at the offices of
Winthrop, Stimson, Putnam & Roberts, One Battery Park Plaza, New York, New York
10004.
<PAGE>
SCHEDULE II
Number of Shares
Names of Underwriters to be Purchased
- --------------------- -----------------
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Morgan Stanley & Co. Incorporated
Deutsche Morgan Grenfell Inc.
Total . . . . . . . . . . . . . . . . . . __________________
<PAGE>
EXHIBIT 1.2
WSP&R
DRAFT
11/17/97
ELECTRIC LIGHTWAVE, INC.
Class A Common Stock
INTERNATIONAL UNDERWRITING AGREEMENT
New York, New York
November __, 1997
To the Lead Managers named in Schedule
I of each of the several International Managers named
in Schedule II hereto
Dear Sirs:
Electric Lightwave, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
severally and not jointly to the International Managers named in Schedule II
hereto (the "International Managers") for whom you are acting as representatives
(the "Lead Managers") (i) that number of shares of Class A Common Stock, par
value $.01 per share, of the Company ("Common Stock") specified in Schedule I
hereto and (ii) an option described in Section 2 hereof to purchase all or any
part of the number of additional shares of Common Stock to cover overallotments
as is specified in Schedule I hereto. The shares of Common Stock to be purchased
initially by the International Managers (the "Initial Shares"), together with
all or any part of the shares of Common Stock subject to the option described in
Section 2 hereof (the "Option Shares"), are collectively hereinafter called the
"Shares".
It is understood by all parties that the Company is concurrently
entering into an agreement dated the date hereof (the "U.S. Underwriting
Agreement") providing for the sale by the Company of 9,120,000 shares of Common
Stock (including the over-allotment option thereunder) through arrangements with
certain underwriters inside the United States and Canada (the "U.S.
Underwriters"), for whom Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Morgan Stanley & Co. Incorporated and Deutsche Morgan
Grenfell Inc. are acting as representatives (the "Representatives"). The
International Managers and the U.S. Underwriters simultaneously are entering
into an intersyndicate agreement (the "Intersyndicate Agreement') which provides
for, among other things, the transfer of shares of Common Stock between the two
syndicates. Except as used in Sections 2, 3, 9 and 11 herein, and except as the
context may otherwise require, references herein to the Shares shall include all
the shares of the
<PAGE>
Common Stock which may be sold pursuant to either this Agreement or the
International Underwriting Agreement.
1. Representations and Warranties by the Company. The Company
---------------------------------------------
represents and warrants to each International Manager that:
(a) A registration statement on Form S-1 with respect to the Shares
has (i) been prepared by the Company in conformity with the requirements
of the Securities Act of 1933 (the "Securities Act") and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, (ii) been filed with the
Commission under the Securities Act and (iii) become effective under the
Securities Act. Copies of such registration statement have been
delivered by the Company to you as the Lead Managers of the
International Managers. As used in this Agreement, "Effective Time"
means the date and the time as of which such registration statement, or
the most recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of the
Effective Time of such registration statement; "Preliminary Prospectus"
means each prospectus included in any such registration statement, or
amendments thereof, before it became effective under the Securities Act
and any prospectus filed with the Commission by the Company with the
consent of the Lead Managers pursuant to Rule 424(a) of the Rules and
Regulations; "Prospectus" means such final prospectus, as first filed
with the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of
the Rules and Regulations; and "Registration Statement" means the
registration statement referred to in this Section 1(a), as amended at
its Effective Time, including all information contained in the final
prospectus filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations in accordance with Section 7(a) hereof and deemed
to be a part of the Registration Statement as of the Effective Time of
the Registration Statement pursuant to paragraph (b) of Rule 430A of the
Rules and Regulations. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms (and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus, when they become effective or are filed with the Commission,
as the case may be, will conform) in all respects to the requirements of
the Securities Act and the Rules and Regulations and do not and will
not, as of the applicable effective date (as to the Registration
Statement and any amendment thereto) and as of the applicable filing
date (as to the Prospectus and any amendment or supplement thereto)
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided that no representation or
warranty is made as to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon and in
conformity with written information furnished to the Company through the
Lead Managers by or on behalf of any International Manager specifically
for inclusion therein.
(c) The Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate
2
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power and authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified
or be in good standing would not have a material adverse effect on the
Company; and the Company has no subsidiaries.
(d) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set
forth in the Registration Statement and the Prospectus, there has not
been any material adverse change in the business, properties or
financial condition of the Company, and there have not been any
transactions entered into by the Company which is material to the
Company, other than transactions in the ordinary course of business and
transactions contemplated by the Registration Statement or Prospectus.
(e) Neither the issuance or sale of the Initial Shares nor the
Option Shares, nor the performance of the terms and provisions thereof
and of this Agreement and the International Underwriting Agreement, will
conflict with, result in a breach of or constitute a default under the
terms of the Certificate of Incorporation or By-Laws of the Company or
any indenture, mortgage, deed of trust or other agreement or instrument
to which the Company is a party or by which it is bound or any order or
regulation applicable to the Company of any Court, regulatory body,
administrative agency or governmental body having jurisdiction over the
Company and no consent, approval, authorization or order of or
qualification with any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement,
except such as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Shares.
(f) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description thereof contained in
the Prospectus.
(g) The Shares conform to the description thereof contained in the
Prospectus and are duly and validly authorized, and, when delivered to
the International Managers as provided herein and the U.S. Underwriters
as provided in the U.S. Underwriting Agreement against payment of the
consideration therefor, will be validly issued and outstanding, fully
paid and non-assessable with no personal liability attaching to the
ownership thereof, and listed on The Nasdaq National Market. The
issuance of such Shares will not be subject to any preemptive or similar
rights.
(h) This Agreement has been duly authorized, executed and delivered
by the Company.
(i) Except as described in the Prospectus, the Company has not sold
or issued any shares of Common Stock during the six-month period
preceding the date of the
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<PAGE>
Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Securities Act, other than shares issued
pursuant to employee benefit plans, qualified stock options plans, other
employee compensation plans, restricted stock grants or pursuant to
outstanding options, rights or warrants.
(j) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and
who have delivered the initial letter referred to in Section 6(a)(vi)
hereof, are independent public accountants as required by the Securities
Act and the Rules and Regulations.
(k) There are no legal or governmental proceedings pending to which
the Company is a party or of which any property or asset of the Company
is the subject which, if determined adversely to the Company might have
a material adverse effect on the consolidated financial position,
stockholders' equity, results of operations or business of the Company;
and to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others.
(l) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
2. Purchase and Sale of the Shares. Subject to the terms and conditions
-------------------------------
and in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to you and each other International Manager, severally
and not jointly, and you and each other International Manager agree, severally
and not jointly, to purchase from the Company, at the purchase price set forth
in Schedule I hereto, the number of Initial Shares set forth opposite such
International Manager's name in Schedule II hereto plus any additional number of
Option Shares which such International Manager may become obligated to purchase
pursuant to the provisions of Section 9 hereof.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the International Managers, severally and not
jointly, to purchase up to the number of additional shares of Common Stock set
forth on Schedule I hereto at the price set forth on Schedule I hereto. The
option hereby granted will expire 30 days after the date of this Underwriting
Agreement, and may be exercised in whole or in part from time to time only for
the purpose of covering overallotments which may be made in connection with the
offering and distribution of the Initial Shares upon notice by the Lead Managers
to the Company setting forth the number of Option Shares as to which the
International Managers are then exercising the option and the time, date and
place of payment and delivery for such Option Shares. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the Lead Managers, but
shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Date, as hereinafter defined,
unless otherwise agreed upon by the Lead Managers and the Company. If the option
is exercised as to all or any portion of the Option Shares, the Option Shares
shall be sold by the Company and shall be purchased by the International
Managers,
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<PAGE>
severally and not jointly, in proportion to their respective Initial Share
underwriting obligations as set forth in Schedule II.
3. Delivery, Payment and Offering. Delivery of and payment for the
------------------------------
Initial Shares shall be made at the place, date and time specified in Schedule I
hereto (or such other place, date and time not later than ten full business days
thereafter as the Lead Managers and the Company shall designate), which date and
time may be postponed by agreement between the Lead Managers and the Company or
as provided in Section 9 hereof (such date and time being herein called the
"Closing" or "Closing Date"). Delivery of the Initial Shares shall be made to
the Lead Managers for the respective accounts of the several International
Managers against payment by the several International Managers through the Lead
Managers of the purchase price thereof to or upon the order of the Company
payable in federal (same day) funds. The Initial Shares shall be in definitive
form and shall be registered in such names and in such authorized denominations
as the Lead Managers may request not less than three full business days in
advance of the Closing Date. The Company agrees to have the Initial Shares
available for inspection, checking and packaging by the Lead Managers in New
York, New York, not later than 10:00 A.M., New York City time, on the last
business day prior to the Closing Date.
In addition, in the event that any or all of the Option Shares are
purchased by the International Managers, delivery of and payment for the Option
Shares shall be made on the Date of Delivery at the offices designated on
Schedule I at 10:00 A.M. New York City time (or such other time and place as the
Lead Managers and the Company shall designate), which date and time may be
postponed by agreement between the Lead Managers and the Company or as provided
in Section 9 hereof and which date may also be the Closing Date. Delivery of the
Option Shares shall be made to the Lead Managers for the respective accounts of
the several International Managers against payment by or on behalf of the
International Managers through the Lead Managers of the purchase price thereof
to or upon the order of the Company payable in federal (same day) funds. The
Option Shares shall be in definitive form and shall be registered in such names
and in such authorized denominations as the Lead Managers may request not less
than three full business days in advance of the Date of Delivery.
The Company agrees to have the Option Shares available for inspection,
checking and packaging by the Lead Managers in New York, New York, not later
than 10:00 a.m., New York City time, on the last business day prior to the Date
of Delivery .
It is understood that each International Manager has authorized the Lead
Managers, for its account, to accept delivery of, receipt for, and make payment
of the purchase price for, the Shares which it has agreed to purchase.
Subject to the terms and conditions of this Agreement, the International
Managers agree to make a bona fide public offering of the Shares as soon as the
Lead Managers deem advisable after this Agreement has been executed and
delivered.
4. Agreements of the Company. The Company agrees with the several
-------------------------
International Managers that:
5
<PAGE>
(a) With your consent, the Company will file the Prospectus pursuant
to Rule 424 under the Act and will notify the Lead Managers promptly of
such filing. During the period for which a prospectus relating to the
Shares is required to be delivered under the Securities Act, the Company
will promptly advise the Lead Managers (i) when any amendment to the
Registration Statement has been filed or becomes effective, (ii) of any
request by the Commission for any amendment of or supplement to the
Registration Statement or the Prospectus or for any additional
information, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceedings for that purpose, and (iv)
of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance
of any such stop order and, if issued, to obtain as soon as possible the
withdrawal thereof. The Company will not file any amendment or
supplement to the Registration Statement or the Prospectus (other than a
prospectus or prospectus supplement relating to an offering of debt or
additional equity securities which offering is permitted by Section 4(f)
hereof) unless the Company has furnished to the Lead Managers a copy for
their review prior to filing and will not file any such proposed
amendment or supplement to which they reasonably object.
(b) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act, any event occurs as a
result of which the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or if it
shall be necessary at any time to amend or supplement the Prospectus to
comply with the Securities Act or the Exchange Act or the respective
rules thereunder, the Company promptly will prepare and file with the
Commission, subject to paragraph (a) of this Section 4, an amendment or
supplement which will correct such statement or omission or an amendment
or supplement which will effect such compliance.
(c) The Company will furnish such information, execute such
instruments and take such action as may be required to qualify the
Shares for sale under the laws of those states specified in a writing
heretofore delivered by you and countersigned by the Company and such
other jurisdictions as the Lead Managers may designate in which there is
a change of law or regulation after the date hereof affecting the status
of the Shares as exempt Shares under such laws and will maintain such
qualifications in effect so long as required for the distribution of the
Shares; provided, however, that the Company shall not be required to
qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to general or
unlimited service of process in any jurisdiction where it is not now so
subject.
(d) The Company will furnish to the Lead Managers a signed copy of
the Registration Statement as originally filed and of each amendment
thereto, all powers of attorney, consents and exhibits filed therewith
(other than exhibits incorporated by reference), and will deliver to the
Lead Managers conformed copies of the Registration
6
<PAGE>
Statement as originally filed and of each amendment thereto, the
Preliminary Prospectus, the Prospectus and, so long as delivery of a
prospectus by an International Manager or dealer may be required by the
Securities Act, all amendments of and supplements to such documents, in
each case as soon as available and in such quantities as the Lead
Managers may reasonably request.
(e) For a period of five calendar years from the date of this
Agreement, the Company will furnish (or cause to be furnished) to each
of the Lead Managers, upon request, copies of (i) all reports to
stockholders of the Company and (ii) all reports and financial
statements filed with the Commission or with The Nasdaq National Market.
(f) During the period beginning from the date of the Prospectus and
continuing to and including the 180th day thereafter, the Company and
Citizens Utilities Company ("Citizens") each will not, directly or
indirectly, offer, sell, or otherwise dispose of any shares of Common
Stock or any securities convertible into or exchangeable or exercisable
for any such shares of Common Stock (except for stock dividends paid in
the normal course, stock splits or stock splits carried out in the form
of stock dividends, shares issued under employee or director stock
option or other benefit plans, shares issued as consideration in
connection with acquisitions which have been disclosed to you and
securities under prior contractual commitments, if any, which have been
disclosed to you), without the prior written consent of the Lehman
Brothers International (Europe), which consent shall not be unreasonably
withheld.
(g) The Company will make generally available to its security
holders and to the Lead Managers, as soon as practicable, but not later
than sixteen months after the "effective date" of the Registration
Statement (as such term is defined in Rule 158(c) under the Securities
Act), a consolidated earning statement (which need not be audited) of
the Company, covering a period of twelve-months beginning after such
effective date which will satisfy the provisions of Section 11(a) of the
Securities Act.
5. Expenses. The Company will pay or cause to be paid the following:
--------
(i) the fees, disbursements and expenses of the Company's counsel
and accountants in connection with the registration of the Shares under
the Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement and the Prospectus and
amendments and supplements thereto and the furnishing of copies thereof
and of any Preliminary Prospectus to the International Managers and
dealers, all fees, if any, payable to the National Association of
Securities Dealers, Inc. or The Nasdaq National Market;
(ii) the cost of printing this Agreement, the U.S. Underwriting
Agreement and the Blue Sky Survey;
(iii) all expenses including fees and disbursements of counsel (up
to a maximum of $7,500) in connection with the qualification of the
Shares under the securities or Blue
7
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Sky laws of such Jurisdictions as the Lead Managers and the Lead
Managers shall reasonably request and the preparation of a Blue Sky
Survey;
(iv) the cost of preparing certificates for the Shares; and
(v) all other costs and expenses incident to the performance of
the Company's obligations hereunder which are not otherwise specifically
provided for in this Section 5. Except as provided in Section 5 and
Section 11 hereof, the International Managers will pay all of their own
costs and expenses, including the fees of their counsel, transfer taxes
on resale of any of the Initial Shares by them, and any advertising
expenses connected with any offers they may make. The Company shall not
in any event be liable to any of the several International Managers for
damages on account of loss of anticipated profits.
6. (a) Conditions to the Obligations of the International Managers.
-----------------------------------------------------------
The obligations of the International Managers to purchase the Initial Shares
shall be subject to the accuracy in all material respects of the representations
and warranties on the part of the Company contained herein (except insofar as
such representations and warranties have already been qualified as to
materiality therein) as of the date hereof and the Closing Date, to the accuracy
of the statements of Company officers made in any certificates given pursuant to
the provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission;
(ii) No order of any governmental or regulatory body shall be
necessary for the issuance and sale of the Initial Shares on the terms
set forth or contemplated in this Agreement and the U.S. Underwriting
Agreement;
(iii) At the Closing Date, the Company shall have received all
authorizations from any state regulatory commission (other than pursuant
to any state "Blue Sky" laws), necessary for the issuance and sale of
the Initial Shares and related transactions on the terms set forth or
contemplated in this Agreement and the U.S. Underwriting Agreement and
containing no provision unacceptable to the Lead Managers, which such
authorizations shall be in full force and effect and no order or
additional order of any such Commission shall be necessary for such
issuance and sale which has not been obtained;
(iv) The Shares shall have been approved for listing on The Nasdaq
National Market;
(v) At the Closing Date, the Lead Managers shall have been
furnished with the following opinions, addressed to the International
Managers (with conformed copies thereof for each of the other
International Managers), in form and substance satisfactory
8
<PAGE>
to the Lead Managers, dated the Closing Date or a date not more than
three days prior thereto:
(A) Opinion of Winthrop, Stimson, Putnam & Roberts, New York, New
York, counsel to the Company;
(B) Opinions of local counsel to the Company in the states of
Washington, Oregon, California, Utah, Nevada and Arizona; and
(C) Opinion of Simpson Thacher & Bartlett, New York, New York,
counsel to the International Managers with respect to the validity
of the Shares, the Registration Statement, the Prospectus, and other
related matters as the Lead Managers may reasonably require, and the
Company shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon
such matters;
(vi) On each of the date hereof and the Closing Date, the Lead
Managers shall have been furnished a letter dated the date hereof and
the Closing Date, as the case may be, in form and substance satisfactory
to the Lead Managers, from KPMG Peat Marwick, the Company's independent
public accountants, containing statements and information heretofore
agreed upon with respect to the financial statements and certain
financial information contained in the Prospectus;
(vii) At the Closing Date, the Lead Managers shall have received a
certificate, dated the Closing Date, signed by an officer of the
Company, to the effect that, (A) since the respective dates as of which
information is given in the Registration Statement and Prospectus, there
has not been any material adverse change in the business, properties or
financial condition of the Company and (B) since such dates, there has
not been any transaction entered into by the Company other than
transactions referred to in, or contemplated by, the Registration
Statement and Prospectus and transactions which are not material to the
Company; and
(viii) At the Closing Date, the Lead Managers shall have received a
certificate, dated the Closing Date signed by an officer of the Company,
to the effect that, since the respective dates as of which information
is given in the Registration Statement and Prospectus, the Company shall
not have sustained a loss by fire, flood, accident or other calamity
which is substantial with respect to the property of the Company. At the
Closing the Lead Managers shall have been furnished with certificates
satisfactory to the Lead Managers as to the accuracy of its
representations and warranties herein at and as of the Closing and as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to the Closing, and the Company also shall have
furnished to you a certificate satisfactory to you as to the matters set
forth in subsections (i) and (ii) of this Section 6.
9
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(ix) The closing under the U.S. Underwriting Agreement shall have
occurred concurrently with the closing hereunder on the Closing Date
with respect to the Initial Shares.
(b) Option Share Closing. In the event the International Managers
--------------------
exercise their option granted in Section 2 hereof to purchase all or any portion
of the Option Shares, the representations and warranties of the Company
contained herein and the statements in any certificates furnished by the Company
hereunder shall be true and correct as of each Date of Delivery, and the Lead
Managers shall have received:
(i) A certificate of the Chairman or the President or any Vice
President and of the Treasurer or Assistant Treasurer of the Company,
dated such Date of Delivery, confirming that the certificate delivered
on the Closing Date pursuant to Section 6(a)(viii) hereof remains true
as of such Date of Delivery.
(ii) A certificate of an officer of the Company, dated such Date
of Delivery confirming that the certificate delivered on the Closing
Date pursuant to Section 6(a)(vii) hereof remains true as of such Date
of Delivery.
(iii) The opinion of Winthrop, Stimson, Putnam & Roberts, counsel
for the Company, dated such Date of Delivery relating to the Option
Shares and otherwise to the same effect as the opinion required by
Section 6(a)(v)(A) hereof.
(iv) The opinion of Simpson Thacher & Bartlett, counsel for the
International Managers, dated such Date of Delivery, relating to the
Option Shares and otherwise to the same effect as the opinion required
by Section 6(a)(v)(C) hereof.
(v) A letter from KPMG Peat Marwick, dated such Date of Delivery,
substantially the same in scope and substance as the letter furnished to
the Lead Managers pursuant to Section 6(a)(vi) hereof, except that the
"specified date" in the letter furnished pursuant to this Section 6(b)
shall be a date not more than six days prior to such Date of Delivery.
(vi) Prior to the Date of Delivery the Company shall have
furnished to the Lead Managers such further information, certificates
and documents confirming as of such date the Company's representations
and warranties contained herein as they may reasonably request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, this Agreement and all
obligations of the International Managers hereunder may be canceled at, or at
any time prior to, the Closing Date by the Lead Managers. Notice of such
cancellation shall be given to the Company in writing, or by telephone or
telegraph confirmed in writing.
7. Conditions of Company's Obligations. The obligations of the Company
-----------------------------------
to sell and deliver the Shares are subject to the following conditions:
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(a) Prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been instituted or
threatened.
(b) The conditions referred to in subsections (ii) and (iii) of
Section 6(a) shall have been met and no order or authorization referred
to therein shall contain any provision unacceptable to the Company.
If any of the conditions specified in this Section 7 shall not have been
fulfilled, this Agreement and all obligations of the Company hereunder, except
as stated in Section 11, may be canceled on or at any time prior to the Closing
Date by the Company. Notice of such cancellation shall be given to the Lead
Managers in writing or by telephone or telegraph confirmed in writing.
8. Indemnification.
---------------
(a) The Company and Citizens jointly and severally agree to
indemnify and hold harmless each International Manager, its officers and
employees and each person who controls any International Manager within
the meaning of either the Securities Act or the Exchange Act against any
and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Securities Act,
the Exchange Act or other federal or state statutory law or regulation,
at common law or otherwise insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement for the registration of the
Initial Shares as originally filed or in any amendment thereof, or arise
out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or (ii) any
act or failure to act, or any alleged act or failure to act, by any
International Manager in connection with, or relating in any manner to,
the Shares or the offering contemplated hereby, and which is included as
part of or referred to in any losses, claims, damages or liabilities
arising out of or based upon matters covered by clause (i) (provided
that the Company and Citizens shall not be liable in the case of any
matter covered by this clause (ii) to the extent that it is determined
in a final judgment by a court of competent jurisdiction that such
losses, claims, damages or liabilities resulted directly from any such
act or failure to act undertaken or omitted to be taken by such
International Manager through its gross negligence or willful conduct),
and agree to reimburse each such indemnified party for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that neither the Company nor Citizens will be
liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any such untrue
11
<PAGE>
statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company or Citizens as herein stated by or on behalf of
any International Manager through the Lead Managers specifically for use
in connection with the preparation thereof and provided further that
such indemnity with respect to a Preliminary Prospectus included in the
registration statement or any amendment thereto shall not inure to the
benefit of any International Manager (or any officer, employee or person
controlling such International Manager) from whom the person asserting
any such loss, claim, damage or liability purchased the Shares which are
the subject thereof if such person was not sent or given by or on behalf
of such International Manager a copy of the Prospectus as amended or
supplemented at or prior to the confirmation of the sale of such Shares
to such person in any case where such delivery is required by the
Securities Act and the untrue statement or omission of a material fact
contained in the Preliminary Prospectus was corrected in the Prospectus
as amended or supplemented. This indemnity agreement will be in addition
to any liability which the Company or Citizens may otherwise have.
(b) Each International Manager severally and not jointly agrees to
indemnify and hold harmless each of the Company and Citizens, each of
their directors, each of the Company's officers and employees and each
person, if any, who controls the Company and Citizens within the meaning
of either the Securities Act or the Exchange Act, to the same extent as
the foregoing indemnity from the Company and Citizens to the
International Managers but only in relation to written information
furnished to the Company or Citizens by or on behalf of such
International Manager through the Lead Managers specifically for use in
the preparation of the Prospectus, and agrees to reimburse each such
indemnified party for any legal or other expenses, reasonably incurred
by them in connection with investigating or defending any such loss,
claim, damage, liability or action. This indemnity agreement will be in
addition to any liability which any International Manager may otherwise
have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party
in writing of the commencement thereof; but the failure to so notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this Section 8. In
case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the
extent that it may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party, or parties
shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or
12
<PAGE>
parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under
this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i)
the indemnified party shall have employed separate counsel in connection
with the assertion of legal defenses in accordance with the proviso to
the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Lead Managers in the case of
subsection (a), representing the indemnified parties under subsection
(a) or (b), as the case may be, who are parties to such action), (ii)
the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party; and except
that, if clause (i) or (iii) is applicable, such liability shall be only
in respect of the counsel referred to in such claims (i) or (iii). It is
understood that all such fees and expenses shall be reimbursed as they
are incurred.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in subparagraphs
(a) and (b) is due in accordance with its terms but is for any reason
unavailable from the Company, Citizens or the International Managers or
insufficient to hold the International Managers, the Company, Citizens
or any party covered by the foregoing indemnification harmless in
respect of any losses, claims, damages or liabilities (or actions in
respect thereof) referred to therein, the Company, Citizens and the
International Managers shall, in lieu of indemnifying such indemnified
party, contribute to the aggregate losses, claims, damages and
liabilities (or actions in respect thereof) to which the Company,
Citizens and one or more of the International Managers may be subject,
as a result of such losses, claims, damages or liabilities (or actions
in respect thereof), in such proportion as is appropriate to reflect the
relative fault of the Company and Citizens on the one hand and the
International Managers on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities
(or actions in respect thereof), as well as any other equitable
considerations, including relative benefit. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company
and Citizens on the one hand or the International Managers on the other
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
relative benefits received by the Company and Citizens on the one hand
and the International Managers on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering of the
Shares (before deducting expenses) received by the Company bear to the
total underwriting discounts and commissions received by the
International Managers with respect to the offering of the Shares, in
each case as set forth in the table on the cover page of the Prospectus.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be
13
<PAGE>
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Company, Citizens and the
International Managers agree that it would not be just and equitable if
contribution pursuant to this subsection (d) were determined by pro rata
allocation (even if the International Managers were treated as one
entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by a party entitled to
contribution as a result of the losses, claims, damages or liabilities
(or actions in respect thereof) referred to above in this subsection (d)
shall be deemed to include any legal or other expenses reasonably
incurred by such party in connection with investigating or defending any
such action or claim. The International Managers' obligations under this
subsection (d) are several in proportion to their respective
underwriting obligations and not joint. Notwithstanding the provisions
of this Section 8, no International Manager shall be required to
contribute any amount in excess of the amount by which the total price
at which the Shares underwritten by it and distributed to the public
exceeds the amount of any damages of the kind described in Section 8(a)
which such International Manager has otherwise paid in respect of such
losses, liabilities, claims and damages. For purposes of this subsection
(d), each person, if any, who controls a International Manager within
the meaning of either the Securities Act or the Exchange Act, and each
officer, director and employee of a International Manager shall have the
same rights to contribution as such International Manager, and each
person, if any, who controls the Company or Citizens within the meaning
of either the Securities Act or the Exchange Act, each officer, director
and employee of the Company and Citizens shall have the same rights to
contribution as the Company and Citizens, subject to the fourth sentence
of this subsection (d).
(e) The International Managers severally confirm that (i) the
statements with respect to the public offering of the Shares set forth
on the cover page of the Prospectus, (ii) the last paragraph on page 2
of the Prospectus, concerning stabilization by the International
Managers, (iii) the statements with respect to the public offering of
the Shares in the fifth paragraph under the caption "Underwriting" in
the Prospectus, (iv) the statements with respect to the Agreement Among
International Managers and International Managers contained in the 7th
and 8th paragraphs under the caption "Underwriting" in the Prospectus,
(v) the statements concerning certain representations made by the
International Managers under the laws of the United Kingdom contained in
the 9th paragraph under the caption "Underwriting" in the Prospectus,
(vi) the statements with respect to confirmation of sales in the 11th
paragraph under the caption "Underwriting" in the Prospectus, and (vii)
the statements with respect to transactions that stabilize the price of
the Shares in the 15th, 16th, 17th, 18th and 19th paragraphs under the
caption "Underwriting" in the Prospectus, are correct and constitute the
only information furnished in writing to the Company and Citizens by or
on behalf of the International Managers specifically for in the
inclusion in the Registration Statement and the Prospectus.
9. Default by a International Manager. If any one or more of the
----------------------------------
International Managers shall fail to purchase and pay for all of the Shares
agreed to be purchased by such International Manager or International Managers
hereunder and such failure to purchase shall
14
<PAGE>
constitute a default in the performance of its or their obligations under this
Agreement, the remaining International Managers shall be obligated severally to
take up and pay for (in respective proportions which the amount of Shares set
forth opposite their names in Schedule II hereto bears to the aggregate amount
of Shares set forth opposite the names of all the remaining International
Managers) the Shares which the defaulting International Manager or International
Managers agreed but failed to purchase; provided, however, that in the event
that the aggregate amount of Shares which the defaulting International Manager
or International Managers agreed but failed to purchase shall exceed 10% of the
aggregate amount of Shares set forth in Schedule II hereto, the remaining
International Managers shall have the right to purchase all, but shall not be
under any obligation to purchase any of, the Shares, and if such nondefaulting
International Managers do not purchase all of the Shares, this Agreement will
terminate without liability on the part of any nondefaulting International
Manager or the Company. In the event of a default by any International Manager,
as set forth in this Section, the Closing Date shall be postponed for such
period, not exceeding seven days, as the Lead Managers shall determine in order
that the required changes in the Registration Statement and in the Prospectus or
in any other documents or arrangements may be effected. Nothing herein contained
shall relieve any defaulting International Manager of its liability, if any, to
the Company or any nondefaulting International Manager for damages occasioned by
its default hereunder.
In the event of a default by a International Manager as set forth in
this section, either the Lead Managers or the Company shall have the right to
postpone the Closing Date or the Date of Delivery for a period not exceeding 7
days in order that any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements may be effected.
10. Representations and Indemnities to Survive Delivery. The respective
---------------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or Citizens or their officers and of the several International Managers
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any
International Manager or the Company or Citizens or any of their respective
officers, directors or employees or any controlling person within the meaning of
the Securities Act, and will survive delivery of and payment for the Shares.
11. Termination. This Agreement shall be subject to termination by the
-----------
International Managers by notice given by the Lead Managers, to the Company
prior to the Closing Date or Date of Delivery that the Lead Managers elect to
terminate this Agreement on the grounds (i) trading in securities generally on
the New York Stock Exchange, the American Stock Exchange or The Nasdaq National
Market, or trading in any securities of the Company on any exchange or in the
over-the-counter market, shall have been suspended or minimum prices shall have
been established on any such exchange or such market by the Commission, by such
exchange or by any other regulatory body or governmental authority having
jurisdiction; (ii) a banking moratorium shall have been declared either by
federal or New York State authorities; or (iii) there shall have occurred any
new outbreak or material escalation of major hostilities or other calamity or
crisis the effect of which on the financial markets in the United States is such
as to make it, in the judgment of the Lead Managers, impracticable to sell the
Shares or enforce contracts for the sale of the Shares.
15
<PAGE>
If this Agreement shall be terminated pursuant to Section 9 hereof, the
Company shall not then be under any liability to any International Manager
except as provided in Sections 5, 8 and 10 hereof; but if for any other reason
the Shares are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the International Managers, through you for all out-
of-pocket expenses approved in writing by you (up to a maximum of $ ), including
fees and disbursements of counsel, reasonably incurred by the International
Managers in making preparation for the purchase, sale and delivery of the
Shares, but the Company shall then be under no further liability to any
International Manager except as provided in Sections 5, 8 and 10 hereof.
12. Representation of the International Managers. The Lead Managers
--------------------------------------------
represent and warrant to the Company that they are authorized to act as the
representatives of the International Managers in connection with this financing
and that the Lead Managers' execution and delivery of this Agreement and any
action under this Agreement taken by such Lead Managers will be binding upon all
International Managers.
13. Notices. All communications hereunder shall be in writing and, if
-------
sent to the Lead Managers, shall be mailed, delivered or telegraphed and
confirmed to them at their address set forth for that purpose in Schedule I
hereto or, if sent to the Company or Citizens, will be mailed, delivered or
telegraphed and confirmed to them at 8100 N.E. Parkway Drive, Suite 200,
Vancouver, Washington 98662, attention of Robert J. DeSantis, Vice President and
Treasurer.
14. Parties in Interest. This Agreement shall be binding upon, and inure
-------------------
solely to the benefit of, the International Managers, the Company and Citizens
and, to the extent provided in Section 9 and Section 10 hereof, the officers and
directors and controlling persons referred to in Section 8 hereof, and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right or by virtue of this Agreement. No
purchase of any of the Shares from any International Manager shall be deemed a
successor or assign by reason merely of such purchase.
15. Applicable Law. This Agreement will be governed by and construed in
--------------
accordance with the laws of the State of New York.
16. Counterparts. This Agreement may be executed in counterparts, all of
------------
which, taken together, shall constitute a single agreement among the parties to
such counterparts.
17. Interpretation When No Lead Managers. In the event no International
------------------------------------
Managers are named in Schedule II hereto, the term "International Managers"
shall be deemed for all purposes of this Agreement to be the International
Manager or International Managers named as such in Schedule I hereto, the number
of the Shares to be purchased by any such International Manager shall refer to
that set opposite its name in Schedule I hereto and all references to the "Lead
Managers" shall be deemed to refer to the International Manager or International
Managers named in Schedule I.
16
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company, Citizens and the several International Managers.
Very truly yours,
ELECTRIC LIGHTWAVE, INC.
By
-----------------------------------
Name: Robert J. DeSantis
Title: Vice President and Treasurer
CITIZENS UTILITIES COMPANY
By
-----------------------------------
Name: Robert J. DeSantis
Title: Vice President and Treasurer
The foregoing Agreements hereby
confirmed and accepted as of the
date first above written.
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
MORGAN GRENFELL & CO. LIMITED
By Lehman Brothers International (Europe)
By:
-----------------------------------
Name:
Title:
For themselves and as Lead Managers
of the several an International Managers named in
Schedule II to the foregoing Agreement.
17
<PAGE>
ELECTRIC LIGHTWAVE, INC.
SCHEDULE I
International Underwriting Agreement dated ____________, 1997
Registration Statement No. 333-35227
Lead Managers and Address:
Lehman Brothers International (Europe)
3 World Financial Center
New York, New York 10285
Merrill Lynch International
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
Morgan Stanley & Co. International Limited
1585 Broadway
New York, New York 10036
Morgan Grenfell & Co. Limited
31 West 52nd Street
New York, New York 10019
Security:
Designation: Class A Common Stock
Number of Initial Shares to be purchased by International Managers:
___________.
Number of Option Shares to be purchased by International Managers:
___________.
Initial Public Offering Price: $________
Purchase Price: $_________ per share being an amount equal to the
initial public offering price set forth above less $ _____ per share.
Closing Date, Time and Location: ___________________, 1997, at the offices of
Winthrop, Stimson, Putnam & Roberts, One Battery Park Plaza, New York, New York
10004.
<PAGE>
SCHEDULE II
Number of Shares
Names of International Managers to be Purchased
- ------------------------------- ---------------
Lehman Brothers International (Europe)
Merrill Lynch International
Morgan Stanley & Co. International Limited
Morgan Grenfell & Co. Limited
Total . . . . . . . . . . . . . . . . . . __________________
<PAGE>
Exhibit No. 5
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Telephone: (212) 858-1000
November 18, 1997
Electric Lightwave, Inc.
8100 N.E. Parkway Drive
Suite 150
Vancouver, Washington 98662
Gentlemen:
As special counsel to Electric Lightwave, Inc., a Delaware corporation
(the "Company"), in connection with the registration under the Securities Act of
1933 (the "Act"), of up to $207,000,000 aggregate amount of shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), we have
examined the registration statement on Form S-1 (the "Registration Statement")
filed under the Act, including the prospectus which is a part thereof, and such
other documents as we have considered necessary for the purposes of this
opinion. Based upon such examination, we hereby advise you that:
We are of the opinion that shares of Common Stock (the "Offered Common
Stock") to be offered pursuant to the Registration Statement, as amended and
supplemented from time to time, will, upon completion of the steps enumerated
in the next succeeding paragraph hereof, be validly issued, fully paid and
non-assessable.
The steps which are referred to in the foregoing opinion are:
(a) It shall be determined that the public service commissions, or
other regulatory agencies or bodies, or other political entities relating to
public utilities matters of the pertinent states shall be without jurisdiction,
or shall have declined to exercise jurisdiction over the issuance of the Offered
Common Stock, or shall have issued appropriate orders approving and authorizing
the issuance of the Offered Common Stock and such orders shall be in full force
and effect; and
<PAGE>
(b) The Offered Common Stock shall have been issued, delivered and paid
for in accordance with the U.S. Underwriting Agreement among the Company,
Citizens Utilities Company and Lehman Brothers Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Deutsche
Morgan Grenfell Inc., as Representatives of the U.S. Underwriters, and the
International Underwriting Agreement among the Company, Citizens Utilities
Company and Lehman Brothers International (Europe), Merrill Lynch International,
Morgan Stanley & Co. International Limited and Morgan Grenfell & Co. Limited, as
Lead Managers of the International Managers.
We are members of the bar of the State of New York. In rendering the
foregoing opinion, we express no opinion as to laws other than the laws of the
State of New York, the Delaware General Corporation Law and the Federal laws of
the United States.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to our firm under "Legal
Opinions" in the prospectus constituting part of the Registration Statement. In
giving such consent, we do not hereby admit that we are within the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission.
Very truly yours,
/s/Winthrop, Stimson, Putnam & Roberts
2
<PAGE>
EXHIBIT 10.1
Contract No. 96MS-95240
03/29/96
LICENSE AGREEMENT
executed by the
UNITED STATES OF AMERICA
DEPARTMENT OF ENERGY
acting by and through the
BONNEVILLE POWER ADMINISTRATION
and
ELECTRIC LIGHTWAVE, INC.
[Asterisks herein denote confidential material which has been omitted pursuant
to a request for confidential treatment. Such material has been filed
separately with the Securities and Exchange Commission.]
<PAGE>
TABLE OF CONTENTS
INDEX TO SECTIONS
- -------------------------------------------------------------------
SECTION PAGE
1. DEFINITIONS........................................ 2
2. TERM............................................... 6
3. EXHIBITS........................................... 7
4. AMENDMENTS......................................... 7
5. MILESTONE SCHEDULE................................. 7
6. OWNERSHIP.......................................... 7
7. LICENSE............................................ 8
8. PERFORMANCE CRITERIA............................... 9
9. BUSINESS PLAN...................................... 11
10. MARKET PRICE ASSESSMENT............................ 11
11. PAYMENT............................................ 12
12. MAINTENANCE, REPAIR, AND RESTORATION OF THE CABLE.. 13
13. REGENERATOR BUILDING(S)............................ 18
14. RIGHTS AND OBLIGATIONS CONCERNING THE CABLE........ 19
15. RELOCATION OF THE CABLE............................ 21
16. REPRESENTATIONS AND WARRANTIES..................... 22
17. AUDIT PROCEDURES................................... 24
18. INSURANCE.......................................... 26
19. DEFAULT............................................ 29
20. TERMINATION........................................ 31
21. INDEMNIFICATION; WAIVER OF DAMAGES................. 32
22. DISPUTE RESOLUTION................................. 34
23. GENERAL............................................ 36
Exhibit A (Route)
Exhibit B (Payment Specifications)
Exhibit C (Milestone Schedule)
Exhibit D (Fiber Specifications)
<PAGE>
This LICENSE AGREEMENT (Agreement), executed March 29, 1996, by the UNITED
STATES OF AMERICA (Government), Department of Energy, acting by and through the
BONNEVILLE POWER ADMINISTRATION (Bonneville), and Electric Lightwave,
Incorporated (ELI), a corporation organized and existing under the laws of the
State of Delaware. Both Bonneville and ELI may be referred to herein
individually as a "Party" and collectively as the "Parties."
W I T N E S S E T H :
WHEREAS Bonneville owns the Cable and Cable accessories; and
WHEREAS Bonneville shall retain 12 of the 72 fibers in the Cable for its
own use, which will give Bonneville fiber optic cable capacity in excess of that
which is needed to operate its transmission communications along the Route; and
WHEREAS Bonneville is the licensor and ELI is the licensee for 56 of the 72
fibers in the Cable; and
WHEREAS Bonneville constructs and installs the Cable; and
WHEREAS Bonneville shall direct and oversee the design and installation of
the Cable upon the Route; and
WHEREAS Bonneville desires to grant a license for a period of time to ELI
(as hereinafter defined) respecting the ELI Fiber as defined below, along the
Route under the terms and conditions contained herein, including payment by ELI
of the Guaranteed Fee Value (hereafter defined), which payment is an essential
part of this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
obligations and agreements herein contained, the Parties hereby agree as
follows:
<PAGE>
1. DEFINITIONS
The following terms, when used in this Agreement, shall have the meanings
set forth in this section:
(a) "Bonneville Facilities" means all Bonneville-owned and/or leased
structures, buildings, land, access roads, and equipment along the
Route.
(b) "Bonneville Fiber" means 12 dark optical fibers within the Cable
designated for Bonneville's use as defined in section 7(b) of this
Agreement.
(c) "Cable" means a Bonneville-owned cable, containing 72 optical fibers,
single-mode, nondispersion shifted, to be installed along the Route.
(d) "Cable Accessories" means the equipment necessary for the attachment
of the Cable to the Bonneville Facilities.
(e) "Cable Specifications" means the drawings and specifications regarding
the Cable hardware and materials incorporated into the construction
project.
(f) "Commercial Fiber" means the 56 dark optical fibers within the Cable
designated for commercial purposes.
(g) "Dark Fiber Lease Value" means the sum of all dark fiber lease
payments received by ELI for Commercial Fiber.
(h) "Diverse Fibers" means 4 dark optical fibers within the Cable reserved
for diverse switching paths for a SONET ring in order to achieve
optimum network robustness and reliability.
2
<PAGE>
(i) "ELI Transport Service(s)" means Transport Service(s) used by ELI in
the delivery of End-User Service(s).
(j) "ELI Transport Service Value(s)" means the sum of the values for all
the ELI Transport Service(s) within the Commercial Fiber as described
in Exhibit B.
(k) "End-User" means the customers of ELI.
(l) "End-User Service(s)" means services provided to the End-User, other
than Transport Service(s) and Other Service(s).
(m) "End-User Transport Service Value(s)" means the sum of all payments
received by ELI from End-User(s) for Transport Service sales.
(n) "Energization" means the time when the Cable is fully installed and
the fiber meets testing criteria agreed to by the Parties.
(o) "Fiber Specifications" means the performance attributes of the fiber
within the Cable as described in Exhibit B.
(p) "Guaranteed Fee Value" means the dollar value of 75 percent of all of
ELI's monthly leased traffic between the Originating and Terminating
Markets measured at Energization or $105,000, whichever is greater, as
specified in Exhibit B.
(q) "Gross Revenue Value(s) (GRV)" means the sum of ELI's Transport
Service Value(s) plus End-User Transport Service Value(s) plus Dark
Fiber Lease Value(s) plus Other Service Value(s).
3
<PAGE>
(r) "Interest Rate" means .05 per day (18.25 percent per annum) to be
compounded daily to the unpaid balance.
(s) "License" means the License granted to ELI in section 7(a).
(t) "Originating and Terminating Markets" means the areas in and around
the cities of Portland, Oregon; Seattle, Washington; Tacoma,
Washington; Olympia, Washington; as well as other cities adjacent to
the Route.
(u) "Other Transport Service(s)" means services sold over the Commercial
Fiber at the Optical Carrier level (e.g. OC1, OC3, OC12, OC48).
(v) "Other Transport Service Value(s)" means the sum of all payments
received by ELI for Other Transport Services.
(w) "Regenerator Building(s)" means the building(s) along the Route, owned
and operated by ELI, that house the terminal and regenerator equipment
including any optronics or electronics required by ELI to make use of
the ELI Fibers. For the purpose of this Agreement, the Regenerator
Building(s) include conduit and fiber optic cable, from the
Regenerator Building(s) up to the nearest fiber optic splice box or
the nearest substation fence, at Bonneville's discretion.
(x) "Route" means the Cable path as described in Exhibit A.
(y) "Transport Services" means individual DS-0, DS-1, and DS-3 circuits
used or sold as bulk transport by ELI for long haul traffic on the
Commercial Fiber as described below:
(1) "Digital Signal Zero (DSO)" means: one (1) 64 Kilobits per
second (Kbps) or 56 Kbps digital, pulse coded modulated voice
channel;
4
<PAGE>
(2) "Digital Signal One (DS 1)" means: (i) in the U.S. Digital
hierarchy, digital signal level 1 indicates a 1.544 megabytes per
second (Mbps) data signal. Also referred to as a T-1; (ii) in
the U.S. time-division multiplexing hierarchy, digital signal
level 1 (DS-1) indicates the first level of multiplexing. It is
defined as 24 DS-0 (64Kbps) circuits multiplexed into a 1.544
Mbps data signal; and
(3) "Digital Signal Level Three (DS3)" means: (i) in the U.S.
Digital hierarchy, digital signal level 3 indicates a 44.736 Mbps
data signal, often delivered to customers via optical fiber
systems, also referred to as T-3; (ii) in the U.S. time-division
multiplexing hierarchy, digital signal level 3 (DS-3) indicates
the third level of multiplexing. It is defined as 28 DS 1 (1.544
Mbps) signals, with added overhead bits, multiplexed onto a
44.736 Mpbs data signal; (iii) high capacity access service that
provides capacity equivalent to 28 DS-1 circuits, 7 DS2 channels,
or 672 voice grade special access circuits; also used generically
to describe digital data transmission services operating over
fiber optic lines at transmission speed of 44.6 Mbps.
2. TERM
(a) This Agreement shall be effective at 2400 hours on the date of
execution by both Parties (Effective Date) and shall continue in
effect for a period of 15 years after Energization, unless sooner
terminated or extended in accordance with the terms of this Agreement.
(b) The term of this Agreement shall be extended only by mutual agreement
of the Parties. The Agreement may be extended for two separate 5-year
renewal periods. Either Party, shall notify the other Party at least
90 days prior to the expiration date of this Agreement if the
notifying Party decides to exercise its renewal option in its
discretion. The other Party shall have 45 calendar days to
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accept or reject the renewal option. The terms and conditions of this
Agreement applicable to the initial 15-year period may be modified or
renegotiated during the Renewal Period(s) upon mutual agreement by the
Parties.
(c) All obligations incurred and outstanding including Indemnification,
under section 21 shall survive the expiration or termination of this
Agreement; provided that sections 22 and 23(h) shall survive
expiration or termination for 3 years.
3. EXHIBITS
Exhibit A (Route); Exhibit B (Payment Specifications); Exhibit C (Milestone
Schedule); and Exhibit D (Fiber Specifications); are incorporated into and
made a part of this Agreement.
4. AMENDMENTS
This Agreement may be amended upon the written agreement of both Parties.
5. MILESTONE SCHEDULE
Energization of the Cable is currently scheduled for February 15, 1997. On
or before July 15, 1996, Bonneville and ELI agree to complete an evaluation
of the milestones, described in Exhibit C, required to complete
construction and Energization of the Cable. The evaluation shall determine
if Exhibit C can be revised to reflect an earlier Energization date.
6. OWNERSHIP
(a) The Cable shall be owned by Bonneville. Simultaneous with completion
of installation of the Cable on the Route, and Energization Bonneville
shall grant ELI an exclusive license pursuant to section 7 of this
Agreement. Bonneville shall retain sole control of the Bonneville
Fiber.
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(b) Subject to section 6(a), each Party shall own its own electronic and
optronic devices necessary to transmit signals over the fibers each
Party controls as specified in this Agreement.
(c) Bonneville shall own all Bonneville electric transmission facilities,
rights-of-way, structures, improvements, and components obtained for
or installed on Bonneville Facilities and the Route in accordance with
this Agreement.
(d) Title and ownership of the Cable Accessories, Regenerator Building(s)
and related equipment within the Regenerator Building(s) furnished by
ELI shall be and remain the property of ELI, except that Bonneville
shall gain title to and ownership of such equipment which cannot be
removed without damage to Bonneville Facilities.
7. LICENSE (a) Exclusivity
Bonneville hereby grants to ELI an exclusive License to use the
Commercial Fiber and to manage the Diverse Fibers. This right shall
remain exclusive as long as ELI meets or exceeds the Performance
Criteria described in section 8.
(b) Access to the Route
ELI shall have access to the Route for the purposes of performing its
rights and obligations under this Agreement. Bonneville shall have
the right to use the Route, Bonneville Fiber, or any portion thereof,
together with the right to enter upon the Route, or any portion
thereof, at all times, for any and all purposes. Bonneville shall
retain the right to use the Bonneville Fiber for its own internal
electric system network and utility business purposes.
(c) No Property Interest
This Agreement shall not confer upon ELI any ownership or possessory
interest in the Route or other property owned by Bonneville except as
provided herein, and
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ELI agrees that it shall never make any claim of such interest based
upon this Agreement.
8. PERFORMANCE CRITERIA
(a) Pursuant to section 7(a), ELI's Annual Performance must be equal to or
greater than the Performance Criteria associated with the subject year
listed in Table A below.
ANNUAL PERFORMANCE equals the sum of the monthly payments made to
Bonneville by ELI for the given 12-month period. Unless otherwise
agreed to by the Parties, Year 1 shall commence 30 calendar days
following Energization.
TABLE A
YEAR[*] PERFORMANCE CRITERIA[*]
- -----------------------
* Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
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(b) Bonneville Rights
(1) If at any time following an audit of performance within 60 days
of the conclusion of each annual period, ELI fails to meet the
Performance Criteria, Bonneville, at its discretion, may
determine the License to be nonexclusive and Bonneville shall
have the right to use any unused portion of the Commercial Fiber
for any purpose.
(2) In the event ELI's rights to use the Commercial Fiber
becomes nonexclusive, ELI shall cooperate with Bonneville
to allow co-location of other users of the Commercial Fiber
in ELI's Regenerator Buildings, based on available space.
The Parties shall agree to reasonable compensation.
9. BUSINESS PLAN
ELI shall develop a Business Plan that describes ELI's proposal for
marketing, managing, and utilizing the Cable along the Route. The Business
Plan shall include but is not limited to, ELI's marketing strategy for
telecommunications service(s) along the Route, customer service, sales
strategy for all Transport Services, accounting, billing and collections
standards, strategy for maintaining ELI fibers, and plan for maintaining
compliance with all regulatory requirements or relevant State regulatory
authorities and the Federal Communications Commission. Unless otherwise
agreed to by the Parties, ELI shall complete the Business Plan 6 months
from the date of execution of this Agreement. Prior to finalization of the
Business Plan, Bonneville shall have the right to review ELI's Business
Plan for consistency with this Agreement, however, Bonneville shall not be
involved in ELI's decisions regarding the marketing, pricing, managing, and
use of the Commercial Fiber. ELI shall use its best efforts, consistent
with reasonable commercial practices, to maximize the Gross Revenue Value
generated pursuant to the License.
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10. MARKET PRICE ASSESSMENT
(a) Bonneville shall procure under separate agreement, the services of a
market assessment consultant to assess market prices of bulk transport
services and provide reports to Bonneville.
(b) Bonneville and ELI agree to equally share in the costs of procuring
the services described above.
(c) The market assessment consultant shall be responsible for acquiring
quotes, calculating an average, and delivering the market assessment
report to Bonneville using the methodology agreed to by Bonneville and
ELI. Bonneville and ELI shall within one hundred twenty (120)
calendar days from execution of this Agreement, make their best effort
to agree to the methodology.
(d) Bonneville agrees to allow ELI to participate in the development of
the methodology for assessing market price(s) to be used under this
Agreement.
(e) ELI agrees to use the current data provided to Bonneville by the
market assessment consultant as a basis for setting ELI Transport
Service Value(s) for each ELI Transport Service depending on when the
ELI Transport Service is placed in service by ELI. The ELI Transport
Service for any specific ELI Transport Service will remain in effect
for a period of 36 months, after which the ELI Transport Service must
be re-valued based on the current market assessment data.
(f) The agreed-to methodology may be changed by mutual agreement of
Bonneville and ELI.
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11. PAYMENT
(a) ELI agrees to pay Bonneville under the terms of this Agreement,
according to the Payment Specifications described in Exhibit B. In
addition to ELI's monthly payment to Bonneville, ELI shall include a
monthly report of all transactions. The report will allow Bonneville
to account for the Gross Revenue Value (GRV) generated each month.
Both Parties shall agree on a reporting format to be used, prior to
ELI's first payment to Bonneville.
(b) Unless otherwise agreed to by the Parties, accounting of the GRV shall
begin 30 calendar days following Energization. Payment shall be
received by Bonneville from ELI by the 20th of each month for GRV
calculated on the previous calendar months' transactions. Payments
shall be sent to the address identified in (c) below.
(c) Payment shall be sent to:
Bonneville Power Administration
Client Support - FCC
P.O. Box 3621
Portland, OR 97228-3621
(d) Payments not received by Bonneville when due shall bear interest at
the Interest Rate from the date payment was due until the date payment
is made to Bonneville. Late payments shall be collected pursuant to
the Debt Collection Act, 1982, 5 U.S.C. 5514, with the exception of
section 23(a)(2) of this Agreement.
12. MAINTENANCE, REPAIR, AND RESTORATION OF THE CABLE
(a) Maintenance of the Cable
(1) During the term of this Agreement, Bonneville shall be
responsible for the physical routine maintenance of the Cable and
the Cable Accessories.
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Bonneville shall maintain the Cable and the Route at all times in
good working order and in a safe condition, in conformity with
the Cable Specifications and all applicable laws and regulations.
(2) Bonneville shall pay all costs associated with the routine
maintenance of the Cable.
(3) ELI shall be responsible for maintenance of its property,
including the Regenerator Building(s) along the Route.
(b) Detailed Restoration Plan
(1) Restoration activities will be integral to ensuring successful
implementation of this Agreement. Timely restoration is
dependent upon the timely coordination and cooperation between
Bonneville and ELI. The Parties agree to jointly develop a
Detailed Restoration Plan which shall, upon its completion,
become part of this Agreement.
(2) The Parties agree to, within one hundred-twenty (120) days of the
execution of this Agreement by both Parties, develop a Detailed
Restoration Plan, the specifics of which will be based upon the
provisions of this section 12.
(3) The following provisions described in sections (c) and (d) below
shall form the principles and basis for the development of such a
plan.
(c) Restoration Priorities and General Requirements
(1) Bonneville's obligation to maintain and repair the Cable and any
activities incidental thereto shall be subordinate to, and shall
not conflict with, Bonneville's rightful use and operation of its
transmission facilities. In the
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event both Bonneville's transmission facilities and the Cable
require maintenance or repair, the restoration of the Cable shall
be at all times subordinate to the restoration of Bonneville's
transmission facilities, unless otherwise agreed to by Bonneville
in advance. The restoration of Bonneville's telecommunications
system shall take priority over restoration activities related
with the Commercial Fiber. In the event that ELI's License
becomes nonexclusive pursuant to section 8, the Commercial Fiber
used by ELI shall take priority over restoration activities
related to any fibers used by any other users of the Commercial
Fiber.
(2) Any and all Bonneville, ELI representatives, or other users of
the Commercial Fiber that construct, install, repair, replace, or
otherwise handle the Cable, Cable Accessories, Commercial Fiber,
Bonneville Fiber, or any related materials and equipment shall be
properly trained and equipped to meet all current industry
standards.
(3) A Bonneville representative must be on-site during all repair and
restoration work to perform functions such as safety watch,
protection of Bonneville's transmission facilities, obtain line
clearances. Bonneville shall make its best efforts to have a
representative arrive at the site requiring an emergency
maintenance activity pursuant to 12(d)(1) of this section.
(4) The Party performing the repair and restoration shall use prudent
business methods to acquire the most cost-effective restoration
procedures and materials available given the Cable
Specifications, Fiber Specifications, and current industry
standard.
(5) Bonneville shall require all employees or agents of ELI or any
other users of the Commercial Fiber who work near Bonneville's
transmission
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facilities to demonstrate that they have been properly trained
and equipped to perform the work. The Parties shall agree in
advance what constitutes proper training and reasonable costs.
The costs of agreed-upon training of ELI employees, agents of
ELI, or other users of the Commercial Fiber shall be borne by
ELI.
(6) A Bonneville representative shall have the authority to stop any
work activities or equipment functions for reasons that he or she
determines in good faith to involve potential health hazards,
safety concerns, and potential disruption to Bonneville's
operating system. Bonneville will make reasonable efforts to
coordinate with ELI in case of such events.
(d) Restoration of the Cable
(1) Bonneville shall immediately, upon notification from ELI of
interruption in service, failure, disrepair, impairment, or other
need for repair or restoration of the Commercial Fiber, begin to
mobilize Bonneville crews and make its continuous best effort to
achieve such necessary repair or restoration, including making
its best effort to have maintenance personnel at the affected
site within 4 hours after receipt of such notice, PROVIDED,
HOWEVER, subject to section 12(c)(1), that in the event any of
ELI's rights are interrupted pursuant to section 23(a), repairs
and restoration shall be made as expeditiously as possible. ELI
recognizes that the 4-hour response time represents optimal
conditions, and may be impossible to achieve when responding to
certain remote locations. Actual response times will be
influenced by factors such as the terrain, weather conditions
present at the time the request is made, and the actual mileage
from Bonneville's dispatch station to the fault site.
(2) For purposes of this section, best efforts means activities and
performance consistent with prudent utility practice, existing
contract provisions for
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Bonneville's hourly employees ("Collective Agreement between
Bonneville and Columbia Power Trades Council"), and response
times that do not jeopardize the health and safety of Bonneville
employees, agents of Bonneville, ELI employees, or agents of ELI.
(3) The Detailed Restoration Plan shall set forth the roles and
responsibilities of the respective Parties, and shall address
issues regarding logistical considerations, response interval
factors, communication between the Parties, sequential activity
requirements, and other related items which would impact response
time and restoration intervals. The aforementioned issues will
be taken into consideration in the determination of whether
Bonneville has used its best efforts in such restoration or
repair activities. The Detailed Restoration Plan will also set
forth financial penalties, if any, to be paid to ELI by
Bonneville for failure to use its best efforts on any repair or
restoration, including the mobilization effort as set forth
above.
13. REGENERATOR BUILDING(S)
(a) ELI shall have sole responsibility for the expense and acquisition of
any property necessary for its equipment along the Route. If space is
available at Bonneville substations, such space shall be provided to
ELI at Bonneville's "bare land" lease rate under a separate agreement.
(b) ELI shall provide and own, except as provided in section 6(d), Cable
Accessories splice boxes, and other components necessary for the
operation of the Commercial Fiber.
(c) ELI shall have sole responsibility for obtaining electric power and
any land rights for Regenerator Building(s).
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(d) ELI shall have sole responsibility for the physical maintenance and
environmental compliance associated with the Regenerator Building(s)
and the grounds around the Regenerator Building(s).
14. RIGHTS AND OBLIGATIONS CONCERNING THE CABLE
(a) General
-------
In the event that ELI requires capacity (other than Transport
Service(s)) along the Route, Bonneville and ELI shall agree in writing
on how those transactions shall be valued.
ELI shall not use dark fiber from the Cable for commercial activities
not accounted for in this Agreement.
ELI agrees to utilize the Cable for all ELI capacity needs, existing
or arising along the Route and between the Originating and Terminating
Markets, except for diversity needs.
(b) Permits
-------
Bonneville shall acquire all necessary regulatory or governmental
permits and approvals required for construction of the Cable along the
Route, and ELI shall, at its cost, cooperate and provide Bonneville
with such information as Bonneville may reasonably request from ELI in
connection with such permits and approvals. ELI shall acquire all
necessary regulatory or governmental permits and approvals necessary
for ELI's use of the Commercial Fiber for telecommunications services,
including Transport Service(s) and Dark Fiber Leases, and any permits
and/or approvals that may be required for the Regenerator Building(s).
ELI shall not rely upon Bonneville to acquire from any other Federal
agency any necessary regulatory or governmental permits and approvals.
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When feasible, Bonneville shall, at its cost, cooperate and provide
ELI with such information as ELI may reasonably request form
Bonneville in connection with acquiring permits, easements, or
additional rights-of-way for the Regenerator Building(s); provided
that ELI indemnifies and hold harmless Bonneville from any future
liability resulting from such actions.
(c) Taxes, Mechanic's Liens, and Encumbrances
ELI shall pay its own income taxes as well as all franchise fees and
other fees and taxes resulting from ELI's License or use of the
Commercial Fiber. ELI shall keep the Route free and clear from all
liens and encumbrances resulting from ELI's use of the Commercial
Fiber. If ELI does not pay the foregoing taxes and fees when such
become due, and such nonpayment results in the imposition of a lien
on, or encumbrance of, the Route, then Bonneville shall have the
right, but not the obligation, to pay all amounts due and discharge
such lien or encumbrance, upon 30 calendar days prior written notice
to ELI. In the event Bonneville causes such liens or encumbrances to
be discharged, ELI shall reimburse Bonneville upon demand together
with interest thereon at the Interest Rate, accruing from the date
that Bonneville makes payment discharging such liens or encumbrances
until the date Bonneville receives full reimbursement from ELI. ELI
shall have the absolute right to dispute or challenge any tax or fee
assessed on its use of the Commercial Fiber.
(d) Access Roads
ELI may use Bonneville's access roads to access the Regenerator
Building(s), provided that heavy vehicles or other equipment being
used on the access road will not at any time impair the use of the
access road by Bonneville. Access to the roads shall be limited to
the times and frequency required for maintenance and operation of the
Regenerator Building(s) and equipment, and any repair and restoration
of the Cable pursuant to section 12. ELI shall at ELI's expense
repair any damage to the access roads caused as a result of ELI's use
of the access roads.
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ELI shall acquire access easements to the Regenerator Building(s)
where Bonneville access roads are not available.
(e) Environmental Compliance Activities
Bonneville shall be responsible for compliance with the National
Environmental Policy Act (NEPA) and shall acquire all necessary
permits associated with the project operations, maintenance, and
construction of the Cable. ELI shall at its expense, cooperate and
provide Bonneville with such information as it may reasonably request
in connection with such compliance and permits. The project
activities will be limited to construction and operation of cable,
hardware, Regenerator Building(s), access roads and distribution lines
if needed for Regenerator Building(s). If any mitigation measures are
required along the Route as part of the NEPA compliance activities,
these measures will be performed by Bonneville at the sole cost of
Bonneville. Contacts with the local landowners will be performed by
Bonneville-appointed representatives. Any landowner compensation
required as part of the NEPA and project activities will be made by
Bonneville. All of the compliance and permitting activities
undertaken by Bonneville pursuant to this subparagraph (e) shall be at
the cost and expense of Bonneville.
15. RELOCATION OF THE CABLE
In the event that the Cable may require relocation or replacement during
the term of this Agreement. The cost of such relocation or replacement
shall be allocated as follows:
(a) If requested by ELI, ELI shall pay all such costs;
(b) If requested by Bonneville due to requirements necessary to provide
economical and reliable electric power, Bonneville shall pay all such
costs;
(c) If the Cable must be relocated due to the order of any court,
governmental agency, or in conjunction with the operational needs of
Bonneville, Bonneville shall, in
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consultation with ELI, designate a new route for the Cable. The costs
associated with such required relocation that are not paid by a third
party, shall be paid by Bonneville. ELI shall be responsible for any
relocation costs associated with ELI's Regenerator Building(s), ELI-
owned cable, and ELI-owned terminal equipment.
16. REPRESENTATIONS AND WARRANTIES
(a) ELI
ELI represents and warrants to Bonneville as follows:
(1) ELI is a corporation duly organized and validly existing and in
good standing under the laws of the State of Delaware. ELI is
duly qualified to do business and is in good standing in the
States of Oregon and Washington. ELI covenants that it will
maintain any necessary Federal, State, or local compliances
needed to continue to do business in the States of Oregon and
Washington. ELI has full power and authority to execute,
deliver, and perform its obligations under this Agreement. The
execution of this Agreement by ELI has been duly and validly
authorized by all necessary action on the part of ELI. This
Agreement is a legal, valid, and binding obligation of ELI,
enforceable against ELI in accordance with its terms. The
execution and delivery of this Agreement by ELI and the
performance of the terms, covenants, and conditions contained
herein will not violate the articles of the corporation, or
bylaws of ELI, or any applicable law or regulation or any order
of court or arbitrator, and will not conflict with and will not
constitute a material breach of, or default under, the provisions
of any contract by which ELI is bound. Except as otherwise
stated herein, no approval, authorization, or other action by any
governmental authority or filing with any such authority which
has not been obtained or accomplished is required in connection
with the execution, delivery, and performance by ELI of this
Agreement.
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(2) ELI or any assignee of the License or this Agreement shall remain
a majority controlled subsidiary of Citizens Utilities
(Citizens). Any assignment of the License of this Agreement to
parties not owned by Citizens shall be with the written consent
of Bonneville, such consent shall not be unreasonably withheld.
(3) There are no known actions, suits, or proceedings pending or
overtly threatened against ELI before any court or administrative
agency that would materially impair ELI's performance of its
obligations under this Agreement.
(b) Bonneville
Bonneville represents and warrants to ELI as follows:
(1) Bonneville is duly authorized to execute this Agreement. This
Agreement constitutes a legal and valid obligation of Bonneville
enforceable in accordance with its terms to the full extent
provided by law. The enforceability of this Agreement is
qualified as to:
Limitations imposed by bankruptcy laws of the United States,
insolvency, reorganization, arrangement, moratorium, or other
laws relating to or affecting the enforcement of creditors'
rights generally.
(2) Upon execution of this Agreement, Bonneville warrants that there
are no known conflicts with this Agreement and that this
Agreement does not constitute a material breach of or a default
under any constitutional provision, law, or administrative
regulation, or violate any judgment, decree, or other instrument,
or any other contract related to the Route to which Bonneville is
a Party or to which Bonneville or any of its property or assets
is subject.
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(3) Bonneville has made no other representations or warranties
outside of this Agreement and ELI acknowledges and agrees that it
is not relying on any other representations or warranties.
(c) No Bonneville Warranty Concerning Route
Bonneville makes no representation or warranty whatsoever concerning
the physical characteristics of the Route. ELI acknowledges that
neither Bonneville nor any of Bonneville's officers, employees,
representatives, contractors, or subcontractors or agents have made
any such representation, nor is Bonneville or ELI entering into this
Agreement in reliance upon any such representation or warranty.
17. AUDIT PROCEDURES
(a) Records
The Parties shall maintain true and correct sets of records in
connection with the performance of this Agreement. ELI shall retain
records of all transactions with supporting documentation related
thereto for a period of not less than 3 years after the term of a
specific transaction has expired and receipt of final payment by ELI
to Bonneville. The records in connection with each financial
transaction shall include an accounting of gross revenues, revenue
shares, and billing and collection.
(b) Audit Rights
Notwithstanding anything in this Agreement to the contrary, Bonneville
or Bonneville's agent may at Bonneville's expense request and perform
a complete audit of ELI's financial records to verify the accur
acy of the Gross Revenue Value, and Bonneville revenue share, as
determined and accounted for by ELI in connection with the terms of
this Agreement. In the event that the Parties agree that Bonneville's
audit is determined to be correct,
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ELI shall reimburse Bonneville the agreed upon amount, including
interest owed. In the event that ELI disagrees with the results of
Bonneville's audit and resolution is not reached between the Parties,
the Parties agree to resolve the dispute pursuant to section 22 of
this Agreement.
(c) Bonneville reserves the right to conduct technical audits, including
physical inspection of the number, type and use of circuits, including
Transport Service(s) sold, used, and administered by ELI using the
Commercial Fiber.
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18. INSURANCE
(a) General
At all times during the term of this Agreement and the License term,
ELI, at its own cost and expense, shall provide the insurance
specified by this section.
(b) Evidence Required
On the Effective Date of this Agreement, ELI shall provide Bonneville
with a certificate of insurance (Certificate of Insurance) executed by
an authorized representative of the insurer(s) evidencing that ELI
insurance complies with this section. A copy of all required
endorsements shall be attached to and form a part of the Certificate
of Insurance.
(c) Notice of Cancellation, Reduction, or Material Change in Coverage
Policies shall be endorsed to provide Bonneville with 30 calendar
days' prior written notice of any cancellation, reduction, or material
change in coverage. If insurance coverage is due to be canceled,
reduced, or materially changed, ELI shall, within 30 calendar days
before the effective date of such cancellation, reduction, or material
change, obtain the coverage required under this section 18 and provide
to Bonneville documentation evidencing such coverage. ELI shall be
responsible for the costs of any damage, liability, or injury
occurring during any period of cancellation, reduction, or material
change in insurance coverage to the extent such costs are not
otherwise covered by insurance; provided that ELI shall not be
responsible for the costs of any damage, liability, or injury
occurring during any such period if such damage, liability, or injury
was caused by Bonneville's gross negligence or willful misconduct.
(d) Qualifying Insurers
Policies shall be issued by companies which hold a current
policyholders alphabetic and financial size category rating of not
less than A:X according to Best's Insurance Reports.
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(e) Insurance Required
(1) Liability
Commercial general liability insurance for bodily injury
(including death) and property damage shall provide limits of not
less than $ 10 million per occurrence.
(A) Coverages included shall be:
(i) premises and operations;
(ii) broad form property damage;
(iii) products and completed operations;
(iv) blanket contractual liability;
(v) personal injury liability;
(vi) cross-liability and severability of interests; and
(vii) independent contractors liability.
(B) Coverage shall be endorsed to include the following:
(i) inclusion of Bonneville, its officers, representatives,
agents, and employees as an additional insured as respects
services or operations in connection with this Agreement;
and
(ii) stipulation that the insurance is primary insurance and
that no insurance or self-insurance of Bonneville will be
called upon to contribute to a loss.
(2) BUSINESS AUTOMOBILE LIABILITY INSURANCE
Business Automobile Liability Insurance for bodily injury
(including death) and property damage shall provide total limits
of not less than $2
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million combined single limit per occurrence to all owned,
nonowned, and hired vehicles.
(3) WORKERS' COMPENSATION/EMPLOYEES LIABILITY INSURANCE
Statutory Workers' Compensation and Employer's Liability
Insurance for not less than $1 million per occurrence shall apply
to employer's liability coverage for all employees engaged in
services or operations under this Agreement. The policy shall
include broad form all-States/other States coverage.
(f) Special Provisions
(1) The foregoing requirements as to the types and limits of
insurance coverage to be maintained by ELI, and any approval of
said insurance by Bonneville or ELI, are not intended to and
shall not in any manner limit or qualify the liabilities and
obligations otherwise assumed by ELI pursuant to this Agreement,
including, but not limited to, the provisions concerning
indemnification.
(2) Bonneville acknowledges that some insurance requirements
contained in this section 18 may be fulfilled by a funded self-
insurance program of ELI or it's parent company, Citizens
Utilities. However, this shall not in any way limit liabilities
assumed by ELI under this Agreement. Any self-insurance program
must be first approved in writing by Bonneville.
19. DEFAULT
(a) Events of Default
If either Party is in material breach or default (Defaulting Party),
under this Agreement, the other Party (Non-Defaulting Party) may
notify in writing the Defaulting Party that it is in material breach
or default, such notice to be effective
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upon its receipt by the Defaulting Party. Material breach or default
under this Agreement shall include, but is not limited to the
following:
(1) failure to make any payment when due hereunder; with the
exception of payments that become payable during periods of Force
Majeure as provided in section 23(a)(2).
(2) failure to perform any obligations required to be observed or
performed hereunder;
(3) any representation or warranty made by one Party to the other
herein proving incorrect in any material respect as of the date
of the making thereof;
(4) ELI files a voluntary petition in bankruptcy, or a petition in
bankruptcy is filed against ELI and not dismissed within 60 days,
or ELI is adjudicated as bankrupt or insolvent, or files any
petition or answer seeking or acquiescing in any reorganization,
arrangement, composition, readjustment, liquidation, dissolution,
or similar relief under any present or future Federal, State, or
other statute, law, or regulation relating to bankruptcy,
insolvency, or other relief for debtors, or seeks or consents to
or acquiesces in the appointment of any trustee, receiver,
custodian, liquidator, or similar official of ELI, or makes any
general assignment for the benefit of creditors;
(5) material interference by a Party to the other Party's operations;
or
(6) failure to make restitution for any damage to a Party's real
property or equipment caused as a result of the negligent or
willful acts or omissions of the other Party when such damage
causes material interference to a Party's operations.
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(b) Remedies
(1) DEFAULTING PARTY'S RIGHT TO CURE
The Defaulting Party shall have the right to cure any material
breach or default under this Agreement within 30 calendar days
after the receipt by the Defaulting Party of notification of such
material breach or default. In the case of any material breach
or default which may not reasonably be cured within 30 calendar
days, other than in the case of a breach of section 19(a)(1),
with such 30 calendar day period, the Defaulting Party shall have
the right to provide the Non-Defaulting Party with a plan for the
appropriate actions to cure such material breach or default,
which plan shall be subject to the approval of the Non-Defaulting
Party, which approval shall not be unreasonably withheld. Within
30 calendar days of submission of the plan, the Defaulting Party
must commence diligently pursuing appropriate action under the
plan to cure the material breach or default, and unless otherwise
agreed to by the Parties, such material breach or default shall
be cured within 90 calendar days of submission of the plan,
failing which the Non-Defaulting Party may forthwith and without
further notice terminate this Agreement.
(2) RIGHTS AND REMEDIES UPON TERMINATION
Any Party terminating this Agreement under section 20 shall have
the additional right to cure any material breach or default of
the Defaulting Party to preserve the Non-Defaulting Party's
rights that may be prejudiced as a result of such material breach
or default and exercise and pursue all other rights and remedies
available to it under applicable law.
(3) RIGHTS AND REMEDIES CUMULATIVE
Except as otherwise provided in this Agreement, any right or
remedy afforded to either ELI or Bonneville under any provision
of this
27
<PAGE>
Agreement is in addition to, and not in lieu of, all rights or
remedies afforded either ELI or Bonneville under any other
provision of this Agreement, by law or otherwise.
20. TERMINATION
(a) Termination of this Agreement may occur in the following instances:
(1) By the Non-Defaulting Party, after the time period for the
Defaulting Party to cure a material breach or default has
expired;
(2) By either Party, if the Party claiming Force Majeure has not
satisfactorily performed any obligations delayed due to the Force
Majeure within 1 year of the notice of the Force Majeure event;
or
(3) Pursuant to Partial Invalidity terms, section 23(d) of this
Agreement.
(b) Subject to section 19(b) the Terminating Party shall give the other
Party 30 calendar days advance written notice of Termination, which
Termination shall become effective 30 calendar days after the receipt
of such notice by the other Party.
21. INDEMNIFICATION; WAIVER OF DAMAGES
(a) Indemnification By ELI
(1) To the extent allowed by law, ELI shall release and indemnify,
defend, and hold harmless Bonneville and each of its directors,
officers, agents, representatives, subcontractors, and employees
(the "Bonneville Indemnitees") from and against any and all
Claims, (i) for injury to or death of a person, including an
employee of Bonneville or an ELI Indemnity, or (ii) for loss of
or damage to property resulting directly or
28
<PAGE>
indirectly from ELI's performance or nonperformance of this
Agreement, or (iii) for any Claims against Bonneville by
customers of ELI or others doing business with ELI, except in the
cases of clauses (i) and (ii) only, to the extent that such Claim
is the result of the gross negligence or willful misconduct of a
Bonneville Indemnity.
(2) If gross negligence or willful misconduct of a Bonneville
Indemnity has contributed to a Claim, ELI shall not be obligated
to indemnify the Bonneville Indemnitees for the proportionate
share of such Claims caused by such negligence or willful
misconduct. Bonneville shall have the right, at its own cost, to
retain counsel, to monitor, or participate in the defense of any
Claim that is covered by ELI's indemnity hereunder.
(b) Indemnification By Bonneville
(1) To the extent allowed under the Federal Tort Claims Act,
Bonneville shall release and indemnify, defend, and hold harmless
ELI and each of its directors, officers, agents, representatives,
subcontractors, and employees (the "ELI Indemnitees") from and
against any and an Claims for injury to or death of a person,
including an employee of Bonneville or an ELI Indemnity, or for
loss of or damage to property resulting directly or indirectly
from Bonneville's performance or nonperformance of this
Agreement, except to the extent that such Claim is the result of
the gross negligence or willful misconduct of an ELI Indemnity.
In no event shall Bonneville be required to indemnify ELI
Indemnities against Claims against ELI by customers of ELI or
others doing business with ELI.
(2) If gross negligence or willful misconduct of an ELI Indemnity has
contributed to a Claim, Bonneville shall not be obligated to
indemnify the ELI Indemnitees for the proportionate share of such
Claims caused by such negligence or willful misconduct. ELI
shall have the right, at its own
29
<PAGE>
cost, to retain counsel, to monitor, or participate in the
defense of any Claim that is covered by Bonneville's indemnity
hereunder.
(c) Waiver of Certain Damages
Each Party hereby waives any right to consequential, incidental,
special or indirect damages, or damages for lost profits or exemplary
damages with respect to any claim arising out of or related to this
Agreement. The Parties acknowledge that the foregoing waiver shall
not prejudice the right of indemnity respecting any Claim under this
section 21.
22. DISPUTE RESOLUTION
(a) Pending resolution of a disputed matter, the Parties shall continue
performance of their respective obligations hereunder, provided that
neither Party shall be required to take any action pending such
resolution which it has been advised by counsel, or which it
reasonably believes, is unlawful or not permitted pursuant to
applicable regulations or permit requirements. Any controversy
between the Parties rising out of this Agreement or breach thereof, or
out of performance under this Agreement, is subject to the mediation
process described below. If not resolved by mediation, then the
matter must be submitted to the American Arbitration Association
("AAA") for arbitration before a sole arbitrator.
(b) A meeting will be held promptly between the Parties to attempt in good
faith to negotiate a resolution of the dispute. The meeting will be
attended by individuals with decision making authority regarding the
dispute. If within 30 calendar days after such meeting the Parties
have not succeeded in resolving the dispute, within 30 calendar days
thereafter, upon the written notice from either Party to the other
Party, submit the dispute to a mutually acceptable third-party
mediator who is acquainted with dispute resolution methods. The
mediation shall be nonbinding. If the dispute is not resolved by
mediation either Party may initiate an arbitration
30
<PAGE>
with the AAA, upon the written notice from either Party to the other
Party. The dispute shall be resolved by arbitration under the rules
and administration of the AAA, and judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction
thereof. Neither Party is entitled to seek or recover punitive damages
in considering or fixing any award under these proceedings.
(c) The costs of mediation and arbitration, including any mediator's fees,
AAA administration fee, the arbitrators fee, and costs for the use of
facilities during the hearings, shall be borne equally by the Parties.
Reasonable attorneys' fees may be awarded to the prevailing Party
(provided such a Party can clearly be determined from the proceedings)
at the discretion of the arbitrator. Each Party's other costs and
expenses will be borne by the Party incurring them.
31
<PAGE>
23. GENERAL
(a) Force Majeure
(1) As used in this Agreement, the term "Force Majeure" means acts of
God (including, but not limited to, earthquakes, fires, floods,
windstorms, landslides, and ice storms); strikes, lockouts, or
other labor disputes; acts of public enemy; wars, riots, and
insurrection; epidemics; civil disturbances; explosions; train
derailments; breakdown or failure of machinery or facilities
(excluding the Cable and Cable Accessories); accidents to
machinery or equipment (excluding the Cable and Cable
Accessories), and delay in delivery of equipment to the extent
such occurrences are beyond the reasonable control of the
Parties; electrical disturbance originating in or transmitted
through such Party's electrical system or equipment or any
electrical system with which such Party's system or equipment is
interconnected; and any other event, cause, or condition beyond
the Party's reasonable control, which, by the exercise of
reasonable diligence, prevents the operation of the Cable and
prevents the Party claiming Force Majeure from performing its
obligations under this Agreement;
(2) If either Party is unable to carry out its obligations under this
Agreement as a result of an event, cause, or condition of Force
Majeure, the Party claiming Force Majeure shall give notice and
full particulars of such Force Majeure in writing to the other
Party within 5 calendar days after the occurrence of the Force
Majeure event, cause, or condition. Any obligations that such
Party claims it is unable to perform due to an event, cause, or
condition of Force Majeure shall be suspended during the
continuance of such event of Force Majeure. The Party claiming
Force Majeure shall use reasonable efforts to remedy and minimize
the effects of
32
<PAGE>
such event of Force Majeure with all reasonable dispatch. For
purposes of this Agreement, the Parties are obligated to make
payments during periods of Force Majeure; PROVIDED, HOWEVER, ELI
shall not be obligated to make payments during periods of Force
Majeure when ELI is unable to provide service under the terms of
the agreement with ELI's customers. Interest shall not accrue on
payments that become payable to either Party during the period of
any Force Majeure.
(3) Neither Party shall be liable under this Agreement for, or
considered to be in material breach or default under, this
Agreement on account of any delay in or failure of performance
due to Force Majeure unless specifically stated in this
Agreement. For the avoidance of doubt, events, causes and
conditions affecting the customers of ELI shall not excuse ELI
from performing its payment obligations under this Agreement. In
the event that ELI continues to receive revenue from End-Users
under this Agreement during a Force Majeure event, ELI will not
be excused from performing its payment under this Agreement.
(b) Notices
All notices and other communications under this Agreement shall be
properly given only if made in writing; and
(1) mailed by certified mail, return receipt requested, postage
prepaid; or
(2) delivered by facsimile transmission followed by certified mail to
the Party's at the address or facsimile number set forth in this
section 23(b) or such other address or facsimile number as such
Party may designate by notice to the other Party. Such notices
and other communications shall be effective on the date of
receipt. If any such notice or communication is not received or
cannot be delivered due to a change in the address of the
33
<PAGE>
receiving Party of which notice was not previously given to the
sending Party or due to a refusal to accept by the receiving
Party, such notice or other communication shall be effective on
the date delivery is attempted.
If to Bonneville: The Bonneville Power Administration
P.O. Box 3621
Portland, OR 97208-3621
Attn: To be identified under separate letter
with a copy to: The Bonneville Power Administration
P.O. Box 3621
Portland, OR 97208-3621
Attn: To be identified under separate letter
If to ELI: Electric Lightwave, Inc.
8100 NE. Parkway Drive, Suite 150
Vancouver, WA
Attn: Legal Affairs
Phone: (360) 892-1000
FAX: (360) 253-4425
(c) Assignment
ELI shall not sell, assign, lease, sublease, sublicense or otherwise
allow use of ELI's License under this Agreement to any person or
entity without Bonneville's written approval; which approval shall not
be unreasonably withheld. Notwithstanding the foregoing, ELI may
assign in writing its rights and responsibilities under this Agreement
to a corporate parent, subsidiary or commonly owned affiliate, upon
written notification to Bonneville, and a guarantee by its parent
company, Citizens Utilities to perform the obligation of ELI under
this Agreement. Any permitted assignment or other transfer of rights
hereunder shall be in writing and shall specify that the assignee or
other transferee is bound by the terms and conditions of this
Agreement to the same extent as if it were the original named party
instead of ELI hereunder. In the event that ELI sells, assigns,
leases, subleases, or otherwise allows use of ELI's License under this
Agreement, ELI or its assigned entity, shall designate a single point-
of-
34
<PAGE>
contact to Bonneville for all activities relating to this Agreement. A
sale, transfer or distribution (by way of a dividend or otherwise) in
one or a series of transactions of 50 percent or more of the capital
stock of the entity that holds the License shall be deemed to be an
assignment of the License.
(d) Partial Invalidity
If any provision of this Agreement is determined by a proper court to
be invalid, illegal or unenforceable, such invalidity, illegality, or
unenforceability shall not affect the performance of other provisions
of this Agreement and this Agreement shall remain in full force and
effect without such invalid, illegal or unenforceable provision;
provided that if any such invalid, illegal, or unenforceable provision
results in frustration of this Agreement, such that ELI cannot perform
under section 12, Bonneville shall have the right to terminate in
accordance with section 20.
(e) Governing Law
This Agreement shall be governed by and construed in accordance with
Federal law.
(f) Terms Generally
The defined terms in this Agreement shall apply equally to both the
singular and the plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding
masculine, feminine, and neuter forms. The term "person" includes
individuals, corporations, partnerships, trusts, other legal entities,
organizations, and associations, and any Government or governmental
agency or authority. The words "include," "includes" and "including"
shall be deemed to be followed by the phrase "without limitation."
The words "approval," "consent" and "notice" shall be deemed to be
preceded by the word "written."
35
<PAGE>
(g) Relationship of the Parties
Nothing in this Agreement is intended or shall be deemed to constitute
a partnership, agency or joint venture relationship between or among
the Parties hereto. The performance by the Parties of all duties and
obligations hereunder shall be as independent contractors and not as
agents of the other Party, and no persons employed or utilized by a
performing Party shall be considered employees or agents or the other.
(h) Waivers
No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the waiving
Party and any such waiver shall not be deemed a waiver of any other
provision of this Agreement or any other breach of this Agreement.
(i) Confidentiality
If and to the extent any information or documents furnished by one
Party to the other under this Agreement is confidential or proprietary
to the furnishing Party, the receiving Party shall treat such
information or documents as confidential and proprietary and shall
take reasonable steps to protect against the unauthorized use or
disclosure of such information or documents; provided, that such
information and documents are conspicuously marked or otherwise
clearly identified as confidential or proprietary when furnished; and
provided, further, that this section 23(i) shall not apply to
information or documents in the public domain or to information or
documents required to be disclosed by any law, rule, regulation,
order, or other requirement of any governmental authority having
jurisdiction. If a Freedom of Information Act request is received by
Bonneville for such written information or documents, Bonneville must
promptly notify ELI of such request and will, further, notify ELI if
Bonneville is required to disclose such written information or
documents.
36
<PAGE>
(j) No Third-Party Beneficiaries
This Agreement creates rights and obligations only between the Parties
hereto. The Parties hereto expressly do not intend to create any
obligations or promise of performance to any other third person or
entity nor have the Parties conferred any rights or remedy upon any
third person or entity other than the Parties hereto, their respective
successors or assigns to enforce this Agreement.
(k) Miscellaneous
Neither Party shall make public announcement of this Agreement or the
transactions contemplated by this Agreement without the prior consent
of the other Party, unless such public announcement is necessary to
comply with applicable law. This Agreement shall benefit and bind ELI
and Bonneville and their respective permitted successors and assigns.
Time is of the essence of this Agreement. This Agreement may be
executed in counterparts, each of which shall be an original, but all
of which shall constitute one and the same Agreement.
37
<PAGE>
This Agreement may not be amended or modified except by a written
instrument signed by ELI and Bonneville.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in two
counterparts.
UNITED STATES OF AMERICA
Department of Energy
Bonneville Power Administration
By /s/ Walter E. Pollock
--------------------------------
Group Vice President, Marketing,
Conservation and Production
Name Walter E. Pollock
-------------------------------
(Print/Type)
Date 3/29/96
-------------------------------
ELECTRIC LIGHTWAVE, INC.
By /s/ David B. Sharkey
---------------------------
Name David B. Sharkey
-------------------------
(Print/Type)
Title President
------------------------
Date 3/29/96
-----------------------
<PAGE>
Exhibit A, Page 1 of 1
Contract No. 96MS-95240
ELI Telecommunications Corporation
Effective on the Effective Date
Exhibit A
ROUTE DESCRIPTION
The following Route description is a best estimate of how the Route will be laid
out. Difficulties may arise along the Route that will require Bonneville to
make adjustments that could alter the final Route.
The southern terminus of the route begins at Bonneville's Keeler Substation
located 8 miles west of Portland. The cable is attached to the St. Johns-Keeler
No. 2 wood pole line and deadends at St. Johns Substation located 10 miles
northwest of Portland. The cable is then attached to the Ross-St. Johns No. 1
steel tower line, crosses the Columbia river and deadends at Ross Substation
located 12 miles north of Portland. Going north out of Ross Substation the
cable is attached to the Ross-Lexington No. 1 steel tower line and deadends at
Lexington substation located a few miles north of Longview. The cable is then
attached to the Lexington-Longview No. 1 wood pole line that deadends at
Longview substation located in the west part of Longview. The cable then is
attached from a point 2 miles north of Lexington out of Longview on the
Longview-Chehalis No. 1 steel tower line and deadends at Chehalis substation
located 4 miles south of Chehalis. The cable then goes north out of Chehalis
for 11 miles on the Chehalis-Covington steel tower line and then is attached to
the Paul-Allston No. 2 for the last 3 miles going into Paul substation located 3
miles northeast of Chehalis. The cable goes north out of Paul on the Paul-
Satsop No. 1 steel tower line and deadends on the wood pole lines south of
Olympia substation located in the southwest part of Olympia. The cable then
goes west and north on the Olympia-Grand Coulee No. 1, the Olympia-White River
No. 1 and the Chehalis-Covington No. 1 steel tower lines until it terminates at
Covington substation. The total length of the route is approximately 192 miles
and will require 5 regeneration stations located near Bonneville facilities
along the way. For the majority of the length we plan to use ADSS single-mode
cable but where necessary will switch to an OPGW cable.
<PAGE>
Exhibit B, Page 1 of 4
Contract No. 96MS-95240
ELI Telecommunications Corporation
Effective on the Effective Date
Exhibit B
PAYMENT SPECIFICATIONS
ELI's monthly payment to Bonneville is equal to the MONTHLY PAYMENT
---------------
corresponding to the
GROSS REVENUE VALUE found in the left column of TABLE 1 or the GFV, whichever is
- -------------------
greater.
TABLE 1
If the Monthly Payment to Bonneville
GRV Falls Between: Equals:
Gross Revenue Value Monthly Payment
$105,000
[*] $105,000 [*]
[*]
The GROSS REVENUE VALUE (GRV) will be determined using the following formula:
GRV = ELITSV + EUTRSV + DFLV + OSV
Where:
GRV = GROSS REVENUE VALUE
GFV = GUARANTEED FEE VALUE
ELITSV = ELI TRANSPORT SERVICE VALUE(S)
EUTSV = END-USER TRANSPORT SERVICE VALUE(S)
DFLV = DARK FIBER LEASE VALUE(S)
OSV = OTHER SERVICE VALUE(S)
- --------------------------
* Confidential material has been omitted pursuant to a request for confidential
treatment. Such material has been filed separately with the Securities and
Exchange Commission.
<PAGE>
Exhibit B, Page 2 of 4
Contract No. 96MS-95240
ELI Telecommunications Corporation
Effective on the Effective Date
SAMPLES OF REPORTING SUMMARY
AND PAYMENT CALCULATION
The samples below are not based on actual data generated but are to be used for
sample purposes only. The Payment Calculation demonstrates how the payment
calculation is to be applied and the Summary Report specifies the information
and format ELI shall use for reporting information to Bonneville.
<TABLE>
<CAPTION>
Month Month Month Month Month Month Month Month Month Month Month Month
1 2 3 4 5 6 7 8 9 10 11 12
GRV GRV GRV GRV GRV GRV GRV GRV GRV GRV GRV GRV
If monthly %
GRV is multiply of
between result by GRV Plus Adder [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
------- ------ -- --- ---- ----- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*] [*] x [*] + [*] [*]
[*] [*] x [*] + [*] [*]
[*] [*] x [*] + [*] [*]
[*] [*] x [*] + [*] [*]
[*] [*] x [*] + [*] [*]
[*] [*] x [*] + [*] [*] [*]
[*] [*] x [*] + [*] [*] [*] [*] [*] [*]
</TABLE>
*Calculated Value: [*]
Monthly Payment to BPA by ELI: [*]
------------------------------
(the greater of GFV or Calculated Value)
*GFV (Guaranteed Fee Value):[*]
[*] Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
<PAGE>
Exhibit B, Page 3 of 4
Contract No. 96MS-95240
ELI Telecommunications Corporation
Effective on the Effective Date
TABLE X
MONTH 6
ACCOUNT SUMMARY
VALUE FOR
ACCOUNT NAME SERVICE TYPE UNIT PRICE # OF UNITS THE MONTH
ELI DS3 $ 3,000 8 $ 24,000
ELI DS3 $ 3,000 1 $ 3,500
ELI DS3 $ 3,700 1 $ 3,500
ELI DS3 $ 3,300 6 $ 19,800
ELI DS3 $ 3,200 1 $ 3,200
A DS1 $ 1,020 2 $ 2,040
A DS3 $ 3,100 1 $ 3,100
B dark fiber $ 50 6* $ 60,000
C dark fiber $ 43 4* $ 34,400
D OC3 $100,000 1 $ 100,000
D DS1 $ 1,020 1 $ 1,020
D DS3 $ 3,200 1 $ 3,200
E dark fiber $ 51 4* $ 41,000
F DS1 $ 940 5 $ 4,700
MONTHLY GROSS REVENUE VALUE (GRV): $ 303,660
*@ 200 miles per fiber
<PAGE>
Exhibit B, Page 4 of 4
Contract No. 96MS-95240
ELI Telecommunications Corporation
Effective on the Effective Date
GUARANTEED FEE VALUE
ELI shall transfer to the Cable all of ELI's Transport Services traffic and
transport traffic associated with ELI's provisioning of Value-Added Services
between the Originating and Terminating Markets on the date of energization of
the Cable, or as soon thereafter as is practicable.
ELI guarantees to pay Bonneville a minimum monthly payment equal to 75 percent
of the total cost incurred by ELI for all of its Transport Services traffic and
transport traffic associated with its provisioning of Value-Added Services
between the Originating and Terminating Markets at the date that ELI transfers
such traffic to the Cable.
The minimum monthly payment to Bonneville established by this subsection shall
in no event, after ELI transfers all of the traffic specified in this subsection
to the Cable, be less than $105,000 per month.
<PAGE>
Exhibit C, Page 1 of 1
Contract No. 96MS-95240
ELI Telecommunications Corporation
Effective on the Effective Date
EXHIBIT C
MILESTONE SCHEDULE
See attached Exhibit C.
<PAGE>
EXHIBIT C
Install Fiber between Keeler and Covington Substations
72 Single Mode Fiber Count
Preliminary Schedule
<TABLE>
<CAPTION>
1996 1997
ID TASK NAME DURATION START J F M A M J J A S O N D J F M A M J J A S O N D J F
<S> <C> <C> <C> <C> <C>
1 Project Design 131d 1/15/96 X X X X X X
2 Environmental Study 45d 1/15/96 X X X
3 Establish Substation and Slice configurations 30d 1/15/96 X X
4 Establish Order of construction and outage 19d 1/15/96 X X
5 Cable and Slice Locations Designed 32d 2/1/96 X X
6 Stringing and Sagging Charts Complete 0d 7/15/96 *7/15
7 Prepare Construction Solicitation 32d 3/1/96 X X
8 Check Land rights 47d 2/1/96 X X X
9 Obtain Missing Permits 66d 3/1/96 X X X
10 Surveys 23d 4/1/96 X
11 Materials 65d 4/1/96 X X X
12 Construction 155d 7/1/96 X X X X X X X
13 Test and Energize 11d 1/31/97 X
</TABLE>
- ----------------------------------------------------
Task Summary Rolled Up
Progress
Progress Rolled Up Task
Milestone Rolled Up
Milestone
- ----------------------------------------------------
Keeler-Covington Fiber 1/8/96
<PAGE>
Exhibit D, Page 1 of 4
Contract No. 96MS-95240
ELI Telecommunications Corporation
Effective on the Effective Date
EXHIBIT D
COMMERCIAL FIBER SPECIFICATIONS
Bonneville shall meet or exceed these specifications. In the event that
Bonneville's performance requirements for its communication system requires
Bonneville to exceed the standards and requirements specified in this Exhibit E,
Bonneville shall apply the higher standard.
ELI Network Span and Final Acceptance Requirements:
1.0 Design Criteria:
---------------
The number of cable splices at the time of original construction must be
designed to an average of 4 km between splices. Due to cable cuts, and cable
relocation, additional splices are allowed. The number of splices must be
closely monitored to insure attenuation and reflection tolerances are
maintained.
Construction:
- ------------
Cable must be constructed in accordance with sound commercial practices. The
National Electrical Code shall be followed in every case except where local
regulations are more stringent, in which case local regulations shall govern.
2.0 Typical Fiber Cable Information:
-------------------------------
Single mode fiber specifications may vary, depending on the fiber manufacturer.
Typical concatenated levels of 0.35 dB per km @ 1310nm and 0.25 per km @ 1550nm
are expected.
3.0 Span Requirements:
-----------------
Span documentation must be performed using the two following methods: OTDR
(optical time domain reflectometer) and insertion loss (stabilized light source
and power meter) measurement in each direction at 1550nm wavelength.
o Maximum total span loss must not exceed 35.0 dB at 1550nm.
----------
o Maximum dB/Km loss must not exceed 0.35 dB/Km at 1550nm.
-----
<PAGE>
Exhibit D, Page 2 of 4
Contract No. 96MS-95240
ELI Telecommunications Corporation
Effective on the Effective Date
o In no case shall a fiber show a point discontinuity greater than 0.1dB.
Discontinuities (know as steps, splices or attenuation non uniformities)
shall be measured with an optical time domain reflectometer (OTDR) to
determine the loss of the localized attenuation. The lease squares fit
method of measurement must be used to determine the magnitude of the loss
of a point discontinuity.
o Typical span scenario 30.0 dB = 120 Km X .25 dB/Km.
o Maximum fiber loss scenario 35.0 dB = 100 Km X .85 dB/Km. (depends on
regeneration huts)
o Maximum span dispersion = 2250 ps/mn/Km.
o Performance levels must be maintained as accepted during the entire
duration of the agreement.
o Test data including OTDR hard copies or electronic data must be submitted
to Common System Engineering before Final Acceptance. ELI, at its
discretion, may choose to physically monitor any or all testing associated
with Final Acceptance of the ELI Fibers.
In the event the measured span measured values exceeds the calculated values,
Bonneville will perform corrective maintenance as required to restore the ELI
Fibers to the calculated values.
4.0 Splice Loss:
-----------
the splice loss will average 0.10dB. All splicing will be performed by
proprietor pursuant to fibers leased agreement. Further, no individual splice
will exceed 0.50dB. Splices shall be measured using bi-directional methods to
average absolute splice loss. All fiber splicing must be fusion type:
--------------------------------------
<PAGE>
Exhibit D, Page 3 of 4
Contract No. 96MS-95240
ELI Telecommunications Corporation
Effective on the Effective Date
6.0 Compliance:
----------
Customer, at its discretion, may choose to physically monitor any or all testing
associated with acceptance of Fibers. Test data including OTDR hard copies or
electronic data must be submitted to the customer for review. Customer has the
option to vainer any specifications and/or requirements listed in the technical
specification criteria. (Limited to ELI receiving a hard copy of their fiber
only.)
8.1 Waivers:
-------
The proprietor must provide Fibers with attenuation of not greater than 0.35
loss per. km@ 1550nm and will not be required to perform corrective maintenance
under .25 dB to reduce span attenuation.
9.0 Key optical performance Characteristics Required For Single-Mode Optical
------------------------------------------------------------------------
Cables:
------
9.1 Attenuation Single Mode Non-Shifted:
-----------------------------------
o The attenuation must not exceed 0.30 dB/Km when measured at a wavelength of
1.55 microns (1550nm) using the two point measurement.
o The attenuation must not exceed 0.40 dB/Km when measured at a wavelength of
1.30 microns (1310nm) using the two point measurement.
9.2 Attenuation Single Mode Dispersion Shifted:
------------------------------------------
o The attenuation must not exceed 0.25 dB/Km when measured at a wavelength of
1.55 microns (1550nm) using the two joint measurement.
9.3 Attenuation Versus Wavelength Single-Mode and Dispersion Shifted:
-----------------------------------------------------------------
o The attenuation for the wavelength region form 1525 nm to 1575 nm must not
exceed the attenuation at 1550 nm by more than 0.05 dB/Km.
9.4 Chromatic Dimension Non-Dispersion Shifted (ps/nm-km):
------------------------------------------------------
o For conventional single mode fibers, the zero dispersion wavelength must be
1301.5 to 1321.5nm. The maximum dispersion slope (SoMAX) must be no
greater than 0.092 ps/(km-nm2). The nominal zero dispersion wavelength
must be near 1310nm.
<PAGE>
Exhibit D, Page 4 of 4
Contract No. 96MS-95240
ELI Telecommunications Corporation
Effective on the Effective Date
o zero dispersion range. The dispersion between 1530 and 1570 nm must be
less than or equal to 18 ps/(nm-km).
9.6 Cutoff Wavelength:
-----------------
o The cutoff wavelength of cabled fiber must be less than 1260 nm.
9.7 Core Diameter:
--------------
o The core diameter must be typically 8.3+0.13.
-
9.8 Temperature:
------------
o Operating Temperature Range -60 C to +85 C.
Bonneville will insure that the Cable and related appurtenances meet all of the
above optical performance characteristics operating systems power level.
<PAGE>
EXHIBIT 10.2
Contract No. 97TX-10014
11/27/96
LICENSE AGREEMENT
EXECUTED BY THE
UNITED STATES OF AMERICA
DEPARTMENT OF ENERGY
ACTING BY AND THROUGH THE
BONNEVILLE POWER ADMINISTRATION
AND
ELECTRIC LIGHTWAVE, INC.
[Asterisks herein denote confidential material which has been omitted pursuant
to a request for confidential treatment. Such material has been filed
separately with the Securities and Exchange Commission.]
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION
1. DEFINITIONS........................................ 2
2. TERM............................................... 9
3. EXHIBITS........................................... 11
4. AMENDMENTS......................................... 11
5. MILESTONE SCHEDULE................................. 11
6. OWNERSHIP.......................................... 11
7. LICENSE............................................ 13
8. PERFORMANCE CRITERIA............................... 14
9. ELI CAPITAL SPENDING............................... 16
10. BUSINESS PLAN...................................... 16
11. MARKET PRICE ASSESSMENT............................ 17
12. PAYMENT............................................ 18
13. MAINTENANCE, REPAIR, AND RESTORATION OF THE CABLE.. 21
14. REGENERATOR BUILDING(S)............................ 28
15. RIGHTS AND OBLIGATIONS CONCERNING THE CABLE........ 28
16. RELOCATION OF THE CABLE............................ 36
17. REPRESENTATIONS AND WARRANTIES..................... 38
18. AUDIT PROCEDURES................................... 41
19. INSURANCE.......................................... 42
20. DEFAULT............................................ 47
21. TERMINATION........................................ 51
22. INDEMNIFICATION; WAIVER OF DAMAGES................. 53
23. DISPUTE RESOLUTION................................. 55
24. GENERAL............................................ 56
Exhibit A (Route)
Exhibit B (Payment Specifications)
Exhibit C (Milestone Schedule)
Exhibit D (Fiber Specifications)
<PAGE>
This LICENSE AGREEMENT (Agreement), by the UNITED STATES OF AMERICA
(Government), Department of Energy, acting by and through the BPA POWER
ADMINISTRATION (BPA), and Electric Lightwave, Incorporated (ELI), a corporation
organized and existing under the laws of the State of Delaware. Both BPA and
ELI may be referred to herein individually as "Party" and collectively as
"Parties."
W I T N E S S E T H :
WHEREAS BPA owns the Cable and Cable accessories; and
WHEREAS BPA shall retain 12 of the 36 fibers in the Cable for its own use,
which will give BPA fiber optic cable capacity in excess of that which is needed
to operate its transmission communications along the Route; and
WHEREAS BPA is the licensor and ELI is the licensee for 24 of the 36 fibers
in the Cable; and
WHEREAS BPA constructs and installs the Cable; and
WHEREAS BPA shall direct and oversee the design and installation of the
Cable upon the Route; and
WHEREAS BPA desires to grant a license for a period of time to ELI (as
hereinafter defined) respecting the Commercial Fiber as defined below, along the
Route under the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
obligations and agreements herein contained, the Parties hereby agree as
follows:
1. DEFINITIONS
The following terms, when used in this Agreement, shall have the meanings
set forth in this section:
2
<PAGE>
(a) "BPA Capital Cost" means the direct and indirect costs BPA incurs,
using prudent electric utility practices, to develop and construct the
Cable along the Route. Direct costs include, but not limited to,
Environment, Surveying and Mapping, Design, Land, Material,
Construction, and Labor. Such costs incurred up to 12 months after
Energization shall be included. Indirect costs (overheads) shall be
included as part of BPA Capital Cost and applied at a fixed rate of 40
percent to all direct costs. Interest costs, implicit or otherwise,
will be excluded. BPA shall use its best efforts to manage to the
cost of development and construction of the Cable to, or below, [*].
(b) "BPA Facilities" means all BPA-owned and/or leased structures,
buildings, land, access roads, and equipment along the Route.
(c) "BPA Fiber" means 12 dark optical fibers within the Cable designated
for BPA's exclusive use and control.
(d) "Cable" means a BPA-owned cable, containing 36 optical fibers, single-
mode, nondispersion shifted and/or dispersion shifted, to be installed
along the Route.
(e) "Cable Accessories' means the equipment necessary for the attachment
of the Cable to the BPA Facilities, including splice boxes.
(f) "Cable Specifications" means the drawings and specifications regarding
the Cable hardware and materials incorporated into the construction
project.
(g) "Commercial Fiber" means the 24 dark optical fibers within the Cable
licensed to ELI under this License Agreement.
(h) "Dark Fiber Lease Value" means the sum of all dark fiber lease
payments received by ELI for Commercial Fiber.
- ----------
* Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
3
<PAGE>
(i) "Diverse Fibers" means 4 dark optical fibers within the Cable reserved
for diverse switching paths for a SONET ring in order to achieve
optimum network robustness and reliability.
(j) "ELI Transport Service(s)" means Transport Service(s) used by ELI in
the delivery of End-User Service(s).
(k) "ELI Transport Service Value(s)" means the sum of the values for all
the ELI Transport Service(s) within the Commercial Fiber as described
in Exhibit B.
(l) "End-User" means the customer(s) of ELI.
(m) "End-User Service(s) means services provided to the End-User, other
than Transport Service(s) and Other Service(s).
(n) "End-User Transport Service Value(s)" means the sum of all payments
received by ELI from End-User(s) for Transport Service sales.
(o) "Energization" means the time when the Cable is fully installed and
the fiber meets testing criteria agreed to by the Parties.
(p) "Fiber Specifications" means the performance attributes of the fiber
within the Cable as described in Exhibit B.
(q) "Gross Revenue Value(s) (GRV)" means the sum of ELI's Transport
Service Value(s) plus End-User Transport Service Value(s) plus Dark
Fiber Lease Value(s) plus Other Service Value(s).
(r) "Interest Rate" means .05 percent per day (18.25 percent per annum) to
be compounded daily to the unpaid balance.
4
<PAGE>
(s) "License" means the License granted to ELI in section 7(a).
(t) "Originating and Terminating Markets" means the areas in and around
the cities along the Route. The cities in Oregon include Portland and
The Dalles. The cities in Washington include: Yakima, Spokane,
Wenatchee, Ellensburg, Pasco, Richland, and Kennewick; as well as
other cities adjacent to the Route.
(u) "Other Transport Service(s)" means services sold over the Commercial
Fiber at the Optical Carrier level (e.g. OC1, OC3, OC12, OC48).
(v) "Other Transport Service Value(s)" means the sum of all payments
received by ELI for Other Transport Services.
(w) "Regenerator Building(s)" means the building(s) along the Route, owned
and operated by ELI, that house the terminal and regenerator equipment
including any optronics or electronics required by ELI to make use of
the ELI Fibers. For the purpose of this Agreement, the Regenerator
Building(s) include conduit and fiber optic cable from the Regenerator
Building(s) up to the nearest fiber optic splice box on the Route or
the nearest substation fence, at BPA's discretion.
(x) "Route" means the Cable path as described in Exhibit A.
(y) "Transport Services" means individual DSO, DS 1, and DS3 circuits used
or sold as bulk transport by ELI for long-haul traffic on the
Commercial Fiber as described below:
(1) "Digital Signal Zero (DS0)" means: one (1) 64 Kilobits per second
(Kbps) or 56 Kbps digital, pulse coded modulated voice channel;
5
<PAGE>
(2) "Digital Signal One (DS1)" means: (A) in the U.S. Digital
hierarchy, digital signal level 1 indicates a 1.544 megabytes per
second (Mbps) data signal; and (B) also referred to as a T I in
the U.S. time-division multiplexing hierarchy, digital signal
level 1 (DS1) indicates the first level of multiplexing. It is
defined as 24 DS0 (64 Kbps) circuits multiplexed into a 1.544
Mbps data signal; and
(3) "Digital Signal Level Three (DS3)" means: (A) In the U.S. Digital
hierarchy, digital signal level 3 indicates a 44.736 Mbps data
signal, often delivered to customers via optical fiber systems,
also referred to as T; (B) in the U.S. time-division multiplexing
hierarchy, digital signal level 3 (DS3) indicates the third level
of multiplexing. It is defined as 28 DS1 (1.544 Mbps) signals,
with added overhead bits, multiplexed onto a 44.736 Mpbs data
signal; and (C) high capacity access service that provides
capacity equivalent to 28 DS1 circuits, 7 DS2 channels, or 672
voice grade special access circuits; also used generically to
describe digital data transmission services operating over fiber
optic lines at transmission speed of 44.6 Mbps.
2. TERM
(a) This Agreement shall be effective at 2400 hours on the date of
execution by both Parties (Effective Date) and shall continue in
effect for a period of 15 years after Energization, unless sooner
terminated or extended in accordance with the terms of this Agreement.
(b) The term of this Agreement shall be extended only by mutual agreement
of the Parties. The Agreement may be extended for two separate 5-year
renewal periods. Either Party shall notify the other Party at least
90 days prior to the expiration date of this Agreement if the
notifying Party decides to exercise its renewal option. The other
Party shall have 45 calendar days to accept or reject the renewal
option. The terms and conditions of this
6
<PAGE>
Agreement applicable to the initial 15-year period may be modified or
renegotiated before each Renewal Period(s) upon mutual agreement by
the Parties.
(c) All obligations incurred and outstanding including Indemnification,
under section 22 shall survive the expiration or termination of this
Agreement; provided that sections 23 and 24(h) shall survive
expiration or termination for 3 years.
3. EXHIBITS
Exhibit A (Route); Exhibit B (Payment Specifications); Exhibit C (Milestone
Schedule); Exhibit D (Fiber Specifications); and Exhibit E (Detailed
Restoration Plan) are incorporated into and made a part of this Agreement.
4. AMENDMENTS
This Agreement may be amended upon the written agreement of both Parties.
5. MILESTONE SCHEDULE
Energization of the Cable is currently scheduled for December 1, 1997. On
or before July 15, 1997, BPA and ELI agree to complete an evaluation of the
milestones, described in Exhibit C, required to complete construction and
Energization of the Cable. The evaluation shall determine if Exhibit C
will be revised to reflect an earlier, or later, Energization date.
6. OWNERSHIP
(a) Each Party shall own its own electronic and optronic devices necessary
to transmit signals over the fibers each Party controls as specified
in this Agreement.
(b) BPA shall own all structures, improvements, and components obtained
for or installed on BPA Facilities and the Route in accordance with
this Agreement.
7
<PAGE>
(c) Title and ownership of the Cable Accessories, Regenerator Building(s),
and related equipment within the Regenerator Building(s) furnished by
ELI shall be and remain the property of ELI, except that BPA shall
gain title to and ownership of such equipment which cannot be removed
without damage to BPA Facilities at termination of this Agreement.
7. LICENSE
(a) EXCLUSIVITY
BPA hereby grants to ELI an exclusive License to use the Commercial
Fiber and to manage the Diverse Fibers. This right shall remain
exclusive as long as ELI meets or exceeds the Performance Criteria
described in section 8.
(b) ACCESS TO THE ROUTE
ELI shall have escorted access to the Route for the purposes of
performing its rights and obligations under this Agreement. BPA shall
have the right to use the Route, BPA Fiber, or any portion thereof,
together with the right to enter upon the Route, or any portion
thereof, at all times, for any and all purposes. BPA shall retain the
right to use the BPA Fiber for its own internal electric system
network and utility business purposes.
(c) NO PROPERTY INTEREST
This Agreement shall not confer upon ELI any ownership or possessory
interest in the Route or other property owned by BPA except as
provided herein, and ELI agrees that it shall never make any claim of
such interest based upon this Agreement.
8
<PAGE>
8. PERFORMANCE CRITERIA
(a) Pursuant to section 7(a), the cumulative GRV must be equal to or
greater than the cumulative Performance Criteria (calculated from
previous and current years).
ELI's PERFORMANCE CRITERIA shall be calculated as a percentage of the
Revenue Forecast listed in Table A.
The PERCENTAGE applied to the Revenue Forecast shall be [*], in year
one, and [*] for the following years, except that, following the year
that the cumulative annual GRV for all years is equal to or greater
than BPA Capitol Cost, the percentage used thereafter for calculating
Performance Criteria will be [*].
ANNUAL GRV equals the sum of the monthly GRVs over a given 12-month
period. Unless otherwise agreed to by the Parties, the first 12-month
period (Year 1) shall commence 30 calendar days following
Energization.
TABLE A
YEAR[*] REVENUE FORECAST[*]
- ----------
* Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
9
<PAGE>
SAMPLE PERFORMANCE CRITERIA CALCULATION[*]
A B C D E F G
(b) BPA RIGHTS
(1) If at any time following an audit of performance within 60 days
of the conclusion of each annual period, ELI fails to meet, on a
cumulative basis, the Performance Criteria, BPA, at its
discretion, may determine the License to be nonexclusive and BPA
shall have the right to use any unused portion of the Commercial
Fiber for any purpose.
(2) In the event ELI's rights to use the Commercial Fiber becomes
nonexclusive, ELI shall cooperate with BPA to allow co-location
of other users of the Commercial Fiber in ELI's Regenerator
Buildings, based on available space. The Parties shall agree to
the amount of reasonable compensation to be charged to the co-
locating users.
- ----------
* Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
10
<PAGE>
9. ELI CAPITAL SPENDING
ELI shall make capital investments to provision the Commercial Fiber with
electronics, optronics, buildings, other infrastructure, and fiber
connectivity with Local Exchange Carrier networks and Inter-Exchange
Carrier networks, at a sufficient level to meet the Revenue Forecast listed
in Table A of section 8(a).
10. BUSINESS PLAN
ELI shall develop a Business Plan that describes ELI's proposal for
marketing, managing, and utilizing the Cable along the Route. The Business
Plan shall include, but is not limited to, ELI's marketing strategy for
telecommunications service(s) along the Route, customer service, sales
strategy for all Transport Services, accounting, billing and collections
standards, strategy for maintaining ELI fibers, and plan for maintaining
compliance with all regulatory requirements or relevant State regulatory
authorities and the Federal Communications Commission. Unless otherwise
agreed to by the Parties, ELI shall complete the Business Plan 6 months
from the date of execution of this Agreement. Prior to finalization of the
Business Plan, BPA shall have the right to review ELI's Business Plan for
consistency with this Agreement, however, BPA shall not be involved in
ELI's decisions regarding the marketing, pricing, managing, and use of the
Commercial Fiber. ELI shall use its best efforts, consistent with
reasonable commercial practices, to maximize the GRV generated pursuant to
the License.
11. MARKET PRICE ASSESSMENT
(a) BPA shall procure, under separate agreement, the services of a market
assessment consultant(s) to assess market prices of bulk transport
services and provide reports to BPA.
(b) BPA and ELI agree to equally share in the costs of procuring the
services described above.
(c) The market assessment consultant shall be responsible for acquiring
quotes, calculating an average, and delivering market assessment
reports to BPA at some planned interval, using the methodology agreed
to by BPA and ELI. BPA and
11
<PAGE>
ELI shall within 120 calendar days from execution of this Agreement,
make their best effort to agree to the methodology.
(d) BPA agrees to allow ELI to participate in the development of the
methodology for assessing market price(s) to be used under this
Agreement.
(e) ELI agrees to use the current data provided to BPA by the market
assessment consultant as a basis for setting ELI Transport Service
Value(s) for each ELI Transport Service, depending on when the ELI
Transport Service is placed in service by ELI. The ELI Transport
Service Value for any specific ELI Transport Service will remain in
effect for a period of 36 months, after which the ELI Transport
Service must be re-valued based on the current market assessment data.
(f) The agreed to methodology may be changed by mutual agreement of BPA
and ELI.
12. PAYMENT
(a) ELI agrees to pay BPA monthly, according to the Payment Specifications
described in Exhibit B. In addition to ELI's monthly payment to BPA,
ELI shall include a monthly report of all transactions. The report
will allow BPA to account for the GRV generated each month. Both
Parties shall agree on a reporting format to be used, prior to ELI's
first payment to BPA.
(b) For the purposes of determining the monthly payment required under
this Agreement, any Transport Services originating in the Originating
and Terminating Markets, or any Transport Services originating in
western Washington (west of Cascade Mountain Range), and terminating
in
12
<PAGE>
Originating and Terminating Markets, excluding Portland, Oregon, will
be included in the accounting to determine GRV.
(c) Unless otherwise agreed to by the Parties, accounting of the GRV shall
begin 30 calendar days following Energization. Payment shall be
received by BPA from ELI by the last day of each month for GRV
calculated on the previous calendar months' transactions. Payments
shall be sent to the address identified in (f) below.
(d) Payments to BPA for revenue generated by ELI from use of the
Commercial fiber (or portion thereof) before Energization shall be
based on the GRV of such services and calculated using the 46 percent
Payment Factor, as described in Exhibit B. All payments, including
payments based on Early Service Revenues, shall be credited toward
ELI's accumulative monthly payments to BPA to determine Payment
Factor.
(e) EARLY SERVICE REVENUES
Revenues generated by ELI, using the Commercial Fibers, before
Energization (as described in section 8), shall be accumulated as a
credit against the Performance Criteria in Year 1.
(f) Payment shall be made by wire transfer. ELI shall pay by wire
transfer using procedures established by BPA's Financial Services
Group. Wire transfer amounts are due and payable on the Due Date.
The Customer may pay its bill by mail provided the following
conditions are met:
(1) ELI gives BPA 30 days' notice of its intent to pay by mail; and
(2) ELI ensures that BPA receives full payment by the Due Date.
Payments shall be mailed to:
BPA Accounting Operation - FRO
P.O. Box 6040
Portland, OR 97228-3621
13
<PAGE>
(g) Payments not received by BPA when due shall bear interest at the
Interest Rate from the date payment was due until the date payment is
made to BPA. Late payments shall be collected pursuant to the Debt
Collection Act, 1982, Pub. L. No. 97-365.
(h) BPA may purchase from ELI any commercial telecommunications service
ELI offers business customers generally. The price charged by ELI for
any such service shall be the lowest price then charged by ELI to
similarly situated commercial customers for a similar service or group
of services.
13. MAINTENANCE, REPAIR, AND RESTORATION OF THE CABLE
(a) MAINTENANCE OF THE CABLE
(1) During the term of this Agreement, BPA shall be responsible for
the physical routine maintenance of the Cable and the Cable
Accessories. BPA shall maintain the Cable and the Route at all
times in good working order and in a safe condition, in
conformity with the Cable Specifications and all applicable laws
and regulations.
(2) BPA shall pay all costs associated with the routine maintenance
of the Cable.
(3) ELI shall be responsible for maintenance of its property,
including the Regenerator Building(s) along the Route.
(b) DETAILED RESTORATION PLAN
(1) Restoration activities will be integral to ensuring successful
implementation of this Agreement. Timely restoration is
dependent upon the timely coordination and cooperation between
BPA and ELI.
14
<PAGE>
(2) The Parties agree to jointly, within 120 days of the execution of
this Agreement by both Parties, develop a Detailed Restoration
Plan (Exhibit E), which shall upon its completion, become part of
this Agreement.
(3) The following provisions described in sections (c) and (d) below
shall form the principles and basis for the development of a
Detailed Restoration Plan.
(c) RESTORATION PRIORITIES AND GENERAL REQUIREMENTS
(1) BPA's obligation to maintain and repair the Cable and any
activities incidental thereto shall be subordinate to, and shall
not conflict with, BPA's rightful use and operation of its
transmission facilities. In the event both BPA's transmission
facilities and the Cable require maintenance or repair, the
restoration of the Cable shall be at all times subordinate to the
restoration of BPA's transmission facilities, unless otherwise
agreed to by BPA in advance. The restoration of BPA's
telecommunications system shall take priority over restoration
activities related with the Commercial Fiber. In the event that
ELI's License becomes nonexclusive pursuant to section 8, the
Commercial Fiber used by ELI shall take priority over restoration
activities related to any fibers used by any other users of the
Commercial Fiber.
(2) Any and all BPA, ELI representatives, or other users of the
Commercial Fiber that construct, install, repair, replace, or
otherwise handle the Cable, Cable Accessories, Commercial Fiber,
BPA Fiber, or any related materials and equipment shall be
properly trained and equipped to meet all current industry
standards.
15
<PAGE>
(3) A BPA representative must be onsite during all repair and
restoration work to perform functions such as safety watch,
protection of BPA's transmission facilities, and obtain line
clearances.
(4) The Party performing the repair and restoration shall use prudent
business methods to acquire the most cost-effective restoration
procedures and materials available given the Cable
Specifications, Fiber Specifications, and current industry
standards.
(5) BPA shall require all employees or agents of ELI or any other
users of the Commercial Fiber who work near BPA's transmission
facilities to demonstrate that they have been properly trained
and equipped to perform the work. The Parties shall agree in
advance what constitutes proper training and reasonable costs.
The costs of agreed upon training of ELI employees, agents of
ELI, or other users of the Commercial Fiber shall be borne by
ELI.
(6) A BPA representative shall have the authority to stop any work
activities or equipment functions for reasons that he or she
determines in good faith to involve potential health hazards,
safety concerns, and potential disruption to BPA's operating
system. BPA will make reasonable efforts to coordinate with ELI
in case of such events.
(d) RESTORATION OF THE CABLE
(1) BPA shall immediately, upon notification from ELI of interruption
in service, failure, disrepair, impairment, or other need for
repair or restoration of the Commercial Fiber, begin to mobilize
BPA crews and make its continuous best effort to achieve such
necessary repair or restoration, including making its best effort
to have maintenance personnel at the affected site within 4 hours
after receipt of such notice,
16
<PAGE>
PROVIDED, HOWEVER, subject to Section 13(c)(1), that in the event
any of ELI's rights are interrupted pursuant to Section 23(a),
repairs and restoration shall be made as expeditiously as
possible. ELI recognizes that the 4 hour response time
represents optimal conditions, and may be impossible to achieve
when responding to certain remote locations. Actual response
times will be influenced by factors such as the terrain, weather
conditions present at the time the request is made, and the
actual mileage from BPA's dispatch station to the fault site.
(2) For purposes of this section, best efforts means activities and
performance consistent with prudent utility practice, existing
contract provisions for BPA's hourly employees ("Collective
Agreement between BPA and Columbia Power Trades Council"), and
response times that do not jeopardize the health and safety of
BPA employees, agents of BPA, ELI employees, or agents of ELI.
(3) The Detailed Restoration Plan shall set forth the roles and
responsibilities of the respective Parties, and shall address
issues regarding logistical considerations, response interval
factors, communication between the Parties, sequential activity
requirements, and other related items which would impact response
time and restoration intervals. The aforementioned issues will
be taken into consideration in the determination of whether BPA
has used its best efforts in such restoration or repair
activities. The Detailed Restoration Plan will also set forth
financial penalties, if any, to be paid to ELI by BPA for failure
to use its best efforts on any repair or restoration, including
the mobilization effort as set forth above.
17
<PAGE>
14. REGENERATOR BUILDING(S)
(a) ELI shall have sole responsibility for the expense and acquisition of
any property necessary for its equipment along the Route. If space is
available at BPA substations, such space shall be provided to ELI at
BPA's "bare land" lease rate under a separate agreement.
(b) ELI shall provide and own, except as provided in section 6(d), Cable
Accessories, splice boxes, and other components necessary for the
operation of the Commercial Fiber.
(c) ELI shall have sole responsibility for obtaining electric power and
any land rights for Regenerator Building(s).
(d) ELI shall have sole responsibility for the physical maintenance and
environmental compliance associated with the Regenerator Building(s)
and the grounds around the Regenerator Building(s).
15. RIGHTS AND OBLIGATIONS CONCERNING THE CABLE
(a) GENERAL
In the event that ELI requires capacity (other than Transport
Service(s)) along the Route, BPA and ELI shall agree in writing on how
those transactions shall be valued.
ELI shall not use Commercial Fiber for commercial activities not
accounted for in this Agreement.
ELI agrees to utilize the Commercial Fiber for all ELI capacity needs,
existing or arising along the Route and between the Originating and
Terminating Markets, except for diversity needs, and subject to ELI's
18
<PAGE>
existing contractual obligations. ELI shall use its best efforts to
transition as quickly as possible from existing contractual
obligations in satisfying the requirements of the preceding sentence.
(b) PERMITS
BPA shall acquire all necessary regulatory or governmental permits and
approvals required for construction of the Cable along the Route, and
ELI shall, at its cost, cooperate and provide BPA with such
information as BPA may reasonably request from ELI in connection with
such permits and approvals. ELI shall acquire all necessary
regulatory or governmental permits and approvals necessary for ELI's
use of the Commercial Fiber for telecommunications services, including
Transport Service(s) and Dark Fiber Leases, and any permits and/or
approvals that may be required for the Regenerator Building(s). ELI
shall not rely upon BPA to acquire from any other Federal agency any
necessary regulatory or governmental permits and approvals.
When feasible, BPA shall, at its cost, cooperate and provide ELI with
such information as ELI may reasonably request from BPA in connection
with acquiring permits, easements, or additional rights-of-way for the
Regenerator Building(s); provided that ELI indemnifies and holds
harmless BPA from any future liability resulting from such actions.
(c) TAXES, MECHANIC'S LIENS, AND ENCUMBRANCES
ELI shall pay its own income taxes, as well as all franchise fees and
other fees and taxes resulting from ELI's License or use of the
Commercial Fiber. ELI shall keep the Route free and clear from all
liens and encumbrances resulting from ELI's use of the Commercial
Fiber. If ELI does not pay the foregoing taxes and fees when such
become due, and such nonpayment results in the imposition of a lien
on, or encumbrance of, the Route, then BPA shall have the right, but
not the obligation, to pay all amounts due and discharge such lien or
encumbrance, upon 30 calendar days' prior written
19
<PAGE>
notice to ELI. In the event BPA causes such liens or encumbrances to
be discharged, ELI shall reimburse BPA upon demand together with
interest thereon at the Interest Rate, accruing from the date that BPA
makes payment discharging such liens or encumbrances until the date
BPA receives full reimbursement from ELI. ELI shall have the absolute
right to dispute or challenge any tax or fee assessed on its use of
the Commercial Fiber.
(d) ACCESS ROADS
ELI may use BPA's access roads to access the Regenerator Building(s),
provided that heavy vehicles or other equipment being used on the
access road will not at any time impair the use of the access road by
BPA. Access to the roads shall be limited to the times and frequency
required for maintenance and operation of the Regenerator Building(s)
and equipment, and any repair and restoration of the Cable pursuant to
section 13. ELI shall, at ELI's expense, repair any damage to the
access roads caused as a result of ELI use of the access roads. ELI's
shall acquire access easements to the Regenerator Building(s) where
BPA access roads are not available.
(e) ENVIRONMENTAL COMPLIANCE ACTIVITIES
(1) BPA shall be responsible for compliance with the National
Environmental Policy Act (NEPA) and shall acquire all necessary
permits associated with the project operations, maintenance, and
construction of the Cable. ELI shall, at its expense, cooperate
and provide BPA with such information as it may reasonably
request in connection with such compliance and permits. The
project activities will be limited to construction and operation
of cable, hardware, Regenerator Building(s), access roads and
distribution lines if needed for Regenerator Building(s). If any
mitigation measures are required along the Route as part of the
NEPA compliance activities, these measures will be performed by
BPA at the sole cost of BPA. Contacts with the local landowners
will be performed by BPA-appointed
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representatives. Any landowner compensation required as part of
the NEPA and project activities will be made by BPA. All of the
compliance and permitting activities undertaken by BPA pursuant
to this paragraph (e) shall be at the cost and expense of BPA.
(2) BPA and ELI agree neither they nor anyone acting on their behalf
will bring, keep, or use Hazardous Materials at or on the Route
(including regenerators) except for those necessary for use in
their respective businesses, in which case they are to be
handled, stored, used, and disposed of in compliance with
applicable laws, regulations, and ordinances.
(3) BPA agrees to indemnify and hold ELI harmless from any and all
claims, damages, fines, judgments, penalties, costs, liabilities,
or losses arising from or due to the presence of Hazardous
Materials at or on the Route (including regenerators) if BPA or
its agent, contractor, employees, or invitees is responsible for
the introduction of the Hazardous Materials. This indemnity
shall specifically include, without limitation, any and all costs
due to Hazardous Materials which flow, diffuse, migrate, or
percolate into, onto or under the property, or from the property
to neighboring property or groundwater after the Agreement
commences; however, it shall not include the cost of repairing
ELI's equipment.
(4) ELI agrees to indemnify and hold BPA harmless from any and all
claims, damages, fines, judgments, penalties, costs, liabilities,
or losses arising from or due to the presence of Hazardous
Materials at or on the Route (including regenerators) if ELI or
its agent, contractor, employee, or invitees is responsible for
the introduction of the Hazardous Materials. This indemnity
shall specifically include, without limitation, any and all costs
due to Hazardous Materials which flow, diffuse, migrate, or
percolate into, onto or under the
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property, or from the property to neighboring property or
groundwater after the Agreement commences; however, it shall not
include the cost of repairing BPA's equipment.
(5) Hazardous Materials, as used herein, shall mean all materials
which have been determined to be hazardous to health or the
environment by virtue of being: (A) a hazardous waste as defined
by the Resource Conservation and Recovery Act; (B) a hazardous
substance as defined in the Comprehensive Environment,
Compensation, and Liability Act; (C) a substance regulated by the
Toxic Substances Control Act; and (D) substances regulated by the
Federal Insecticide, Fungicide, Rodenticide Act in accordance
with the applicability provisions of such Act. Reference to
specific statutes include amendments as they are made from time-
to-time, as well as the regulations promulgated thereunder.
16. RELOCATION OF THE CABLE
In the event that the Cable may require relocation or replacement during
the term of this Agreement, the cost of such relocation or replacement
shall be allocated as follows:
(a) If requested by ELI, ELI shall pay all such costs;
(b) If requested by BPA due to requirements necessary to provide
economical and reliable electric power, BPA shall pay all such costs;
(c) If the Cable must be relocated due to the order of any court,
governmental agency, or in conjunction with the operational needs of
BPA, BPA shall, in consultation with ELI, designate a new route for
the Cable. The costs associated with such required relocation that
are not paid by a third party, shall be paid by BPA. ELI shall be
responsible for any relocation
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costs associated with ELI's Regenerator Building(s), ELI-owned cable,
and ELI-owned terminal equipment.
17. REPRESENTATIONS AND WARRANTIES
(a) ELI
ELI represents and warrants to BPA as follows:
(1) ELI is a corporation duly organized and validly existing and in
good standing under the laws of the State of Delaware. ELI is
duly qualified to do business and is in good standing in the
States of Oregon and Washington. ELI covenants that it will
maintain any necessary Federal, State, or local compliance needed
to continue to do business in the States of Oregon and
Washington. ELI has full power and authority to execute,
deliver, and perform its obligations under this Agreement. The
execution of this Agreement by ELI has been duly and validly
authorized by all necessary action on the part of ELI. This
Agreement is a legal, valid, and binding obligation of ELI,
enforceable against ELI in accordance with its terms. The
execution and delivery of this Agreement by ELI and the
performance of the terms, covenants, and conditions contained
herein will not violate the articles of the corporation, or
bylaws of ELI, or any applicable law or regulation or any order
of court or arbitrator, and will not conflict with and will not
constitute a material breach of, or default under, the provisions
of any contract by which ELI is bound. Except as otherwise
stated herein, no approval, authorization, or other action by any
governmental authority or filing with any such authority which
has not been obtained or accomplished is required in connection
with the execution, delivery, and performance by ELI of this
Agreement.
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(2) Any assignment of the License of this Agreement to parties not
owned by Citizens Utilities shall be with the written consent of
BPA, such consent shall not be unreasonably withheld.
(3) There are no known actions, suits, or proceedings pending or
overtly threatened against ELI before any court or administrative
agency that would materially impair ELI's performance of its
obligations under this Agreement.
(4) ELI has made no other representations or warranties outside of
this Agreement and BPA acknowledges and agrees that it is not
relying on any other representations or warranties.
(b) BPA
BPA represents and warrants to ELI as follows:
(1) BPA is duly authorized to execute this Agreement. This Agreement
constitutes a legal and valid obligation of BPA enforceable in
accordance with its terms to the full extent provided by law.
The enforceability of this Agreement is qualified as to:
Limitations imposed by bankruptcy laws of the United States,
insolvency, reorganization, arrangement, moratorium, or other
laws relating to or affecting the enforcement of creditor's
rights generally.
(2) Upon execution of this Agreement, BPA warrants that there are no
known conflicts with this Agreement and that this Agreement does
not constitute a material breach of or a default under any
constitutional provision, law, or administrative regulation, or
violate any judgment, decree, or other instrument, or any other
contract related to the Route to which BPA is a Party or to which
BPA or any of its property or assets is subject.
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(3) BPA has made no other representations or warranties outside of
this Agreement and ELI acknowledges and agrees that it is not
relying on any other representations or warranties.
(c) NO BPA WARRANTY CONCERNING ROUTE
BPA makes no representation or warranty whatsoever concerning the
physical characteristics of the Route. ELI acknowledges that neither
BPA nor any of BPA's officers, employees, representatives,
contractors, or subcontractors or agents have made any such
representation, nor is BPA or ELI entering into this Agreement in
reliance upon any such representation or warranty.
18. AUDIT PROCEDURES
(a) RECORDS
The Parties shall maintain true and correct sets of records in
connection with the performance of this Agreement. ELI shall retain
records of all transactions with supporting documentation related
thereto for a period of not less than 3 years after the term of a
specific transaction has expired and receipt of final payment by ELI
to BPA. The records in connection with each financial transaction
shall include an accounting of gross revenues, revenue shares, and
billing and collection.
(b) AUDIT RIGHTS
Either Party shall have the right to perform an audit of each other's
books, records, and documents used in or relating to the costs to
construct, repair, and maintain the site and improvements under this
Agreement. Such audit may be performed within 36 months after the
date that either Party renders a bill or refund voucher. Each Party
shall be responsible for all expenses incurred by such Party in the
performance of an audit pursuant to this section. In the event that
the Parties agree that the Auditing Party's audit is
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determined to be correct, the Non-Auditing Party shall reimburse the
Auditing Party the agreed upon amount. In the event that the Non-
Auditing Party disagrees with the results of the other Party's audit,
and resolution is not reached between the Parties, the Parties agree
to resolve the dispute pursuant to Section 23 of this Agreement.
(c) BPA reserves the right to conduct technical audits, including physical
inspection of the number, type, and use of circuits, including
Transport Service(s) sold, used, and administered by ELI using the
Commercial Fiber.
19. INSURANCE
(a) GENERAL
At all times during the term of this Agreement and the License term,
ELI, at its own cost and expense, shall provide the insurance
specified by this section.
(b) EVIDENCE REQUIRED
On the Effective Date of this Agreement, ELI shall provide BPA with a
certificate of insurance (Certificate of Insurance) executed by an
authorized representative of the insurer(s) evidencing that ELI
insurance complies with this section. A copy of all required
endorsements shall be attached to and form a part of the Certificate
of Insurance.
(c) NOTICE OF CANCELLATION, REDUCTION, OR MATERIAL CHANGE IN COVERAGE
Policies shall be endorsed to provide BPA with 30 calendar days' prior
written notice of any cancellation, reduction, or material change in
coverage. If insurance coverage is due to be canceled, reduced, or
materially changed, ELI shall, within 30 calendar days before the
effective date of such cancellation, reduction, or material change,
obtain the coverage required under this Section 19 and provide to BPA
documentation evidencing such coverage. ELI shall be responsible for
the costs of any damage, liability, or
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injury occurring during any period of cancellation, reduction, or
material change in insurance coverage to the extent such costs are not
otherwise covered by insurance; provided that ELI shall not be
responsible for the costs of any damage, liability, or injury
occurring during any such period if such damage, liability, or injury
was caused by BPA's gross negligence or willful misconduct.
(d) QUALIFYING INSURERS
Policies shall be issued by companies which hold a current
policyholders alphabetic and financial size category rating of not
less than A:X according to Best's Insurance Reports.
(e) INSURANCE REQUIRED
(1) LIABILITY
Commercial general liability insurance for bodily injury
(including death) and property damage shall provide limits of not
less than $10 million per occurrence.
(A) Coverage included shall be:
(i) premises and operations;
(ii) broad form property damage;
(iii) products and completed operations;
(iv) blanket contractual liability;
(v) personal injury liability;
(vi) cross-liability and severability of interests;
and
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(vii) independent contractors liability.
(B) Coverage shall be endorsed to include the following:
(i) inclusion of BPA, its officers, representatives,
agents, and employees as an additional insured as
respects services or operations in connection
with this Agreement; and
(ii) stipulation that the insurance is primary
insurance and that no insurance or self-insurance
of BPA will be called upon to contribute to a
loss.
(2) BUSINESS AUTOMOBILE LIABILITY INSURANCE
Business Automobile Liability Insurance for bodily injury
(including death) and property damage shall provide total limits
of not less than $2 million combined single limit per occurrence
to all owned, non-owned, and hired vehicles.
(3) WORKERS' COMPENSATION/EMPLOYER'S LIABILITY INSURANCE
Statutory Workers' Compensation and Employer's Liability
Insurance for not less than $1 million per occurrence shall apply
to employer's liability coverage for all employees engaged in
services or operations under this Agreement. The policy shall
include broad form all-States/other States coverage.
(f) SPECIAL PROVISIONS
(1) The foregoing requirements as to the types and limits of
insurance coverage to be maintained by ELI, and any approval of
said insurance by BPA or ELI, are not intended to and shall not
in any manner limit
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or qualify the liabilities and obligations otherwise assumed by
ELI pursuant to this Agreement, including, but not limited to,
the provisions concerning indemnification.
(2) BPA acknowledges that some insurance requirements contained in
this Section 19 may be fulfilled by a funded self-insurance
program of ELI or its parent company, Citizens Utilities.
However, this shall not in any way limit liabilities assumed by
ELI under this Agreement. Any self-insurance program must be
first approved in writing by BPA.
20. DEFAULT
(a) EVENTS OF DEFAULT
If either Party is in material breach or default (Defaulting Party),
under this Agreement, the other Party (Non-Defaulting Party) may
notify in writing the Defaulting Party that it is in material breach
or default, such notice to be effective upon its receipt by the
Defaulting Party. Material breach or default under this Agreement
shall include, but is not limited to the following:
(1) failure to make any payment when due hereunder; with the
exception of payments that become payable during periods of Force
Majeure as provided in Section 24(a)(2).
(2) failure to perform any obligations required to be observed or
performed hereunder;
(3) any representation or warranty made by one Party to the other
herein proving incorrect in any material respect as of the date
of the making thereof;
(4) ELI files a voluntary petition in bankruptcy, or a petition in
bankruptcy is filed against ELI and not dismissed within 60 days,
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or ELI is adjudicated as bankrupt or insolvent, or files any
petition or answer seeking or acquiescing in any reorganization,
arrangement, composition, readjustment, liquidation, dissolution,
or similar relief under any present or future Federal, State, or
other statute, law, or regulation relating to bankruptcy,
insolvency, or other relief for debtors, or seeks or consents to
or acquiesces in the appointment of any trustee, receiver,
custodian, liquidator, or similar official of ELI, or makes any
general assignment for the benefit of creditors;
(5) material interference by a Party to the other Party's operations;
or
(6) failure to make restitution for any damage to a Party's real
property or equipment caused as a result of the negligent or
willful acts or omissions of the other Party when such damage
causes material interference to a Party's operations.
(b) REMEDIES
(1) DEFAULTING PARTY'S RIGHT TO CURE
The Defaulting Party shall have the right to cure any material
breach or default under this Agreement within 30 calendar days
after the receipt by the Defaulting Party of notification of such
material breach or default. In the case of any material breach
or default which may not reasonably be cured within 30 calendar
days, other than in the case of a breach of Section 20(a)(1), the
Defaulting Party shall have the right to provide the Non-
Defaulting Party with a plan for the appropriate actions to cure
such material breach or default, which plan shall be subject to
the approval of the Non-Defaulting Party, which approval shall
not be unreasonably withheld. Within 30 calendar days of
submission of the plan, the Defaulting Party must commence
diligently pursuing appropriate action under the plan to cure the
material breach or default, and unless otherwise agreed to by
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the Parties, such material breach or default shall be cured
within 90 calendar days of submission of the plan, failing which
the Non-Defaulting Party may forthwith and without further notice
terminate this Agreement.
(2) RIGHTS AND REMEDIES UPON TERMINATION
Any Party terminating this Agreement under Section 21 shall have
the additional right to cure any material breach or default of
the Defaulting Party to preserve the Non-Defaulting Party's
rights that may be prejudiced as a result of such material breach
or default and exercise and pursue all other rights and remedies
available to it under applicable law.
(3) RIGHTS AND REMEDIES CUMULATIVE
Except as otherwise provided in this Agreement, any right or
remedy afforded to either ELI or BPA under any provision of this
Agreement is in addition to, and not in lieu of, all rights or
remedies afforded either ELI or BPA under any other provision of
this Agreement, by law or otherwise.
21. TERMINATION
(a) Termination of this Agreement may occur in the following instances:
(1) By the Non-Defaulting Party, after the time period for the
Defaulting Party to cure a material breach or default has
expired;
(2) By either Party, if the Party claiming Force Majeure has not
satisfactorily performed any obligations delayed due to the Force
Majeure within 1 year of the notice of the Force Majeure event;
or
(3) Pursuant to Partial Invalidity terms, Section 24(d) of this
Agreement.
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(b) Subject to Section 20(b), the Terminating Party shall give the other
Party 30 calendar days advance written notice of Termination, which
Termination shall become effective 30 calendar days after the receipt
of such notice by the other Party.
22. INDEMNIFICATION; WAIVER OF DAMAGES
(a) INDEMNIFICATION BY ELI
(1) To the extent allowed by law, ELI shall release and indemnify,
defend, and hold harmless BPA and each of its directors,
officers, agents, representatives, subcontractors, and employees
(the "BPA Indemnitees") from and against any and all claims: (A)
for injury to or death of a person, including an employee of BPA
or an ELI Indemnity; (B) for loss of or damage to property
resulting directly or indirectly from ELI's performance or
nonperformance of this Agreement; or (C) for any Claims against
BPA by customers of ELI or others doing business with ELI, except
in the cases of clauses (A) and (B) only, to the extent that such
Claim is the result of the gross negligence or willful misconduct
of a BPA Indemnity.
(2) If gross negligence or willful misconduct of a BPA Indemnity has
contributed to a Claim, ELI shall not be obligated to indemnify
the BPA Indemnitees for the proportionate share of such Claims
caused by such negligence or willful misconduct. BPA shall have
the right, at its own cost, to retain counsel, and to monitor, or
participate in the defense of any Claim that is covered by ELI's
indemnity hereunder.
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(b) INDEMNIFICATION BY BPA
(1) To the extent allowed under the Federal Tort Claims Act, BPA
shall release and indemnify, defend, and hold harmless ELI and
each of its directors, officers, agents, representatives,
subcontractors, and employees (the "ELI Indemnitees") from and
against any and all claims for injury to or death of a person,
including an employee of BPA or an ELI Indemnity, or for loss of
or damage to property resulting directly or indirectly from BPA's
performance or nonperformance of this Agreement, except to the
extent that such claim is the result of the gross negligence or
willful misconduct of a, ELI Indemnity. In no event shall BPA be
required to indemnify ELI Indemnities against claims against ELI
by customers of ELI or others doing business with ELI.
(2) If gross negligence or willful misconduct of an ELI Indemnity has
contributed to a claim, BPA shall not be obligated to indemnify
the ELI Indemnitees for the proportionate share of such claims
caused by such negligence or willful misconduct. ELI shall have
the right, at its own cost, to retain counsel, to monitor, or
participate in the defense of any claim that is covered by BPA's
indemnity hereunder.
(c) WAIVER OF CERTAIN DAMAGES
Each Party hereby waives any right to consequential, incidental,
special or indirect damages, or damages for lost profits or exemplary
damages with respect to any claim arising out of or related to this
Agreement. The Parties acknowledge that the foregoing waiver shall
not prejudice the right of indemnity respecting any claim under this
Section 22.
23. DISPUTE RESOLUTION
(a) Pending resolution of a disputed matter, the Parties shall continue
performance of their respective obligations hereunder, provided that
neither Party shall be required to take any action pending such
resolution which it has been advised by
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counsel, or which it reasonably believes, is unlawful or not permitted
pursuant to applicable regulations or permit requirements. Any
controversy between the Parties rising out of this Agreement or breach
thereof, or out of performance under this Agreement, is subject to the
mediation process described below. If not resolved by mediation, then
the matter must be submitted to the American Arbitration Association
("AAA") for arbitration before a sole arbitrator.
(b) A meeting will be held promptly between the Parties to attempt in good
faith to negotiate a resolution of the dispute. The meeting will be
attended by individuals with decision-making authority regarding the
dispute. If within 30 calendar days after such meeting the Parties
have not succeeded in resolving the dispute, within 30 calendar days
thereafter, upon the written notice from either Party to the other
Party, submit the dispute to a mutually acceptable third-party
mediator who is acquainted with dispute resolution methods. The
mediation shall be non-binding. If the dispute is not resolved by
mediation, either Party may initiate an arbitration with the AAA, upon
the written notice from either Party to the other Party. The dispute
shall be resolved by arbitration under the rules and administration of
the AAA (except that service of process, pleadings, motions and orders
on BPA shall be as prescribed by the Federal Rules of Civil
Procedures), and judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof. Neither
Party is entitled to seek or recover punitive damages in considering
or fixing any award under these proceedings.
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(c) The costs of mediation and arbitration, including any mediator's fees,
AAA administration fee, the arbitrators fee, and costs for the use of
facilities during the hearings, shall be borne equally by the Parties.
Reasonable attorneys' fees may be awarded to the prevailing Party
(provided such a Party can clearly be determined from the proceedings)
at the discretion of the arbitrator. Each Party's other costs and
expenses will be borne by the Party incurring them.
24. GENERAL
(a) FORCE MAJEURE
(1) As used in this Agreement, the term "Force Majeure" means acts of
God (including but not limited to, earthquakes, fires, floods,
windstorms, landslides, and ice storms); strikes, lockouts, or
other labor disputes; acts of public enemy; wars, riots, and
insurrection; epidemics; civil disturbances; explosions; train
derailments; breakdown or failure of machinery or facilities
(excluding the Cable and Cable Accessories); accidents to
machinery or equipment (excluding the Cable and Cable
Accessories), and delay in delivery of equipment to the extent
such occurrences are beyond the reasonable control of the
Parties; electrical disturbance originating in or transmitted
through such Party's electrical system or equipment or any
electrical system with which such Party's system or equipment is
interconnected; and any other event, cause, or condition beyond
the Party's reasonable control, which, by the exercise of
reasonable diligence, prevents the operation of the Cable and
prevents the Party claiming Force Majeure from performing its
obligations under this Agreement;
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(2) If either Party is unable to carry out its obligations under this
Agreement as a result of an event, cause, or condition of Force
Majeure, the Party claiming Force Majeure shall give notice and
full particulars of such Force Majeure in writing to the other
Party within 5 calendar days after the occurrence of the Force
Majeure event, cause, or condition. Any obligations that such
Party claims it is unable to perform due to an event, cause, or
condition of Force Majeure shall be suspended during the
continuance of such event of Force Majeure. The Party claiming
Force Majeure shall use reasonable efforts to remedy and minimize
the effects of such event of Force Majeure with all reasonable
dispatch. For purposes of this Agreement, the Parties are
obligated to make payments during periods of Force Majeure;
PROVIDED, HOWEVER, ELI shall not be obligated to make payments
during periods of Force Majeure when ELI is unable to provide
service under the terms of the agreement with ELI's customers.
Interest shall not accrue on payments that become payable to
either Party during the period of any Force Majeure.
(3) Neither Party shall be liable under this Agreement, or considered
to be in material breach or default under this Agreement, on
account of any delay in or failure of performance due to Force
Majeure unless specifically stated in this Agreement. In the
event that ELI continues to receive revenue from End-Users under
this Agreement during a Force Majeure event, ELI will not be
excused from performing its payment under this Agreement.
(b) NOTICES
All notices and other communications under this Agreement shall be
properly given only if made in writing; and
(1) mailed by certified mail, return receipt requested, postage
prepaid; or
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(2) delivered by facsimile transmission followed by certified mail to
the Party's at the address or facsimile number set forth in this
Section 24(b) or such other address or facsimile number as such
Party may designate by notice to the other Party. Such notices
and other communications shall be effective on the date of
receipt. If any such notice or communication is not received or
cannot be delivered due to a change in the address of the
receiving Party of which notice was not previously given to the
sending Party or due to a refusal to accept by the receiving
Party, such notice or other communication shall be effective on
the date delivery is attempted.
If to BPA: The BPA Power Administration
P.O. Box 3621
Portland, OR 97208-3621
Attn: To be identified under separate letter
with a copy to: The BPA Power Administration
P.O. Box 3621
Portland, OR 97208-3621
Attn: To be identified under separate letter
If to ELI: Electric Lightwave, Inc.
8100 NE. Parkway Drive, Suite 150
Vancouver, WA
Attn: Legal Affairs
Phone: (360) 892- 1000
FAX: (360) 253-4425
(c) ASSIGNMENT
ELI shall not sell, assign, lease, sublease, sub-license or otherwise
allow use of ELI's License under this Agreement to any person or
entity without BPA's written approval; which approval shall not be
unreasonably withheld. Notwithstanding the foregoing, ELI may assign
in writing its rights and responsibilities under this Agreement to a
corporate parent, subsidiary, or commonly owned affiliate, upon
written notification to BPA, and a guarantee by its parent company,
Citizens Utilities, to perform the obligation of ELI
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under this Agreement. Any permitted assignment or other transfer of
rights hereunder shall be in writing and shall specify that the
assignee or other transferee is bound by the terms and conditions of
this Agreement to the same extent as if it were the original named
party instead of ELI hereunder. In the event that ELI sells, assigns,
leases, subleases, or otherwise allows use of ELI's License under this
Agreement, ELI or its assigned entity shall designate a single point-
of-contact to BPA for all activities relating to this Agreement. A
sale, transfer, or distribution (by way of a dividend or otherwise) in
one or a series of transactions of 50 percent or more of the capital
stock of the entity that holds the License shall be deemed to be an
assignment of the License.
(d) PARTIAL INVALIDITY
If any provision of this Agreement is determined by a proper court to
be invalid, illegal, or unenforceable, such invalidity, illegality, or
unenforceability shall not affect the performance of other provisions
of this Agreement, and this Agreement shall remain in full force and
effect without such invalid, illegal, or unenforceable provision;
provided that if any such invalid, illegal, or unenforceable provision
results in frustration of this Agreement, such that ELI cannot perform
under Section 13, BPA shall have the right to terminate in accordance
with Section 2 1.
(e) GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
Federal law.
(f) TERMS GENERALLY
The defined terms in this Agreement shall apply equally to both the
singular and the plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding
masculine, feminine, and neuter forms. The term "person" includes
individuals, corporations, partnerships, trusts, other legal entities,
organizations and associations, and
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any Government or governmental agency or authority. The words
"include," "includes," and "including," shall be deemed to be followed
by the phrase "without limitation." The words "approval," "consent,"
and "notice," shall be deemed to be preceded by the word "written."
(g) RELATIONSHIP OF THE PARTIES
Nothing in this Agreement is intended or shall be deemed to constitute
a partnership, agency, or joint venture relationship between or among
the Parties hereto. The performance by the Parties of all duties and
obligations hereunder shall be as independent contractors and not as
agents of the other Party, and no persons employed or utilized by a
performing Party shall be considered employees or agents of the other.
(h) WAIVERS
No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the waiving
Party and any such waiver shall not be deemed a waiver of any other
provision of this Agreement or any other breach of this Agreement.
(i) CONFIDENTIALITY
If and to the extent any information or documents furnished by one
Party to the other under this Agreement is confidential or proprietary
to the furnishing Party, the receiving Party shall treat such
information or documents as confidential and proprietary and shall
take reasonable steps to protect against the unauthorized use or
disclosure of such information or documents; PROVIDED, HOWEVER, that
such information and documents are conspicuously marked or otherwise
clearly identified as confidential or proprietary when furnished; and
PROVIDED, FURTHER, that this Section 24(g) shall not apply to
information or documents in the public domain or to information or
documents required to be disclosed by any law, rule, regulation,
order, or other requirement of any governmental authority having
jurisdiction. If a Freedom of Information Act, or Congressional
request is received by BPA for such written information or documents,
BPA must promptly
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notify ELI of such request and will, further, notify ELI if BPA is
required to disclose such written information or documents.
(j) NO THIRD-PARTY BENEFICIARIES
This Agreement creates rights and obligations only between the Parties
hereto. The Parties hereto expressly do not intend to create any
obligations or promise of performance to any other third person or
entity nor have the Parties conferred any rights or remedy upon any
third person or entity, other
40
<PAGE>
than the Parties hereto, their respective successor or assigns to
enforce this Agreement.
(k) MISCELLANEOUS
Neither Party shall make public announcement of this Agreement or the
transactions contemplated by this Agreement without the prior consent
of the other Party, unless such public announcement is necessary to
comply with applicable law. This Agreement shall benefit and bind ELI
and BPA and their respective permitted successors and assigns. Time
is of the essence of this Agreement. This Agreement may be executed
in counterparts, each of which shall be an original, but all of which
shall constitute one and the same Agreement. This Agreement may not
be amended or modified except by a written instrument signed by ELI
and BPA.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in two
counterparts.
UNITED STATES OF AMERICA
Department of Energy
BPA Power Administration
Name: /s/ George E. Bell
----------------------------------
Acting Senior Vice President,
Transmission Business Line
Date: November 27, 1996
---------------------
ACCEPTED:
ELECTRIC LIGHTWAVE, INC.
By: /s/ Michael Miller
--------------------------
Name: Michael Miller
------------------------
(Print/Type): VP Finance
----------------
Title: VP Finance
------------------------
Date: 11/27/96
-------------------------
41
<PAGE>
Exhibit A, Page 1 of 6
Contract No. 97TX-10014
ELI Telecommunications Corporation
Effective on the Effective Date
ROUTE DESCRIPTION
The following Route description is a best estimate of how the Route will be laid
out. Difficulties may arise along the Route that will require BPA to make
adjustments that could alter the final Route.
ROSS - FRANKLIN FIBER ROUTE SEGMENT
ROSS SUBSTATION TO NORTH BONNEVILLE SUBSTATION - 36.0 MILES
Dittmer Control Center
North Bonneville - Ross No. 2
AFV 187 (37/2) To AFX.1 (1/1)
Hanford Ostrander No. 1
FY 703 (151/5)
Fiber Optic Wood Pole
AMV 4 (1/1A)
Substation Dead End Structure
Bay 11, 230 kV Switchyard
North Bonneville Substation
NORTH BONNEVILLE SUBSTATION TO BIG EDDY SUBSTATION - 50.2 MILES
Substation Dead End Structure
Bay 13, 230 kV Switchyard
North Bonneville Substation
North Bonneville - Midway No. 1
AS 1 (1/1) To HB 152 (29/2)
Fiber Optic Wood Pole Parallel To McNary - Ross No. 1
AMV 5 (116/3) To AMV 88 (97/4A)
Spearfish Tap To Chenoweth - Goldendale No. 1
4/3 To 1/1
Fiber Optic Wood Pole
AMV 89 (2/4A) To AMV 90 (2/4B)
Big Eddy Midway No. 1
AN 5 (2/3) To AN 2 (1/2)
The Dalles Powerhouse - Big Eddy Switchyard Line No. 1
EN 3 (1/3) To EN 4 (1/4)
Substation Dead End Structure
Bay 10, 115 kV Switchyard
Big Eddy Substation
42
<PAGE>
Exhibit A, Page 2 of 6
Contract No. 97TX-10014
ELI Telecommunications Corporation
Effective on the Effective Date
BIG EDDY SUBSTATION TO JOHN DAY SUBSTATION - 18.9 MILES
Substation Dead End Structure
Bay 35. 230 kV Switchyard
Big Eddy Substation
Fiber Optic Wood Pole
AMV 130 (1/1) To AMV 131 (1/2)
Substation Dead End Structure
Bay 9E, 500 kV Switchyard
Big Eddy Substation
John Day Big Eddy No. 2
BG 79 (19/4) To BG 1 (1/1)
Substation Dead End Structure
Bay 11W, 500 kV Switchyard
John Day Substation
JOHN DAY SUBSTATION TO SLATT SUBSTATION - 30.3 MILES
Substation Dead End Structure
Bay 6E, 500 kV Switchyard
John Day Substation
Slatt John Day No. 1
CD 658 (31/1) To CD 521A (1/1)
Fiber Optic Wood Pole
AMV 92 (46/1A)
Slatt Substation
SLATT SUBSTATION TO MCNARY SUBSTATION - 45.5 MILES
Fiber Optic Wood Pole
AMV 92 (46/1A)
Slatt Substation
McNary Slatt No. 1
CD 520A (46/1) To CD 394 (19/5)
Fiber Optic Wood Pole
AAM 94 (19/4A) To AMV 96 (19/4C)
McNary Slatt No. 1
CD 393 (19/3) To CD 312 (2/2)
Fiber Optic Wood Pole
AMV 98 (2/1A)
McNary Roundup No. 1
TL 9 (2/8) To TL 1 (1/1)
Substation Dead End Structure
Bay 10, 230 kV Switchyard
McNary Substation
43
<PAGE>
Exhibit A, Page 3 of 6
Contract No. 97TX-10014
ELI Telecommunications Corporation
Effective on the Effective Date
MCNARY SUBSTATION TO FRANKLIN SUBSTATION - 26.5 MILES
Substation Dead End Structure
Bay 2, 69 kV Switchyard
McNary Substation
Fiber Optic Wood Pole
AMV 99 (1/7A) To AMV 100 (1/7B)
McNary Franklin No. 2
SN 7 (1/7) To SN 149R (20/8)
Fiber Optic Wood Pole Parallel To McNary - Franklin No. 2
AMV 101 (21/1) To AMV 119 (24/5)
McNary Franklin No. 2
Sh 4 (24/6) To ABH 1 (27/7)
Substation Dead End Structure
Bay 5, 230 kV Switchyard
Franklin Substation
FRANKLIN - BELL FIBER ROUTE SEGMENT
FRANKLIN SUBSTATION TO BENTON SUBSTATION - 21.0 MILES
Substation Dead End Structure
Bay 9, 115 kV Switchyard
Franklin Substation
Benton Franklin No. 1
UH 150 (21/13) To UH 1 (1/1)
Substation Dead End Structure
Bay 5, 115 kV Switchyard
Benton Substation
BENTON SUBSTATION TO ASHE SUBSTATION - 3.9 MILES
Substation Dead End Structure
Bay 19, 230 kV Switchyard
Benton Substation
Midway Benton No. 2
AFA 143 (29/6) To AFA 130 (27/4)
Lower Monumental - Ashe No. 1
ACF 183 (39/2) To ACF 191 (40/5)
Substation Dead End Structure
Bay 8, 500 kV Switchyard
Ashe Substation
44
<PAGE>
Exhibit A, Page 4 of 6
Contract No. 97TX-10014
ELI Telecommunications Corporation
Effective on the Effective Date
ASHE SUBSTATION TO HANFORD SUBSTATION - 19.6 MILES
Midway Benton No. 2
AFA 130 (27/4) To AFA 74 (15/3)
Ashe Hanford No. 1
AAV 54 (11/3) To CA 261 (18/4)
Substation Dead End Structure
Bay 4, 500 kV Switchyard
Hanford Substation
HANFORD SUBSTATION TO MIDWAY SUBSTATION - 14.3 MILES
Midway Benton No. 2
AFA 74 (15/3) To AFA 10 (2/3)
Midway Benton No. 1
TV 11 (2/3) To TV 1 (1/1)
Substation Dead End Structure
Bay 7, 115 kV Switchyard
Midway Substation
MIDWAY SUBSTATION TO MOXEE SUBSTATION - 34.0 MILES
Substation Dead End Structure
Bay 4, 115 kV Switchyard
Midway Substation
Midway Moxee No. 1
YC 1A (1/1) To YC 222 (34/8)
Substation Dead End Structure
Bay 4, 115 kV Switchyard
Moxee Substation
MOXEE SUBSTATION TO SCHULTZ SUBSTATION - 40.0 MILES
Substation Dead End Structure
Bay 9, 115 kV Switchyard
Moxee Substation
Columbia Moxee No. 1
YD 1 (66/10) To FF 388A (26/5)
Substation Dead End Structure
Bay 5W (26/4), 500 kV Switchyard
Schultz Substation
45
<PAGE>
Exhibit A, Page 5 of 6
Contract No. 97TX-10014
ELI Telecommunications Corporation
Effective on the Effective Date
SCHULTZ SUBSTATION TO COLUMBIA SUBSTATION - 26.0 MILES
Substation Dead End Structure
Bay 5E (26/3), 500 kV Switchyard
Schultz Substation
Columbia Moxee No. 1
FF 389A (26/2) To FF 442 (19/1)
Olympia Grand Coulee No. 1
AF 664 (137/5) To AF 736 (155/3)
Substation Dead End Structure
Bay 17, 230 kV Switchyard
Columbia Substation
COLUMBIA SUBSTATION TO VALHALLA SUBSTATION - 5.4 MILES
Substation Dead End Structure
Bay 5, 230 kV Switchyard
Columbia Substation
Rocky Reach - Columbia No. 1
AC 98 (21/3) To AC 79 (17/3)
Columbia Valhalla No. 1
NJ 34 (4/9) To NJ 47 (5/12)
Substation Dead End Structure
Bay 5, 115 kV Switchyard
Valhalla Substation
VALHALLA SUBSTATION TO SICKLER SUBSTATION - 16.7 MILES
Rocky Reach - Columbia No. 1
AC 79 (17/3) To AC 7 (2/2)
Sickler Schultz No. 1
DL 14 (2/1) To DL, 10 (1/1)
Substation Dead End Structure
Bay 3, 500 kV Switchyard
Sickler Substation
46
<PAGE>
Exhibit A, Page 6 of 6
Contract No. 97TX-10014
ELI Telecommunications Corporation
Effective on the Effective Date
SICKLER SUBSTATION TO CHIEF JOSEPH SUBSTATION - 44.6 MILES
Substation Dead End Structure
Bay 4, 500 kV Switchyard
Sickler Substation
Chief Joseph - Sickler No. 1
GU 221 (45/6) To GU 10 (2/3)
Grand Coulee - Chief Joseph No. 1
FB 257 (33/1) To FB 261 (33/5)
Substation Dead End Structure
Bay 10, 230 kV Switchyard
Chief Joseph Substation
CHIEF JOSEPH SUBSTATION TO GRAND COULEE SUBSTATION - 31.7 MILES
Grand Coulee - Chief Joseph No. 1
FB 257 (33/1) To FB 1R (1/1)
Substation Dead End Structure
Bay Y25, 230 kV Switchyard
Grand Coulee Substation
GRAND COULEE SUBSTATION TO MONROE CONTROL CENTER - 82.9 MILES
Substation Dead End Structure
Bay Y19, 230 kV Switchyard
Grand Coulee Substation
Grand Coulee - Bell No. 5
AH 14R (1/1) To AH 413 (82/4)
Grand Coulee Bell
ZC 717 (82/8) To ZC 729 (84/2)
Monroe Control Center
47
<PAGE>
Exhibit B, Page 1 of 4
Contract No. 97TX-10014
ELI Telecommunications Corporation
Effective on the Effective Date
PAYMENT SPECIFICATIONS
ELI's MONTHLY PAYMENT to BPA will equal GRV multiplied by the Payment Factor.
The PAYMENT FACTOR equals forty-six percent (46%) until ELI's accumulative
monthly payments to BPA exceed BPA Capital Costs, after which the Payment Factor
will equal [*] for the remainder of the contract.
The GRV will be determined using the following formula:
GRV = ELITSV + EUTRSV + DFLV + OSV
Where:
GRV = GROSS REVENUE VALUE
ELITSV = ELI TRANSPORT SERVICE VALUE(S)
EUTSV = END-USER TRANSPORT SERVICE VALUE(S)
DFLV = DARK FIBER LEASE VALUE(S)
OSV = OTHER SERVICE VALUE(S)
- ----------
* Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
48
<PAGE>
Exhibit B, Page 2 of 4
Contract No. 97TX-10014
ELI Telecommunications Corporation
Effective on the Effective Date
SAMPLES OF REPORTING SUMMARY
AND ANNUAL REVENUE SPLIT
The samples below are not based on actual data generated, but to be used for
sample purposes only. The Annual Revenue Split, shown on page two of this
Exhibit, demonstrates how the payment calculation is to be applied to a given
GRV, and the Summary Report specifies the information and format ELI shall use
for reporting information to BPA.
49
<PAGE>
Exhibit B, Page 3 of 4
Contract No. 97TX-10014
ELI Telecommunications Corporation
Effective on the Effective Date
51
ELECTRIC LIGHTWAVE, INC.
BPA PORTLAND . SPOKANE
ECONOMIC ANALYSIS [*]
<TABLE>
<CAPTION>
WHOLESALE LONGHAUL REVENUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total
</TABLE>
Revenue Growth yrs 11-15 [*]
Revenue:
Portland to Tri Cities[*]
Portland to Spokane[*]
Portland to Yakima[*]
Spokane to Yakima[*]
Spokane to Tri Cities[*]
Yakima to Tri Cities[*]
Seattle to Spokane[*]
Seattle to Yakima[*]
Seattle to Tri-Cities[*]
Dark Fiber Lease[*]
Total Revenue[*]
BPA Share of Revenue[*]
- --------------------
BPA CAPITAL INVESTMENT[*]
- ----------------------
Backbone:
Number of Miles[*]
Outside Plant[*]
Joint Venture Share[*]
CASH FLOWS
- ----------
BPA
- ---
Capital Expenses[*]
BPA Revenue Sharing[*]
Total[*]
Internal Rate of Return[*]
NPV[*]
- ----------
* Confidential Material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
50
<PAGE>
Exhibit B, Page 4 of 4
Contract No. 97TX-10014
ELI Telecommunications Corporation
Effective on the Effective Date
TABLE X
MONTH 6
ACCOUNT SUMMARY
ACCOUNT VALUES FOR
NAME START DATE SERVICE TYPE UNIT PRICE # OF UNITS THE MONTH
ELI 12-97 DS3 $3,000 8 $24,000
ELI 1-98 DS3 $3,000 1 $3,500
ELI 2-98 DS3 $3,700 1 $3,500
ELI 3-98 DS3 $3,300 6 $19,800
ELI 6-98 DS3 $3,200 1 $3,200
A 1-98 DS1 $1,020 2 $2,040
A 12-97 DS3 $3,100 1 $3,100
B dark fiber $50 6* $60,000
C dark fiber $43 4* $34,400
D 4-98 OC3 $100,000 1 $100,000
D 1-98 DS1 $1,020 1 $1,020
D 2-98 DS3 $3,200 1 $3,200
E dark fiber $51 4* $41,000
F 4-98 DS1 $940 5 $4,700
MONTHLY GRV: $303,660
* @ 200 miles per fiber
51
<PAGE>
Exhibit C, Page 1 of 1
Contract No. 97TX-10014
ELI Telecommunications Corporation
Effective on the Effective Date
MILESTONE SCHEDULE
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
4, 1996 Qtr 1, 1997 Qtr 2, 1997 Qtr 3, 1997 Qtr 4, 1997 Qtr 1, 1
ID Task Name Durat Start Finish Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
1 Franklin- 272 11/15/9 12/1/9 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Bell
2
3 Design 163 11/15/9 7/1/9 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
4
5 Order cable 87 12/16/9 4/15/9 XXXXXXXXXXXXXXXXXXXXXXXX
& hardware
6
7 Cable 120 8/1/9 8/1/9 XXXXXXXXXXXXXXXXXXXXXXXXXXX
delivery
8
9 Schedule Od 7/15/9 7/15/9
review
10
11 Instal- 196 3/3/9 12/1/9 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
lation
contract
</TABLE>
52
<PAGE>
Exhibit D, Page 1 of 1 Contract No. 97TX-
10014 ELI Telecommunications Corporation
Effective on the Effective Date
COMMERCIAL FIBER SPECIFICATIONS
BPA shall provide specifications for the Commercial Fiber no later than 30 days
following the execution of this Agreement.
The specifications provided shall meet or exceed current Corning optical fiber
specifications.
53
<PAGE>
================================================================================
EXHIBIT 10.3
CONTRACT NO. 97TX-10072
LICENSE AGREEMENT
EXECUTED BY THE
UNITED STATES OF AMERICA
DEPARTMENT OF ENERGY
ACTING BY AND THROUGH THE
BONNEVILLE POWER ADMINISTRATION
AND
ELECTRIC LIGHTWAVE, INC.
[Asterisks herein denote confidential material which has been omitted pursuant
to a request for confidential treatment. Such material has been filed
separately with the Securities and Exchange Commission.]
================================================================================
Contract No. 97TX-10072
<PAGE>
Index to Sections
- --------------------------------------------------------------------------------
Section Page
1. DEFINITIONS........................................ 2
2. TERM............................................... 6
3. EXHIBITS........................................... 7
4. AMENDMENTS......................................... 7
5. MILESTONE SCHEDULE................................. 7
6. OWNERSHIP.......................................... 7
7. LICENSE............................................ 7
8. PERFORMANCE CRITERIA............................... 8
9. ELI CAPITAL SPENDING............................... 10
10. BUSINESS PLAN...................................... 10
11. MARKET PRICE ASSESSMENT............................ 11
12. PAYMENT............................................ 12
13. MAINTENANCE, REPAIR, AND RESTORATION OF THE CABLE.. 13
14. REGENERATOR BUILDING(S)............................ 16
15. RIGHTS AND OBLIGATIONS CONCERNING THE CABLE........ 17
16. RELOCATION OF THE CABLE............................ 20
17. REPRESENTATIONS AND WARRANTIES..................... 21
18. AUDIT PROCEDURES................................... 23
19. INSURANCE.......................................... 24
20. DEFAULT............................................ 27
21. TERMINATION........................................ 29
22. INDEMNIFICATION; WAIVER OF DAMAGES................. 29
23. DISPUTE RESOLUTION................................. 31
24. GENERAL............................................ 32
Exhibit A (Route)
Exhibit B (Payment Specifications)
Exhibit C (Milestone Schedule)
Exhibit D (Fiber Specifications)
Exhibit E (Detailed Restoration Plan)
<PAGE>
This LICENSE AGREEMENT (Agreement), by the UNITED STATES OF AMERICA
(Government), Department of Energy, acting by and through the BPA POWER
ADMINISTRATION (BPA), and Electric Lightwave, Incorporated (ELI), a corporation
organized and existing under the laws of the State of Delaware. Both BPA and
ELI may be referred to herein individually as "Party" and collectively as
"Parties."
W I T N E S S E T H:
WHEREAS BPA owns the Cable and Cable accessories; and
WHEREAS BPA currently needs only 12 of the 72 fibers in the Cable for its
own operational use, which will give BPA fiber optic cable capacity in excess of
that which is needed to operate its transmission communications along the Route;
and
WHEREAS BPA desires to grant a license for a period of time to ELI
respecting the Commercial Fiber along the Route under the terms and conditions
contained herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
obligations and agreements herein contained, the Parties hereby agree as
follows:
1. DEFINITIONS
The following terms, when used in this Agreement, shall have the meanings
set forth in this section:
(a) "BPA Capital Cost" means the direct and indirect costs BPA incurs,
using prudent electric utility practices, to develop and construct the
Cable. Direct costs include, but not limited to, Environment,
Surveying and Mapping, Design, Land, Material, Construction, and
Labor. Such costs incurred up to 12 months after Energization shall
be included. Indirect costs (overheads) shall be included as part of
BPA Capital Cost and applied at a fixed rate of 45 percent to all
direct costs. Interest costs, implicit or otherwise, will be
excluded. BPA shall use its best efforts to manage to the cost of
development and construction of the Cable to, or below, [*].
- ----------------------------
* Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with
the Securities and Exchange Commission.
Contract No. 97TX-10072
<PAGE>
(b) "BPA Facilities" means all BPA-owned and/or leased structures,
buildings, land, access roads, and equipment along the Route.
(c) "BPA Fiber" means 12 dark optical fibers within the Cable designated
for BPA's exclusive use and control.
(d) "Cable" means a BPA-owned cable, containing 72 optical fibers, single-
mode, nondispersion shifted to be installed along the Route.
(e) "Cable Accessories" means the equipment necessary for the attachment
of the Cable to the BPA Facilities, including splice boxes.
(f) "Cable Specifications" means the drawings and specifications regarding
the Cable hardware and materials incorporated into the construction
project.
(g) "Commercial Fiber" means the 60 dark optical fibers within the Cable
licensed to ELI under this License Agreement.
(h) "Dark Fiber Lease Value" means the sum of all dark fiber lease
payments received by ELI for Commercial Fiber.
(i) "Diverse Fibers" means 4 dark optical fibers within the Cable and
constituting a portion of the Commercial Fiber reserved for diverse
switching paths for a SONET ring in order to achieve optimum network
robustness and reliability.
(j) "Due Date" means the date payments shall be sent to BPA in accordance
with section 12.
(k) "ELI Transport Service(s)" means Transport Service(s) used by ELI in
the delivery of End-User Service(s).
(l) "ELI Transport Service Value(s)" means the sum of the values for all
the ELI Transport Service(s) within the Commercial fiber as described
in Exhibit B.
(m) "End-User" means the customer(s) of ELI.
Contract No. 97TX-10072
3
<PAGE>
(n) "End-User Service(s)" means services provided to the End-User, other
than Transport Service(s) and Other Transport Service(s).
(o) "End-User Transport Service Value(s)" means the sum of all payments
received by ELI from End-User(s) for Transport Service sales.
(p) "Energization" means the time when the Cable is fully installed and
the optical fiber meets testing criteria agreed to in writing by the
Parties.
(q) "Fiber Specifications" means the performance attributes of the fiber
within the Cable as described in Exhibit D.
(r) "Gross Revenue Value(s) (GRV)" means the sum of ELI's Transport
Service Value(s) plus End-User Transport Service Value(s) plus Dark
Fiber Lease Value(s) plus Other Transport Service Value(s).
(s) "Interest Rate" means .05 percent per day (18.25 percent per annum) to
be compounded daily on the unpaid balance.
(t) "License" means the License granted to ELI in section 7(a).
(u) "Originating and Terminating Markets" means the areas in and around
the cities along the Route. The cities include Portland, Salem,
Albany, Corvallis and Eugene; as well as other cities adjacent to the
Route.
(v) "Other Transport Service(s)" means services sold over the Commercial
Fiber at the Optical Carrier level (e.g. OC1, OC3, OC12, OC48).
(w) "Other Transport Service Value(s)" means the sum of all payments
received by ELI for Other Transport Services.
(x) "Regenerator Building(s)" means the commercial building(s) along the
Route, owned and operated by ELI, that house the terminal and
regenerator equipment including any optronics or electronics required
by ELI to make use of the ELI Fibers. For the purpose of this
Agreement, the Regenerator Building(s) include
Contract No. 97TX-10072
4
<PAGE>
conduit and fiber optic cable from the Regenerator Building(s) up to
the nearest fiber optic splice box on the Route or the nearest
substation fence, at BPA's discretion.
(y) "Route" means the Cable path as described in Exhibit A.
(z) "Transport Services" means individual DS0, DS1, and DS3 circuits used
or sold as bulk transport by ELI for long-haul traffic on the
Commercial Fiber as described below:
(1) "Digital Signal Zero (DS0)" means: one (1) 64 Kilobits per
second (Kbps) or 56 Kbps digital, pulse coded modulated voice
channel;
(2) "Digital Signal One (DS1)" means: (A) in the U. S. Digital
hierarchy, digital signal level 1 indicates a 1.544 megabytes per
second (Mbps) data signal; and (B) also referred to as a T1 in
the U.S. time-division multiplexing hierarchy, digital signal
level 1 (DS1) indicates the first level of multiplexing. It is
defined as 24 DS0 (64 Kbps) circuits multiplexed into a 1.544
Mbps data signal; and
(3) "Digital Signal Level Three (DS3)" means: (A) In theU.S.
Digital hierarchy, digital signal level 3 indicates a 44.736 Mbps
data signal, often delivered to customers via optical fiber
systems, also referred to as T3; (B) in the U.S. time-division
multiplexing hierarchy, digital signal level 3 (DS3) indicates
the third level of multiplexing. It is defined as 28 DS1 (1.544
Mbps) signals, with added overhead bits, multiplexed onto a
44.736 Mpbs data signal; and (C) high capacity access service
that provides capacity equivalent to 28 DS1 circuits, 7 DS2
channels, or 672 voice grade special access circuits; also used
generically to describe digital data transmission services
operating over fiber optic lines at transmission speed of 44.6
Mbps.
Contract No. 97TX-10072
5
<PAGE>
2. TERM
(a) This Agreement shall be effective at 2400 hours on the date of
execution by both Parties (Effective Date) and shall continue in
effect for a period of 15 years after Energization, unless sooner
terminated or extended in accordance with the terms of this Agreement.
(b) The term of this Agreement shall be extended only by written mutual
agreement of the Parties. The Agreement may be extended for two
separate 5-year renewal periods. Either Party shall notify the other
Party at least 90 days prior to the expiration date of this Agreement
if the notifying Party seeks to renew the Agreement. The Parties
shall have 45 calendar days from the notifying Party's notice in which
to reach written agreement on renewal. The terms and conditions of
this Agreement applicable to the initial 15-year period may be
modified or renegotiated before each renewal period(s) upon written
mutual agreement of the Parties.
Contract No. 97TX-10072
6
<PAGE>
3. EXHIBITS
Exhibit A (Route); Exhibit B (Payment Specifications); Exhibit C (Milestone
Schedule); Exhibit D (Fiber Specifications); and Exhibit E (Detailed
Restoration Plan) are incorporated into and made a part of this Agreement.
4. AMENDMENTS
This Agreement may be amended upon the written agreement of both Parties.
5. MILESTONE SCHEDULE
Energization of the Cable is currently scheduled for April 1, 1998. On or
before October 1, 1997, BPA and ELI agree to complete an evaluation of the
milestones, described in Exhibit C, required to complete construction and
Energization of the Cable. The evaluation shall be used by the Parties to
determine if Exhibit C will be revised to reflect an earlier, or later,
Energization date.
6. OWNERSHIP
(a) Each Party shall own its own electronic and optronic devices necessary
to transmit signals over the fibers each Party controls as specified
in this Agreement.
(b) Except as otherwise set forth in Paragraph 6(c) below, BPA shall own
all structures, improvements, and components obtained for or installed
on EPA Facilities along the Route in accordance with this Agreement.
(c) Title and ownership of the Cable Accessories, Regenerator Building(s),
and related equipment within the Regenerator Building(s) furnished by
ELI shall be and remain the property of ELI, except that BPA shall
gain title to and ownership of such equipment which cannot be removed
without damage to BPA Facilities at termination of this Agreement.
7. LICENSE
(a) Exclusivity
Contract No. 97TX-10072
7
<PAGE>
BPA hereby grants to ELI an exclusive License to use the Commercial
Fiber and to manage the Diverse Fibers. This right shall remain
exclusive as long as ELI meets or exceeds the Performance Criteria
described in section 8.
(b) Access to the Route
ELI shall have escorted access to the Route for the purposes of
performing its rights and obligations under this Agreement. EPA shall
have the right to use the Route, BPA Fiber, or any portion thereof,
together with the right to enter upon the Route, or any portion
thereof, at all times, for any and all purposes. BPA shall retain the
right to use the BPA Fiber for its own internal electric system
network and utility business purposes.
(c) No Property Interest
This Agreement shall not confer upon ELI any ownership or possessory
interest in the Route or other property owned by BPA except as
provided herein, and ELI agrees that it shall never make any claim of
such interest based upon this Agreement.
8. PERFORMANCE CRITERIA
(a) Pursuant to section 7(a), the cumulative GRV must meet or exceed the
cumulative Performance Criteria (calculated from previous and current
years).
(b) Minimum Annual Gross Revenue Performance Requirements: ELI shall
maintain sales at a level that generates gross revenues equal to or
greater than 50 percent of the revenues described in ELI's revenue
forecast, Table A.
In the event that the GRV revenues drop below the minimum required
level, BPA shall have the option of removing any remaining fibers that
are not yet in service from ELI's control, and shall have the right to
market those fibers outside the License Agreement
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(c) Annual GRV equals the sum of the monthly GRVs over a given 12-month
period. Unless otherwise agreed to by the Parties, the first 12-month
period (Year 1) shall commence 30 calendar days following
Energization.
TABLE A[*]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(d)
BPA Rights
(1) BPA shall have the right to make a performance audit within 60
days of the conclusion of each annual period. If BPA determines
that ELI has failed to meet, on a cumulative basis, the
Performance Criteria, BPA shall give written notice of such
failure to ELI. ELI shall have 10 working days after receipt of
written notice from BPA in which to review the results of BPA's
audit and provide any new information or data which might alter
EPA's audit conclusions. If at the end of such 10-day period,
BPA and ELI determine that the Performance Criteria have not been
met, BPA, at its discretion, may determine the License to be
nonexclusive and BPA shall have the right to use any unused
portion of the Commercial Fiber for
- ---------------------
* Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
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any purpose. Nothing contained in this paragraph shall prevent
either Party from seeking a resolution of any dispute hereunder
pursuant to the provisions of Section 23 of this Agreement.
(2) In the event ELI's License becomes nonexclusive, ELI shall
cooperate with BPA to allow co-location of other users of the
Commercial Fiber in ELI's Regenerator Buildings, based on
available space. The Parties shall agree to the amount of
reasonable compensation to be charged to the co-locating users.
(e) ELI Rights
In the event ELI's License is determined to be nonexclusive under the
provisions of this Section 8, ELI shall have the right, subject to the
terms of Agreement, including, without limitation, the payments
described in Section 12, to continue its use of the Commercial Fibers
then being used by ELI to provide End-User Services, Other Transport
Services and Transport Services. In addition, to the extent BPA has
unused dark fiber capacity along the Route, ELI shall have the right
to lease such additional dark fiber capacity on the same terms offered
by BPA to other carriers.
9. ELI CAPITAL SPENDING.
ELI shall make capital investments to provision the Commercial Fiber with
electronics, optronics, buildings, other infrastructure, and fiber
connectivity with Local Exchange Carrier networks and Inter-Exchange
Carrier networks, at a sufficient level to meet the Revenue Forecast listed
in Table A of section 8(a).
10. BUSINESS PLAN
ELI shall develop a Business Plan that describes ELI's proposal for
marketing, managing, and utilizing the Cable along the Route. The Business
Plan shall include, but is not limited to, ELI's marketing strategy for
telecommunications service(s) along the Route, customer service, sales
strategy for all Transport Services, accounting, billing and collections
standards, strategy for maintaining ELI fibers, and plan for maintaining
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compliance with all regulatory requirements or relevant State regulatory
authorities and the Federal Communications Commission. Unless otherwise
agreed to by the Parties, ELI shall complete the Business Plan 6 months
from the date of execution of this Agreement. Prior to finalization of the
Business Plan, BPA shall have the right to review ELI's Business Plan for
consistency with this Agreement; however, BPA shall not be involved in
ELI's decisions regarding the marketing, pricing, managing, and use of the
Commercial Fiber. ELI shall use its best efforts, consistent with
reasonable commercial practices, to maximize the GRV generated pursuant to
the License.
11. MARKET PRICE ASSESSMENT
(a) BPA shall procure, under separate agreement, the services of a market
assessment consultant(s) to assess market prices of bulk transport
services and provide reports to BPA.
(b) BPA and ELI agree to equally share in the costs of procuring the
services described above.
(c) The market assessment consultant shall be responsible for acquiring
quotes, calculating an average, and delivering market assessment
reports to BPA at some planned interval, using the methodology agreed
to by BPA and ELI. BPA and ELI shall within 120 calendar days from
execution of this Agreement, make their best effort to agree to the
methodology.
(d) BPA agrees to allow ELI to participate in the development of the
methodology for assessing market price(s) to be used under this
Agreement.
(e) ELI agrees to use the current data provided to BPA by the market
assessment consultant as a basis for setting ELI Transport Service
Value(s) for each ELI Transport Service, depending on when the ELI
Transport Service is placed in service by ELI. The ELI Transport
Service Value for any specific ELI Transport Service will remain in
effect for a period of 36 months, after which the ELI Transport
Service must be re-valued based on the current market assessment data.
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(f) The agreed to methodology may be changed by mutual agreement of BPA
and ELI.
12. PAYMENT
(a) ELI agrees to pay BPA monthly, according to the Payment Specifications
described in Exhibit B. In addition to ELI's monthly payment to BPA,
ELI shall include a monthly report of all transactions. The report
will allow BPA to account for the GRV generated each month. Both
Parties shall agree on a reporting format to be used, prior to ELI's
first payment to BPA.
(b) For the purposes of determining the monthly payment required under
this Agreement, any Transport Services originating in the Originating
and Terminating Markets will be included in the accounting to
determine GRV.
(c) Unless otherwise agreed to by the Parties, accounting of the GRV shall
begin 30 calendar days following Energization. Payment shall be
received by BPA from ELI by the Due Date which is the last day of each
month for GRV calculated on the previous calendar month's
transactions, the Due Date. Payments shall be sent to the address
identified in (f) below.
(d) Payments to BPA for revenue generated by ELI from use of the
Commercial Fiber (or portion thereof) before Energization shall be
based on the GRV of such services and calculated using the 37 percent
and the 32 percent Payment Factors, as described in Exhibit B. All
payments, including payments based on Early Service Revenues, shall be
credited toward ELI's accumulative monthly payments to BPA to
determine Payment Factor.
(e) Early Service Revenues
Revenues generated by ELI, using the Commercial Fibers, before
Energization (as described in section 8), shall be accumulated as a
credit against the Performance Criteria in Year 1.
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(f) ELI shall pay by wire or ACH transfer using procedures established by
BPA's Financial Services Group. Payment amounts are due and payable
on the Due Date. ELI may pay its bill by mail provided the following
condition is met: ELI ensures that BPA receives full payment by the
Due Date.
ELI shall include the following information in the description field
of each transfer (BPA Contract Number; Revenue PL6; and End Item
Code).
If ELI is paying by mail, payments shall be mailed to:
BPA Accounting Operation - CRO
P.O. Box 6040
Portland, OR 97228-6040
ELI shall include the following information in the documentation sent
with each check, BPA Contract Number; Revenue PL6; and End Item Code.)
(g) Payments not received by the Due Date shall bear interest at the
Interest Rate from the Due Date until the date payment is received by
BPA.
(h) BPA may purchase from ELI any commercial telecommunications service
ELI generally offers business customers. The price charged by ELI for
any such service shall be the lowest price then charged by ELI to
similarly situated commercial customers for a similar service or group
of services, taking into account similar terms and volumes.
13. MAINTENANCE, REPAIR, AND RESTORATION OF THE CABLE
(a) Maintenance of the Cable
(1) During the term of this Agreement, BPA shall be responsible for
the physical routine maintenance of the Cable and the Cable
Accessories. BPA shall maintain the Cable and the Route at all
times in good working order and in a safe condition, in
conformity with the Cable Specifications and all applicable laws
and regulations.
(2) BPA shall pay all costs associated with the routine maintenance
of the Cable.
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(3) ELI shall be responsible for maintenance of its property,
including the Regenerator Building(s) along the Route.
(b) Detailed Restoration Plan
(1) The Parties agree to jointly, within 120 days of the execution of
this Agreement by both Parties, develop a Detailed Restoration
Plan (Exhibit E), which shall upon its completion become part of
this Agreement.
(2) The following provisions described in sections (c) and (d) below
shall form the principles and basis for the development of a
Detailed Restoration Plan.
(c) Restoration Priorities and General Requirements
(1) BPA's obligation to maintain and repair the Cable and any
activities incidental thereto shall be subordinate to, and shall
not conflict with, BPA's rightful use and operation of its
transmission facilities. In the event both BPA's transmission
facilities and the Cable require maintenance or repair, the
restoration of the Cable shall be at all times subordinate to the
restoration of BPA's transmission facilities, unless otherwise
agreed to in writing by BPA in advance. The restoration of BPA's
telecommunications system shall take priority over restoration
activities related to the Commercial Fiber. In the event that
ELI's License becomes nonexclusive pursuant to section 8, the
Commercial Fiber used by ELI shall take priority over restoration
activities related to any fibers used by any other users of the
Commercial Fiber.
(2) A BPA representative must be on-site during all repair and
restoration work to perform functions such as safety watch,
protection of BPA's transmission facilities, and obtain line
clearances.
(3) The Party performing the repair and restoration shall use prudent
business methods to acquire the most cost-effective restoration
procedures and
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materials available given the Cable Specifications, Fiber
Specifications, and current industry standards.
(4) Any and all BPA, ELI representatives, or other users of the
Commercial Fiber that construct, install, repair, replace, or
otherwise handle the Cable, Cable Accessories, Commercial Fiber,
BPA Fiber, or any related materials and equipment shall be
properly trained and equipped to meet all current industry
standards. BPA shall require all employees or agents of ELI or
any other users of the Commercial Fiber who work near BPA's
transmission facilities to demonstrate that they have been
properly trained and equipped to perform the work. The Parties
shall agree in advance what constitutes proper training and
reasonable costs. The costs of agreed upon training of ELI
employees, agents of ELI, or other users of the Commercial Fiber
shall be borne by ELI.
(5) A BPA representative shall have the authority to stop any work
activities or equipment functions for reasons that he or she
determines in good faith to involve potential health hazards,
safety concerns, and potential disruption to BPA's operating
system. BPA will make reasonable efforts to coordinate with ELI
in case of such events.
(d) Restoration of the Cable
(1) Except as provided in section 13(c)(1), BPA shall immediately,
upon notification from ELI of interruption in service, failure,
disrepair, impairment, or other need for repair or restoration of
the Commercial Fiber, begin to mobilize BPA crews and make its
best effort to achieve such necessary repair or restoration,
including making its best effort to have maintenance personnel at
the affected site within 4 hours after receipt of such notice,
provided, however, that in the event any of ELI's rights are
interrupted pursuant to section 23(a), repairs and restoration
shall be made as expeditiously as possible. ELI recognizes that
the 4 hour response time represents optimal conditions, and may
be impossible to achieve when
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responding to certain remote locations. Actual response times
will be influenced by factors such as the terrain, weather
conditions present at the time the request is made, and the
actual mileage from BPA's dispatch station to the fault site.
(2) For purposes of this section, best efforts means activities and
performance consistent with prudent utility practice, existing
contract provisions for BPA's hourly employees ("Collective
Agreement between BPA and Columbia Power Trades Council"), and
response times that do not jeopardize the health and safety of
BPA employees or agents or ELI employees or agents.
(3) The Detailed Restoration Plan shall set forth the roles and
responsibilities of the respective Parties, and shall address
issues regarding logistical considerations, response interval
factors, communication between the Parties, sequential activity
requirements, and other related items which would impact response
time and restoration intervals. The aforementioned issues will
be taken into consideration in the determination of whether BPA
has used its best efforts in such restoration or repair
activities. The Detailed Restoration Plan will also set forth
financial penalties, if any, to be paid to ELI by BPA for failure
to use its best efforts on any repair or restoration, including
the mobilization effort as set forth above.
14. REGENERATOR BUILDING(S)
(a) ELI shall have sole responsibility for the expense and acquisition of
any electric power an/or property necessary for its equipment along
the Route. If space is available at BPA substations, such space shall
be provided to ELI at BPA's "bare land" lease rate under a separate
agreement.
(b) ELI shall provide and own, except as provided in section 6(d), Cable
Accessories, splice boxes, and other components necessary for the
operation of the Commercial Fiber.
Contract No. 97TX-10072
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(c) ELI shall have sole responsibility for the physical maintenance and
environmental compliance associated with the Regenerator Building(s)
and the grounds underneath and around the Regenerator Building(s).
15. RIGHTS AND OBLIGATIONS CONCERNING THE CABLE
(a) General
In the event that ELI requires services (other than Transport
Service(s)) along the Route, BPA and ELI shall agree in writing on how
those transactions shall be valued.
ELI shall not use Commercial Fiber for commercial activities not
accounted for in this Agreement.
ELI agrees to utilize the Commercial Fiber for all ELI capacity needs,
existing or arising along the Route and between the Originating and
Terminating Markets, except for diversity needs, and subject to ELI's
existing contractual obligations. ELI shall use its best efforts to
transition as quickly as possible from existing contractual
obligations in satisfying the requirements of the preceding sentence.
(b) Permits
BPA shall acquire all necessary regulatory or governmental permits and
approvals required for construction of the Cable, and ELI shall, at
its cost, cooperate and provide BPA with such information as BPA may
reasonably request from ELI in connection with such permits and
approvals. ELI shall acquire all necessary regulatory or governmental
permits and approvals necessary for ELI's use of the Commercial Fiber
for telecommunications services, including Transport Service(s) and
Dark Fiber Leases, and any permits and/or approvals that may be
required for the Regenerator Building(s). ELI shall not rely upon BPA
to acquire from any other Federal agency any necessary regulatory or
governmental permits and approvals required by ELI.
When feasible, BPA shall, at its cost, cooperate and provide ELI with
such information as ELI may reasonably request from BPA in connection
with
Contract No. 97TX-10072
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acquiring permits, easements, or additional rights-of-way for the
Regenerator Building(s); provided that ELI indemnifies and holds
harmless BPA from any future liability resulting from such actions.
(c) Taxes, Mechanic's Liens, and Encumbrances
ELI shall pay its own income taxes, as well as all franchise fees and
other fees and taxes resulting from ELI's License or use of the
Commercial Fiber. ELI shall keep the Route free and clear from all
liens and encumbrances resulting from ELI's use of the Commercial
Fiber. If ELI does not pay the foregoing taxes and fees when such
become due, and such nonpayment results in the imposition of a lien
on, or encumbrance of, the Route, then BPA shall have the right, but
not the obligation, to pay all amounts due and discharge such lien or
encumbrance, upon 30 calendar days' prior written notice to ELI. In
the event BPA causes such liens or encumbrances to be discharged, ELI
shall reimburse BPA upon demand together with interest thereon at the
Interest Rate, accruing from the date that BPA makes payment
discharging such liens or encumbrances until the date BPA receives
full reimbursement from ELI. ELI shall have the absolute right to
dispute or challenge any tax or fee assessed on its use of the
Commercial Fiber.
(d) Access Roads
ELI may use BPA's access roads to access the Regenerator Building(s),
provided that heavy vehicles or other equipment being used on the
access road will not at any time impair the use of the access road by
BPA. Access to the roads shall be limited to the times and frequency
required for maintenance and operation of the Regenerator Building(s)
and equipment, and any repair and restoration of the Cable pursuant to
section 13. ELI shall, at ELI's expense, repair any damage to the
access roads caused as a result of ELI use of the access roads. ELI
shall acquire access easements to the Regenerator Building(s) where
BPA access roads are not available.
(e) Environmental Compliance Activities
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(1) BPA shall be responsible for compliance with the National
Environmental Policy Act (NEPA) and shall acquire all necessary
permits associated with the project operations, maintenance, and
construction of the Cable. ELI shall, at its expense, cooperate
and provide BPA with such information as it may reasonably
request in connection with such compliance and permits. The
project activities will be limited to construction and operation
of cable, hardware, Regenerator Building(s), access roads and
distribution lines if needed for Regenerator Building(s). If any
mitigation measures are required along the Route as part of the
NEPA compliance activities, these measures will be performed by
BPA at the sole cost of BPA. Contacts with the local landowners
will be performed by BPA-appointed representatives. Any
landowner compensation required as part of the NEPA and project
activities will be made by BPA. All of the compliance and
permitting activities undertaken by BPA pursuant to this
paragraph (e) shall be at the cost and expense of BPA.
(2) BPA and ELI agree neither they nor anyone acting on their behalf
will bring, keep, or use Hazardous Materials at or on the Route
(including regenerators) except for those necessary for use in
their respective businesses, in which case they are to be
handled, stored, used, and disposed of in compliance with
applicable laws, regulations, and ordinances.
(3) BPA agrees to indemnify and hold ELI harmless from any and all
claims, damages, fines, judgments, penalties, costs, liabilities,
or losses arising from or due to the presence of Hazardous
Materials at or on the Route (including regenerators) if BPA or
its agent, contractor, employees, or invitees is responsible for
the introduction of the Hazardous Materials. This indemnity
shall specifically include, without limitation, any and all costs
due to Hazardous Materials which flow, diffuse, migrate, or
percolate into, onto or under the property, or from the property
to
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neighboring property or groundwater after the Agreement
commences; however, it shall not include the cost of repairing
ELI's equipment.
(4) ELI agrees to indemnify and hold BPA harmless from any and all
claims, damages, fines, judgments, penalties, costs, liabilities,
or losses arising from or due to the presence of Hazardous
Materials at or on the Route (including regenerators) if ELI or
its agent, contractor, employee, or invitees is responsible for
the introduction of the Hazardous Materials. This indemnity
shall specifically include, without limitation, any and all costs
due to Hazardous Materials which flow, diffuse, migrate, or
percolate into, onto or under the property, or from the property
to neighboring property or groundwater after the Agreement
commences; however, it shall not include the cost of repairing
BPA's equipment.
(5) `Hazardous Materials', as used herein, shall mean all materials
which have been determined to be hazardous to health or the
environment by virtue of being: A) a hazardous waste as defined
by the Resource Conservation and Recovery Act; (B) a hazardous
substance as defined in the Comprehensive Environment,
Compensation, and Liability Act; (C) a substance regulated by the
Toxic Substances Control Act; and (D) substances regulated by the
Federal Insecticide, Fungicide, Rodenticide Act in accordance
with the applicability provisions of such Act. Reference to
specific statutes include amendments as they are made from time-
to-time, as well as the regulations promulgated thereunder.
16. RELOCATION OF THE CABLE
In the event the Cable requires relocation or replacement during the term
of this Agreement, the cost of such relocation or replacement shall be
allocated as follows:
(a) If requested by ELI, ELI shall pay all such costs;
(b) If requested by BPA due to requirements necessary to provide
economical and reliable electric power, BPA shall pay all such costs;
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(c) If the Cable must be relocated due to the order of any court,
governmental agency, or in conjunction with the operational needs of
BPA, BPA shall, in consultation with ELI, designate a new route for
the Cable. The costs associated with such required relocation that
are not paid by a third party, shall be paid by BPA. ELI shall be
responsible for any relocation costs associated with ELI's Regenerator
Building(s), ELI-owned cable, and ELI-owned terminal equipment.
17. REPRESENTATIONS AND WARRANTIES
(a) ELI
ELI represents and warrants to BPA as follows:
(1) ELI is a corporation duly organized and validly existing and in
good standing under the laws of the State of Delaware. ELI is
duly qualified to do business and is in good standing in the
States of Oregon and Washington. ELI covenants that it will
maintain any necessary Federal, State, or local compliance needed
to continue to do business in the States of Oregon and
Washington. ELI has full power and authority to execute,
deliver, and perform its obligations under this Agreement. The
execution of this Agreement by ELI has been duly and validly
authorized by all necessary action on the part of ELI. This
Agreement is a legal, valid, and binding obligation of ELI,
enforceable against ELI in accordance with its terms subject,
however, to limitations imposed by bankruptcy laws of the United
States, insolvency, reorganization, arrangement, moratorium, or
other laws relating to or affecting the enforceability of
creditors' rights generally. The execution and delivery of this
Agreement by ELI and the performance of the terms, covenants, and
conditions contained herein will not violate the articles of the
corporation, or bylaws of ELI, or any applicable law or
regulation or any order of court or arbitrator, and will not
conflict with and will not constitute a material breach of, or
default under, the provisions of any contract by which ELI is
bound. Except for approvals and authorizations required to
perform services on the cable
Contract No. 97TX-10072
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(such as franchise and building permit applications and
approvals), or as otherwise stated herein, no approval,
authorization, or other action by any governmental authority or
filing with any such authority which has not been obtained or
accomplished is required in connection with the execution,
delivery, and performance by ELI of this Agreement.
(2) Any assignment of the license of this Agreement to parties not
owned by Citizens Utilities shall be with the written consent of
BPA, such consent shall not be unreasonably withheld.
(3) There are no known actions, suits, or proceedings pending or
overtly threatened against ELI before any court or administrative
agency that would materially impair ELI's performance of its
obligations under this Agreement.
(4) ELI has made no other representations or warranties outside of
this Agreement and BPA acknowledges and agrees that it is not
relying on any other representations or warranties.
(b) BPA
BPA represents and warrants to ELI as follows:
(1) BPA is duly authorized to execute this Agreement. This Agreement
constitutes a legal and valid obligation of BPA enforceable in
accordance with its terms to the full extent provided by law.
The enforceability of this Agreement is qualified as to:
Limitations imposed by bankruptcy laws of the United States,
insolvency, reorganization, arrangement, moratorium, or other
laws relating to or affecting the enforcement of creditors'
rights generally.
(2) Upon execution of this Agreement, BPA warrants that there are no
known conflicts with this Agreement and that this Agreement does
not constitute a material breach of or a default under any
constitutional provision, law, or
Contract No. 97TX-10072
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administrative regulation, or violate any judgment, decree, or
other instrument, or any other contract related to the Route to
which BPA is a Party or to which BPA or any of its property or
assets is subject.
(3) BPA has made no other representations or warranties outside of
this Agreement and ELI acknowledges and agrees that it is not
relying on any other representations or warranties.
(c) No BPA Warranty Concerning Route
BPA makes no representation or warranty whatsoever concerning the
physical characteristics of the Route. ELI acknowledges that neither
BPA nor any of BPA's officers, employees, representatives,
contractors, or subcontractors or agents have made any such
representation, nor is BPA or ELI entering into this Agreement in
reliance upon any such representation or warranty.
18. AUDIT PROCEDURES
(a) Records
The Parties shall maintain true and correct sets of records in
connection with the performance of this Agreement. ELI shall retain
records of all transactions with supporting documentation related
thereto for a period of not less than 3 years after the term of a
specific transaction has expired and receipt of final payment by ELI
to BPA. The records in connection with each financial transaction
shall include an accounting of gross revenues, revenue shares, and
billing and collection. BPA shall retain all documents relative to
BPA Capital Cost for a period of at least three years after BPA incurs
the Capital Cost.
(b) Audit Rights
Either Party shall have the right to perform an audit of each other's
books, records, and documents used in or relating to the costs to
construct, repair, and maintain the site and improvements under this
Agreement. Such audit may be performed within 36 months after the
date that either Party renders a bill or refund voucher. Each Party
shall be responsible for all expenses incurred by such Party
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in the performance of an audit pursuant to this section. In the event
that the Parties agree that the Auditing Party's audit is determined
to be correct, the Non-Auditing Party shall reimburse the Auditing
Party the agreed upon amount. In the event that the Non-Auditing Party
disagrees with the results of the other Party's audit, and resolution
is not reached between the Parties, the Parties agree to resolve the
dispute pursuant to section 23 of this Agreement.
(c) BPA reserves the right to conduct technical audits, including physical
inspection of the number, type, and use of circuits, including
Transport Service(s) sold, used, and administered by ELI using the
Commercial Fiber.
19. INSURANCE
(a) General
At all times during the term of this Agreement and the License term,
ELI, at its own cost and expense, shall provide the insurance
specified by this section.
(b) Evidence Required
On the Effective Date of this Agreement, ELI shall provide BPA with a
certificate of insurance ("Certificate of Insurance") executed by an
authorized representative of the insurer(s) evidencing that ELI
insurance complies with this section. A copy of all required
endorsements shall be attached to and form a part of the Certificate
of Insurance.
(c) Notice of Cancellation, Reduction, or Material Change in Coverage
Policies shall be endorsed to provide BPA with 30 calendar days' prior
written notice of any cancellation, reduction, or material change in
coverage. If insurance coverage is due to be canceled, reduced, or
materially changed, ELI shall, within 30 calendar days before the
effective date of such cancellation, reduction, or material change,
obtain the coverage required under this section 19 and provide to BPA
documentation evidencing such coverage. ELI shall be responsible for
the costs of any damage, liability, or injury occurring during any
period of cancellation reduction, or material change in insurance
coverage to the extent
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such costs are not otherwise covered by insurance; provided that ELI
shall not be responsible for the costs of any damage, liability, or
injury occurring during any such period if such damage, liability, or
injury was caused by BPA's gross negligence or willful misconduct.
(d) Qualifying Insurers
Policies shall be issued by companies which hold a current
policyholders alphabetic and financial size category rating of not
less than A:X according to Best's Insurance Reports.
(e) Insurance Required
(1) Liability
Commercial general liability insurance for bodily injury
(including death) and property damage shall provide limits of not
less than $10 million per occurrence.
(A) Coverage included shall be:
(i) premises and operations;
(ii) broad form property damage;
(iii) products and completed operations;
(iv) blanket contractual liability;
(v) personal injury liability;
(vi) cross-liability and severability of interests;
and
(vii) independent contractors liability.
(B) Coverage shall be endorsed to include the following:
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(i) inclusion of BPA, its officers, representatives,
agents, and employees as an additional insured as respects
services or operations in connection with this Agreement; and
(ii) stipulation that the insurance is primary
insurance and that no insurance or self-insurance of BPA will be
called upon to contribute to a loss.
(2) Business Automobile Liability Insurance
Business Automobile Liability Insurance for bodily injury
(including death) and property damage shall provide total limits
of not less than $2 million combined single limit per occurrence
to all owned, non-owned, and hired vehicles.
(3) Workers' Compensation/Employer's Liability Insurance
Statutory Workers' Compensation and Employer's Liability
Insurance for not less than $1 million per occurrence shall apply
to employer's liability coverage for all employees engaged in
services or operations under this Agreement. The policy shall
include broad form all-States/other States coverage.
(f) Special Provisions
(1) The foregoing requirements as to the types and limits of
insurance coverage to be maintained by ELI, and any approval of
said insurance by BPA or ELI, are not intended to and shall not
in any manner limit or qualify the liabilities and obligations
otherwise assumed by ELI pursuant to this Agreement, including,
but not limited to, the provisions concerning indemnification.
(2) BPA acknowledges that some insurance requirements contained in
this section 19 may be fulfilled by a funded self-insurance
program of ELI or its parent company, Citizens Utilities.
However, this shall not in any way
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<PAGE>
limit liabilities assumed by ELI under this Agreement. Any self-
insurance program must be first approved in writing by BPA.
20. DEFAULT
(a) Events of Default
If either Party is in material breach or default (Defaulting Party),
under this Agreement, the other Party (Non-Defaulting Party) may
notify in writing the Defaulting Party that it is in material breach
or default, such notice to be effective upon its receipt by the
Defaulting Party. Material breach or default under this Agreement
shall include, but is not limited to the following;
(1) failure to make any payment when due hereunder; with the
exception of payments that become payable during periods of Force
Majeure as provided in section 24(a)(2);
(2) failure to perform any obligations required to be observed or
performed hereunder;
(3) any representation or warranty made by one Party to the other
herein proving incorrect in any material respect as of the date
of the making thereof;
(4) ELI files a voluntary petition in bankruptcy, or a petition in
bankruptcy is filed against ELI and not dismissed within 60 days,
or ELI is adjudicated as bankrupt or insolvent, or files any
petition or answer seeking or acquiescing in any reorganization,
arrangement, composition, readjustment, liquidation, dissolution,
or similar relief under any present or future Federal, State, or
other statute, law, or regulation relating to bankruptcy,
insolvency, or other relief for debtors, or seeks or consents to
or acquiesces in the appointment of any trustee, receiver,
custodian, liquidator, or similar official of ELI, or makes any
general assignment for the benefit of creditors;
Contract No. 97TX-10072
27
<PAGE>
(5) material interference by a Party to the other Party's operations;
or
(6) failure to make restitution for any damage to a Party's real
property or equipment caused as a result of the negligent or
willful acts or omissions of the other Party when such damage
causes material interference to a Party's operations.
(b) Remedies
(1) Defaulting Party's Right to Cure
The Defaulting Party shall have the right to cure any material
breach or default under this Agreement within 30 calendar days
after the receipt by the Defaulting Party of notification of such
material breach or default. In the case of any material breach
or default which may not reasonably be cured within 30 calendar
days, other than in the case of a breach of section 20(a)(1), the
Defaulting Party shall have the right to provide the Non-
Defaulting Party with a plan for the appropriate actions to cure
such material breach or default, which plan shall be subject to
the approval of the Non-Defaulting Party, which approval shall
not be unreasonably withheld. Within 30 calendar days of
submission of the plan, the Defaulting Party must commence
diligently pursuing appropriate action under the plan to cure the
material breach or default, and unless otherwise agreed to by the
Parties, such material breach or default shall be cured within 90
calendar days of submission of the plan, failing which the Non-
Defaulting Party may forthwith and without further notice
terminate this Agreement.
(2) Rights and Remedies Upon Termination
Any Party terminating this Agreement under section 21 shall have
the additional right to cure any material breach or default of
the Defaulting Party to preserve the Non-Defaulting Party's
rights that may be prejudiced
Contract No. 97TX-10072
28
<PAGE>
as a result of such material breach or default and exercise and
pursue all other rights and remedies available to it under
applicable law.
(3) Rights and Remedies Cumulative
Except as otherwise provided in this Agreement, any right or
remedy afforded to either ELI or BPA under any provision of this
Agreement is in addition to, and not in lieu of, all rights or
remedies afforded either ELI or BPA under any other provision of
this Agreement, by law or otherwise.
21. TERMINATION
(a) Termination of this Agreement may occur in the following instances:
(1) By the Non-Defaulting Party, after the time period for the
Defaulting Party to cure a material breach or default has
expired;
(2) By either Party, if the Party claiming Force Majeure has not
satisfactorily performed any obligations delayed due to the Force
Majeure within 1 year of the notice of the Force Majeure event;
or
(3) Pursuant to Partial Invalidity terms, section 24(d) of this
Agreement.
(b) Subject to section 20(b), the Terminating Party shall give the other
Party 30 calendar days advance written notice of Termination, which
Termination shall become effective 30 calendar days after the receipt
of such notice by the other Party.
22. INDEMNIFICATION; WAIVER OF DAMAGES
(a) Indemnification By ELI
(1) To the extent allowed by law, ELI shall release and indemnify,
defend, and hold harmless BPA and each of its directors,
officers, agents, representatives, subcontractors, and employees
(the "BPA Indemnitees") from and against any and all claims: (A)
for injury to or death of a person, including an employee of BPA
or an ELI Indemnity; or (B) for loss of or
Contract No. 97TX-10072
29
<PAGE>
damage to property resulting directly or indirectly from ELI's
performance or nonperformance of this Agreement; or (C) for any
Claims against BPA by customers of ELI or others doing business
with ELI, except in the cases of clauses (A) and (B) only, to the
extent that such Claim is the result of the gross negligence or
willful misconduct of a BPA Indemnity.
(2) If gross negligence or willful misconduct of a BPA Indemnity has
contributed to a Claim, ELI shall not be obligated to indemnify
the BPA Indemnitees for the proportionate share of such Claims
caused by such negligence or willful misconduct. BPA shall have
the right, at its own cost, to retain counsel, and to monitor, or
participate in the defense of any Claim that is covered by ELI's
indemnity hereunder.
(b) Indemnification By BPA
(1) To the extent allowed under the Federal Tort Claims Act, BPA
shall release and indemnify, defend, and hold harmless ELI and
each of its directors, officers, agents, representatives,
subcontractors, and employees (the "ELI Indemnitees") from and
against any and all claims for injury to or death of a person,
including an employee of BPA or an ELI Indemnity, or for loss of
or damage to property resulting directly or indirectly from BPA's
performance or nonperformance of this Agreement, except to the
extent that such claim is the result of the gross negligence or
willful misconduct of a ELI Indemnity. In no event shall BPA be
required to indemnify ELI Indemnities against claims against ELI
by customers of ELI or others doing business with ELI.
(2) If gross negligence or willful misconduct of an ELI Indemnity has
contributed to a claim, BPA shall not be obligated to indemnify
the ELI Indemnitees for the proportionate share of such claims
caused by such negligence or willful misconduct. ELI shall have
the right, at its own cost,
Contract No. 97TX-10072
30
<PAGE>
to retain counsel, to monitor, or participate in the defense of
any claim that is covered by BPA's indemnity hereunder.
(c) Waiver of Certain Damages
Each Party hereby waives any right to consequential, incidental
special or indirect damages, or damages for lost profits or exemplary
damages with respect to any claim arising out of or related to this
Agreement. The Parties acknowledge that the foregoing waiver shall
not prejudice the right of indemnity respecting any claim under this
section 22.
23. DISPUTE RESOLUTION
(a) Pending resolution of a disputed matter, the Parties Shall continue
performance of their respective obligations hereunder, provided that
neither Party shall be required to take any action pending such
resolution which it has been advised by counsel, or which it
reasonably believes, is unlawful or not permitted pursuant to
applicable regulations or permit requirements. Any controversy
between the Parties rising out of this Agreement or breach thereof, or
out of performance under this Agreement, is subject to the mediation
process described below. If not resolved by mediation, then the
matter must be submitted to the American Arbitration Association
("AAA") for arbitration before a sole arbitrators.
(b) A meeting will be held promptly between the Parties to attempt in good
faith to negotiate a resolution of the dispute. The meeting will be
attended by individuals with decision-making authority regarding the
dispute. If within 30 calendar days after such meeting the Parties
have not succeeded in resolving the dispute, within 30 calendar days
thereafter, upon the written notice from either Party to the other
Party, submit the dispute to a mutually acceptable third-party
mediator who is acquainted with dispute resolution methods. The
mediation shall be nonbinding. If the dispute is not resolved by
mediation, either Party may initiate an arbitration with the AAA, upon
the written notice from either Party to the other Party. The dispute
shall be resolved by arbitration under the rules and administration of
the AAA (except that service of process, pleadings, motions and orders
on BPA shall
Contract No. 97TX-10072
31
<PAGE>
be as prescribed by the Federal Rules of Civil Procedures), and
judgment upon the award rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof. Neither Party is entitled to
seek or recover punitive damages in considering or fixing any award
under these proceedings.
(c) The costs of mediation and arbitration, including any mediator's fees,
AAA administration fee, the arbitrators fee, and costs for the use of
facilities during the hearings, shall be borne equally by the Parties.
Reasonable attorneys' fees may be awarded to the prevailing Party
(provided such a Party can clearly be determined from the proceedings)
at the discretion of the arbitrator. Each Party's other costs and
expenses will be borne by the Party incurring them.
24. GENERAL
(a) Force Majeure
(1) As used in this Agreement, the term "Force Majeure" means acts of
God (including but not limited to, earthquakes, fires, floods,
windstorms, landslides, and ice storms); strikes, lockouts, or
other labor disputes; acts of public enemy; wars, riots, and
insurrection; epidemics; civil disturbances; explosions; train
derailments; breakdown or failure of machinery or facilities
(excluding the Cable and Cable Accessories); accidents to
machinery or equipment (excluding the Cable and Cable
Accessories), and delay in delivery of equipment to the extent
such occurrences are beyond the reasonable control of the
Parties; electrical disturbance originating in or transmitted
through such Party's electrical system or equipment or any
electrical system with which such Party's system or equipment is
interconnected; and any other event, cause, or condition beyond
the Party's reasonable control, which, by the exercise of
reasonable diligence, prevents the operation of the Cable and
prevents the Party claiming Force Majeure from performing its
obligations under this Agreement;
Contract No. 97TX-10072
32
<PAGE>
(2) If either Party is unable to carry out its obligations under this
Agreement as a result of an event, cause, or condition of Force
Majeure, the Party claiming Force Majeure shall give notice and
full particulars of such Force Majeure in writing to the other
Party within 5 calendar days after the occurrence of the Force
Majeure event, cause, or condition. Any obligations that such
Party claims it is unable to perform due to an event, cause, or
condition of Force Majeure shall be suspended during the
continuance of such event of Force Majeure. The Party claiming
Force Majeure shall use reasonable efforts to remedy and minimize
the effects of such event of Force Majeure with all reasonable
dispatch. For purposes of this Agreement, the Parties are
obligated to make payments during periods of Force Majeure;
provided, however, ELI shall not be obligated to make payments
during periods of Force Majeure when ELI is unable to provide
service under the terms of the agreement with ELI's customers.
Interest shall not accrue on payments that become payable to
either Party during the period of any Force Majeure.
(3) Neither Party shall be liable under this Agreement for, or
considered to be in material breach or default under, this
Agreement on account of any delay in or failure of performance
due to Force Majeure unless specifically stated in this
Agreement. In the event that ELI continues to receive revenue
from End-Users under this Agreement during a Force Majeure event,
ELI will not be excused from performing its payment under this
Agreement.
(b) Notices
All notices and other communications under this Agreement shall be
properly given only if made in writing; and
(1) mailed by certified mail, return receipt requested, postage
prepaid; or
(2) delivered by facsimile transmission followed by certified mail to
the Party's at the address or facsimile number set forth in this
section 24(b) or
Contract No. 97TX-10072
33
<PAGE>
such other address or facsimile number as such Party may
designate by notice to the other Party. Such notices and other
communications shall be effective on the date of receipt. If any
such notice or communication is not received or cannot be
delivered due to a change in the address of the receiving Party
of which notice was not previously given to the sending Party or
due to a refusal to accept by the receiving Party, such notice or
other communication shall be effective on the date delivery is
attempted.
If to BPA: The BPA Power Administration
P.O. Box 3621
Portland, OR 97208-3621
Attn: To be identified under separate letter
with a copy to: The BPA Power Administration
P.O. Box 3621
Portland, OR 97208-3621
Attn: To be identified under separate letter
If to ELI: Electric Lightwave, Inc.
8100 N.E. Parkway Drive, Suite 150
Vancouver, WA
Attn: Legal Affairs
Phone: (360) 892-1000
FAX: (360) 253-4425
(c) Assignment.
----------
ELI shall not sell, assign, lease, sublease, sublicense or otherwise
allow use of ELI's License under this Agreement to any person or
entity without BPA's written approval; which approval shall not be
unreasonably withheld. Notwithstanding the foregoing, ELI may assign
in writing its rights and responsibilities under this Agreement to a
corporate parent, subsidiary, or commonly owned affiliate, upon
written notification to BPA, and a guarantee by its parent company,
Citizens Utilities, to perform the obligation of ELI under this
Agreement. Any permitted assignment or other transfer of rights
hereunder shall be in writing and shall specify that the assignee or
other transferee is bound by the terms and conditions of this
Agreement to the same extent as if it were the original named party
instead of ELI hereunder. In the event that ELI sells,
Contract No. 97TX-10072
34
<PAGE>
assigns, leases, subleases, or otherwise allows use of ELI's License
under this Agreement, ELI or its assigned entity shall designate a
single point-of-contact to BPA for all activities relating to this
Agreement. A sale, transfer, or distribution (by way of a dividend or
otherwise) in one or a series of transactions of 50 percent or more of
the capital stock of the entity that holds the License shall be deemed
to be an assignment of the License.
(d) Partial Invalidity
If any provision of this Agreement is determined by a proper court to
be invalid, illegal, or unenforceable, such invalidity, illegality, or
unenforceability shall not affect the performance of other provisions
of this Agreement, and this Agreement shall remain in full force and
effect without such invalid, illegal, or unenforceable provision,
provided that if any such invalid, illegal, or unenforceable provision
results in frustration of this Agreement, such that ELI cannot perform
under section 13, BPA shall have the right to terminate in accordance
with section 21.
(e) Governing Law
This Agreement shall be governed by and construed in accordance with
Federal law.
(f) Terms Generally
The defined terms in this Agreement shall apply equally to both the
singular and the plural forms of the terms defined. Whenever the
content may require, any pronoun shall include the corresponding
masculine, feminine, and neuter forms. The term "person" includes
individuals, corporations, partnerships, trusts, other legal entities,
organizations and associations, and any Government or governmental
agency or authority. The words "include," "includes," and"
"including," shall be deemed to be followed by the phrase "without
limitation." The words "approval," "consent," and "notice," shall be
deemed to be preceded by the word "written."
(g) Relationship of the Parties
Contract No. 97TX-10072
35
<PAGE>
Nothing in this Agreement is intended or shall be deemed to constitute
a partnership, agency, or joint venture relationship between or among
the Parties hereto. The performance by the Parties of all duties and
obligations hereunder shall be as independent contractors and not as
agents of the other Party, and no persons employed or utilized by a
performing Party shall be considered employees or agents of the other.
(h) Waivers
No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the waiving
Party and any such waiver shall not be deemed a waiver of any other
provision of this Agreement or any other breach of this Agreement.
(i) Confidentiality
If and to the extent any information or documents furnished by one
Party to the other under this Agreement is confidential or proprietary
to the furnishing Party, the receiving Party shall treat such
information or documents as confidential and proprietary and shall
take reasonable steps to protect against the unauthorized use or
disclosure of such information or documents; provided, however, that
such information and documents are conspicuously marked or otherwise
clearly identified as confidential or proprietary when furnished; and
provided, further, that this section 24(g) shall not apply to
information or documents in the public domain or to information or
documents required to be disclosed by any law, rule, regulation,
order, or other requirement of any governmental authority having
jurisdiction. If a Freedom of Information Act, or Congressional,
request is received by BPA for such written information or documents,
BPA must promptly notify ELI of such request and will, further, notify
ELI if BPA is required to disclose such written information or
documents.
(j) No Third-Party Beneficiaries
This Agreement creates rights and obligations only between the Parties
hereto. The Parties hereto expressly do not intend to create any
obligations or promise of
Contract No. 97TX-10072
36
<PAGE>
performance to any other third person or entity nor have the Parties
conferred any rights or remedy upon any third person or entity other
than the Parties hereto, their respective successor or assigns to
enforce this Agreement.
(k) Miscellaneous
Neither Party shall public announcement of this Agreement or the
transactions contemplated by this Agreement without the prior consent
of the other Party, unless such public announcement is necessary to
comply with applicable law. This Agreement shall benefit and bind ELI
and BPA and their respective permitted successors and assigns. Time
is of the essence of this Agreement. This Agreement may be executed
in counterparts, each of which shall be an original, but all of which
shall constitute one and the same Agreement. This Agreement may not
be amended or modified except by a written instrument signed by ELI
and BPA.
Contract No. 97TX-10072
37
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in two
counterparts.
UNITED STATES OF AMERICA
Department of Energy
BPA Power Administration
Name Kevin A. Ward /s/ Kevin A. Ward
-----------------
Account Executive
Transmission Marketing & Sales
Date July 18, 1997
----------------------------
ACCEPTED:
ELECTRIC LIGHTWAVE, INC.
By: /s/ D.B. Sharkey
-------------------------
Name: D.B. Sharkey
-----------------------
(Print/Type)
Title: President
-----------------------
Date: July 18, 1997
------------------------
Contract No. 97TX-10072
38
<PAGE>
Exhibit A, Page 1 of 1
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
ROUTE DESCRIPTION
The following Route description is a best estimate of how the Route will be
laid out. Difficulties may arise along the Route that will require BPA to make
adjustments that could alter the final Route.
The northern origination point of the Route begins at Bonneville's Keeler
Substation, located 8 miles west of Portland, Oregon. The Cable will be
attached to the Keeler-Oregon City No. 2, 115-kv H-frame wood pole line running
for a distance of approximately 21.4 miles to the Oregon City Substation. The
Cable will then run from the Oregon City Substation a distance of approximately
0.7 miles on the Oregon City to Chemawa No. 2, 115-kv H-frame wood pole line to
the 1/10 structure location. From the 1/1 0 structure, the Cable will traverse
a distance of approximately 24.7 miles on the Big Eddy-Chemawa No. 1, 230-kv
lattice steel tower line to the Chemawa Substation. The Cable will then run on
the Chemawa-to-Salem No. 1, 230-kv double circuit steel tube line for
approximately 10.7 miles until it reaches the Salem Substation. From the Salem
Substation, the Cable will then traverse a distance of approximately 23.9 miles
to the Albany Substation on the Salem-to-Albany No. 1, 115-kv H-frame wood pole
line, encountering two river crossings on steel towers. From Albany Substation,
the Cable will span a distance of approximately 39.8 miles to the Eugene
Substation, traveling along the Albany-to-Eugene No. 1, I I 5-kv H-frame wood
pole line, with one river crossing on steel towers. From a point near Eugene
Substation, the Cable will run a distance of approximately 5.0 miles on the
Marion-Lane 500-kV lattice steel tower line to Lane Substation. From Lane
Substation, the Cable will run a distance of approximately 13.4 miles on the
Alvey-Lane 230-kV lattice steel tower line to the southern terminus of the Cable
to be located at the Alvey Substation.
Contract No. 97TX-10072
<PAGE>
Exhibit B, Page 1 of 4
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
PAYMENT SPECIFICATIONS
ELI's Monthly Payment to BPA will equal GRV multiplied by the Payment Factor.
The Payment Factor equals thirty-seven percent (37%) until ELI's accumulative
monthly payments to BPA exceed BPA Capital Costs, after which the Payment Factor
will equal thirty-two percent (32%) for the remainder of the contract.
The GRV will be determined using the following formula:
GRV = ELITSV + EUTRSV + DFLV + OSV
Where:
GRV = Gross Revenue Value
ELITSV = ELI Transport Service Value(s)
EUTSV = End-User Transport Service Value(s)
DFLV = Dark Fiber Lease Value(s)
OSV = Other Service Value(s)
Contract No. 97TX-10072
<PAGE>
Exhibit B, Page 2 of 4
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
SAMPLES OF REPORTING SUMMARY
AND ANNUAL REVENUE SPLIT
The samples below are not based on actual data generated, but to be used for
sample purposes only. The Annual Revenue Split, shown on page two of this
Exhibit, demonstrates how the payment calculation is to be applied to a given
GRV, and the Summary Report specifies the information and format ELI shall use
for reporting information to BPA.
Contract No. 97TX-10072
<PAGE>
Exhibit B, Page 3 of 4
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
3
<PAGE>
Exhibit B, Page 4 of 4
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
TABLE X
ACCOUNT SUMMARY
VALUES FOR
ACCOUNT NAME START DATE SERVICE TYPE UNIT PRICE # OF THE MONTH
---------- UNITS
Monthly GRV:
* @ 140 miles per fiber
Contract No. 97TX-10072
4
<PAGE>
Exhibit C Page 1 of 1
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
MILESTONE SCHEDULE
<TABLE>
ID TASK DURATION START FINISH NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
1
</TABLE>
Contract No. 97TX-10072
<PAGE>
Exhibit D Page 1 of 8
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
COMMERCIAL FIBER SPECIFICATIONS
CORNING(R) SMF-28(TM) CPC6
SINGLE-MODE OPTICAL FIBER
GENERAL
Corning(R) SMF-28(TM) single mode fiber is considered the "standard" optical
fiber for telephony, cable television, submarine, and private network
applications in the transmission of data, voice, and/or video services. Corning
SMF-28 fiber is manufactured to the most demanding specifications in the
industry.
SMF-28 fiber is optimized for use in the 1310 nm. wavelength region. The
information carrying capacity of the fiber is at its highest in this
transmission window, and it is al so where dispersion is the lowest. SMF-28
fiber can also be effectively used in the 1550 nm wavelength region.
Corning's enhanced, dual layer acrylate CPC6 coating provides excellent fiber
protection and is easy to work with. CPC6 can be mechanically stripped and has
an outside diameter of 245 um. CPC6 is optimized for use in many single and
multi-fiber cable designs including loose tube, ribbon, slotted core, and tight
buffer cables.
SMF-28 fiber is manufactured using the Outside Vapor Deposition (OVD) process,
which produces a totally synthetic, ultra-pure fiber. As a result, Corning SMF-
28 has consistent geometric properties, high strength, and low attenuation.
Corning SMF-28 fiber can be counted on to deliver excellent performance and high
reliability, reel after reel.
FEATURES AND BENEFITS
o Versatility in 1310 nm and 1550 nm applications.
o Outstanding geometrical properties for low splice loss and high splice yields.
o OVD manufacturing reliability and product consistency.
o Optimized for use in ribbon, loose tube, and other common cable designs.
Contract No. 97TX-10072
<PAGE>
Exhibit D Page 2of 8
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
OPTICAL SPECIFICATIONS
ATTENUATION
- ------------------------------------------
UNCABLED FIBER ATTENUATION CELLS
- ------------------------------------------
Attenuation Cells
(dB/km)
- ------------------------------------------
Wavelength (nm) Standard
- ------------------------------------------
1310 less than or = to 0.40
- ------------------------------------------
1550 less than or = to 0.30
- ------------------------------------------
*Lower attenuation available in limited quantities.
POINT DISCONTINUITY.
No point of discontinuity greater than 0.10 dB at either 1310 nm or 1550 nm.
ATTENUATION AT THE WATER PEAK
The attenuation at 1383+ 3 nm shall not exceed 2.1 dB/km.
-
- ----------------------------------------------------
ATTENUATION VS. WAVELENGTH
- ----------------------------------------------------
Range Ref. # Max Increase
(nm) (nm) a (dB/km)
- ----------------------------------------------------
1285-1330 1310 Standard
- ----------------------------------------------------
1525-1575 1550 less than or = to 0.40
- ----------------------------------------------------
The attenuation in a given wavelength range does not exceed the attenuation of
the reference wavelenght (#) by more than the value a.
- ----------------------------------------------------------------------
ATTENUATION WITH BENDING
- ----------------------------------------------------------------------
Mandrel Number of Wavelength Induced
Diameter Turns (nm) Attenuation
(mm) (dB)
- ----------------------------------------------------------------------
32 1 1550 less than or = to 0.50
- ----------------------------------------------------------------------
75 100 1810 less than or = to 0.05
- ----------------------------------------------------------------------
75 100 1550 less than or = to 0.10
- ----------------------------------------------------------------------
The induced attenuation due to fiber wrapped around a mandrel of a specified
diameter.
o CABLE CUTOFF WAVELENGTH (#ccf) o MODE FIELD DIAMETER
#ccf less than 1260 nm 9.30 + 0.50 m at 1310 nm
-
10.50 + 1.00 m at 1550 nm
-
o DISPERSION
Zero Dispersion Wavelength (#-): 1301.5 nm less than #- less than or = to
1321.5 nm
Zero Dispersion Slope (S\o\): less than or = to 0.092 ps/(nm to the second
power . km)
Fiber Polarization Mode Dispersion Coefficient (PMD): less than or = to 0.5
psec/ km
- --------------------------------------------------------------------------------
DISPERSION CALCULATION
- --------------------------------------------------------------------------------
S\o\
Dispersion=D(#):S\o\[# - # _ to the fourth power]ps/(nm . km), for 1200 nm
---- ------------------------
4 # to the third power
less than or = to # less than or = to 1600 nm # = Operating Wavelength
Contract No. 97TX-10072
<PAGE>
Exhibit D Page 3of 8
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
ENVIRONMENTAL SPECIFICATIONS
- --------------------------------------------------------------------------------
ENVIRONMENTAL TEST INDUCED Operating
CONDITION ATTENUATION Temperature Range
(dB/km) -60 degree C +
85 degree C
- --------------------------------------------------------------------------------
1310 nm 1550 nm
- --------------------------------------------------------------------------------
Temperature Dependence less than or = to 0.05 less than or = to 0.05
- -60 degree C to 85 degree C
- --------------------------------------------------------------------------------
Temperature-Humidity less than or = to 0.05 less than or = to 0.05
Cycling
- -10 degree C to + 85 degree
C, up 98%
RH
- --------------------------------------------------------------------------------
Water Immersion, 23 degree C less than or = to 0.05 less than or = to 0.05
- --------------------------------------------------------------------------------
Heat Aging, 85 degree C less than or = to 0.05 less than or = to 0.05
- --------------------------------------------------------------------------------
DIMENSIONAL SPECIFICATIONS
STANDARD LENGTH (km/reel): 2.2 - 25.0
*Longer spliced lengths available at a premium.
GLASS GEOMETRY
Fiber Curl: greater than or = to 2.0m radius of curvature
Cladding Diameter: 125.0 + 1.0 m
-
Core-Clad Concentricity: less than or = to 0.8 m
Cladding Non-Circularity: less than 1.0%
COATING GEOMETRY
Coating Diameter: 245 + 10 m
-
Coating-Cladding Concentricity: less than 12 m
Defined as: [ 1- Min. Cladding Diameter] ]
----------------------- x 100
[ Min. Cladding Diameter] ]
MECHANICAL SPECIFICATIONS
PROOF TEST:
The entire length of fiber is subjected to a tensile proof stress greater than
or = to 100 kpsi (0.7 GN/m to the second power)*
*Higher proof test available at a premium.
Contract No. 97TX-10072
<PAGE>
Exhibit D Page 4of 8
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
PERFORMANCE CHARACTERIZATIONS
Characterized parameters are typical values.
CORE DIAMETER:
8.3 m
NUMERICAL APERTURE:
0.13
NA was measured at the one percent angle of a one-dimensional
far-field scan at 1310 nm.
ZERO DISPERSION WAVELENGTH (#-):
1312 nm
ZERO DISPERSION SLOPE (S\o\):
0.090 ps/(nm to the second power . km)
REFRACTIVE INDEX DIFFERENCE:
0.36%
EFFECTIVE GROUP INDEX OF REFRACTION (N\eff\):
1.4675 at 1310 nm
1.4681 at 1440 nm
FATIGUE RESISTANCE PARAMETER (n\d\):
greater than or = to 20
COATING STRIP FORCE:
Dry: 0.7 lbs. (3.2N)
Wet: 14 days room temperature: 0.7 lbs. (3.2N)
COATINGS
Corning SMF-28 optical fiber also is available with CSB4 500 m coating.
Contract No. 97TX-10072
<PAGE>
Exhibit D Page 5of 8
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
CORNING(R) SMF/DS(TM) CPC6 SINGLE-MODE
DISPERSION-SHIFTED OPTICAL FIBER
GENERAL
Corning(R) SMF/DS(TM) single mode fiber is designed for use in long-haul and
high capacity applications where 1550 n= systems offer reduced regeneration
frequency, and use of Erbium-doped Fiber Amplifiers. Applications for this
product include telephony, cable television, private network, and submarine
systems where long-link spans and high data rates are required.
SMF/DS is optimized for use in the 1550 nm wavelength region. With low
dispersion in this operating window, fiber information-carrying capacity is at
its highest. The Patented segmented core design has achieved low dispersion,
attenuation, and bend loss at the 1550 operating wavelength.
Corning's enhanced, dual layer acrylate CPC6 coating provides excellent fiber
protection and is easy to work with. CPC6 can be mechanically stripped and has
an outside diameter of 245 m. CPC6 is optimized for use in many single and
multi-fiber cable designs including loose tube, ribbon, slotted core, and tight
buffer cables.
SMF/DS fiber is manufactured using the Outside Vapor Deposition (OVD) process,
which produces a totally synthetic, ultra-pure fiber. As a result, Corning
SMF/DS has consistent geometric properties, high strength, and low attenuation.
Corning SMF/DS fiber can be counted on to deliver excellent performance and high
reliability, reel after reel.
FEATURES & BENEFITS
o Patented segmented core design provides low attenuation, dispersion, and bend
loss at 1550 nm.
o Outstanding geometrical properties for low splice loss and high splice
yields.
o OVD manufacturing reliability and product consistency.
o Optimized for use in loose tube, ribbon, and other common cable designs.
Contract No. 97TX-10072
<PAGE>
Exhibit D Page 6of 8
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
OPTICAL SPECIFICATIONS
ATTENUATION
ATTENUATION CELL: POINT DISCONTINUITY:
less than or = to 0.25 dB/km at 1550 nm No point discontinuity great than 0.10
dB at 1550 nm.
- -----------------------------------------
ATTENUATION VS. WAVELENGTH
- -----------------------------------------
Range Ref. # Max Increase The attenuation in a given wavelength
(nm) (nm) a (dB/km) range does not exceed attenuation of
the reference wavelength (#) by more
than the value a.
- ------------------------------------------
1525-1575 1550 0.05
- ------------------------------------------
- --------------------------------------------------------
ATTENUATION WITH BENDING
- --------------------------------------------------------
Mandrel Number of Wavelength Induced The induced attenuation
Diameter Turns (nm) Attenuation (dB) due to fiber wrapped
(mm) around a mandrel of a
- -------------------------------------------------------- specified diameter.
32 1 1550 less than or = to 0.50
- --------------------------------------------------------
40 100 1550 less than or = to 0.05
- --------------------------------------------------------
o CABLE CUTOFF WAVELENGTH (#ccf) o MODE FIELD DIAMETER
#ccf less than 1260 nm 8.10 + 0.65 nm at 1550 nm
-
o DISPERSION
Zero Dispersion Wavelength (#-): 1535 nm less than or = to #- less than or =
to 1565 nm
Zero Dispersion Slope (S\o\): less than or = to 0.085 ps/(nm to the second
power . km)
Total Dispersion: less than or = to 2.7 ps/(nm . km) over the range 1525 to
1575
- --------------------------------------------------------------------------------
DISPERSION CALCULATION
- --------------------------------------------------------------------------------
Dispersion = D(#)=S\o\(# - #--) [ps/(nm . km), for 1500 nm less than or = to #
less than or = to 1600 nm # = Operating Wavelength
- --------------------------------------------------------------------------------
Contract No. 97TX-10072
<PAGE>
Exhibit D Page 7of 8
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
ENVIRONMENTAL SPECIFICATIONS
- --------------------------------------------------------
ENVIRONMENTAL TEST INDUCED Operating Temperature Range
CONDITION ATTENUATION -60 degree C + 85 degree C
(dB/Km)
- --------------------------------------------------------
1550 nm
- --------------------------------------------------------
Temperature Dependence less than or = to 0.03
- -60 degree C to 85 degree C
- --------------------------------------------------------
Temperature-Humidity less than or = to 0.05
Cycling
- -10 degree C to + 85 degree
C, up 98% RH
- --------------------------------------------------------
Water Immersion, 23 degree C less than or = to 0.05
- --------------------------------------------------------
Heat Aging, 85 degree C less than or = to 0.05
- --------------------------------------------------------
DIMENSIONAL SPECIFICATIONS
Standard Length (km/reel): 4.4 - 25.0
*Longer spliced lengths available at a premium
GLASS GEOMETRY
Fiber Curl: greater than or = to 2.0m radius of curvature
Cladding Diameter: 125.0 + 1.0 m
-
Core-Clad Concentricity: less than or = to 1.0 m
Cladding Non-Circularity:less than 2.0%
COATING GEOMETRY
Coating Diameter: 245 + 10 m
-
Coating-Cladding Concentricity: less than 12 m
[ Min. Cladding Diameter ]
Defined as: 1 - ---------------------- X 100
[ Max. Cladding Diameter ]
MECHANICAL SPECIFICATIONS
PROOF TEST:
The entire length of fiber is subjected to a tensile proof stress greater than
or = to 100 kpsi (0.7 GN/m to the second power)*
*Higher proof test available at a premium.
CONTRACT No. 97TX-10072
<PAGE>
Exhibit D, Page 8 of 8
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
PERFORMANCE CHARACTERIZATIONS
Characterized parameters are typical values.
ATTENUATION AT 1310 nm: REFRACTIVE INDEX DIFFERENCE:
0.38dB/km The refractive index difference between the peak
of the core and the cladding is 0.9%, and the
difference between the peak of the ring and
cladding is 0.3%
NUMBERICAL APERTURE: EFFECTIVE GROUP INDEX OF REFRACTION (N\eff\):
0.17 1.4718 at 1310 nm
NA was measured at the one 1.4711 at 1550 nm
perecent power angle of a
one-dimensional far-field
scan at 1550 nm.
ZERO DISPERSION WAVELENGTH FATIGUE RESISTANCE PARAMETER (n\d\):
(#\O\):
1550 nm greater than or = to 20
ZERO DISPERSION SLOPE (S\o\): COATING STRIP FORCE:
0.075 ps/(nm to the second Dry: 0.7 lbs. (3.2N)
power . km) Wet: 14 days room temperature: 0.7 lbs. (3.2N)
8 Contract No. 97TX-10072
<PAGE>
Exhibit E, Page 1 of 1
Contract No. 97TX-10072
ELI Telecommunications Corporation
Effective on the Effective Date
DETAILED RESTORATION PLAN
(To be included upon the Energization Date)
1 Contract No. 97TX-10072
<PAGE>
EXHIBIT 10.4
------------------------------------------
OPTICAL FIBER LEASE AGREEMENT
DATED EFFECTIVE AS OF SEPTEMBER 11, 1996
BETWEEN
ELECTRIC LIGHTWAVE, INC.
AND
SALT RIVER PROJECT AGRICULTURAL
IMPROVEMENT AND POWER DISTRICT
------------------------------------------
[Asteriks herein denote confidential material which has been omitted pursuant to
a request for confidential treatment. Such material has been filed separately
with the Securities and Exchange Commission]
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
<TABLE>
<S> <C> <C>
ARTICLE I: DEFINITIONS......................................... 1
-----------
ARTICLE II: SYSTEM.............................................. 13
------
2.1 Existing SRP Operations and Network................. 13
-----------------------------------
2.2 Existing ELI Operations and Network................. 14
-----------------------------------
2.3 SRP Build-Out....................................... 14
-------------
2.4 ELI Build-Out....................................... 14
-------------
ARTICLE III: LEASE OF FIBER...................................... 15
--------------
3.1 Lease of Fiber to ELI............................... 15
---------------------
3.2 Use of Leased Fiber................................. 15
-------------------
3.3 Term of Lease....................................... 16
-------------
3.4 Operating Lease Payments............................ 16
------------------------
ARTICLE IV: RESERVED FIBER...................................... 16
--------------
4.1 Reserved Fiber...................................... 16
--------------
4.2 Dark Fiber Reservation.............................. 17
----------------------
4.3 Amount of Reserved Fiber............................ 17
------------------------
4.4 Sale of Network Services and Elements............... 17
-------------------------------------
ARTICLE V: FINANCIAL TERMS..................................... 17
---------------
5.1 Operating Revenues.................................. 17
------------------
5.2 Base Case Financial Model........................... 18
-------------------------
5.3 Annual Budgeting Process............................ 19
------------------------
5.4 Operating Lease Percentage.......................... 19
--------------------------
5.5 Operating Lease Payment............................. 20
-----------------------
5.6 Annual Adjustment for Past Operating Lease Payments. 24
---------------------------------------------------
5.7 SRP Direct Operating Services....................... 25
-----------------------------
5.8 Minimum Performance Standards....................... 26
-----------------------------
5.9 Books, Records and Audit Rights..................... 27
-------------------------------
</TABLE>
- i -
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE VI: UTILICOM SERVICES............................................27
-----------------
6.1 Right of SRP to Provide Utilicom Services Over the System....27
---------------------------------------------------------
6.2 System Costs and Charges for Utilicom Services...............27
----------------------------------------------
6.3 Tracking of Utilicom Services................................29
-----------------------------
6.4 Quarterly Review of Utilicom Services........................29
-------------------------------------
ARTICLE VII: SYSTEM DESIGN................................................29
-------------
7.1 Integrated Design............................................29
-----------------
7.2 Design Responsibilities......................................30
-----------------------
7.3 Information Requests.........................................31
--------------------
ARTICLE VIII: CONSTRUCTION OF SEGMENTS.....................................33
------------------------
8.1 Construction of Segments.....................................33
------------------------
8.2 Future Segments..............................................34
---------------
8.3 Work Standards...............................................36
--------------
8.4 Supply of System Materials...................................36
--------------------------
8.5 Changes......................................................37
-------
8.6 Use of Contractors...........................................38
------------------
8.7 Inspection of Work and Acceptance of Construction............39
-------------------------------------------------
8.8 As-Built Drawings............................................40
-----------------
8.9 Correction of Work...........................................42
------------------
8.10 Title and Risk of Loss.......................................43
----------------------
8.11 Customer Installations.......................................43
----------------------
ARTICLE IX: MAINTENANCE..................................................44
-----------
9.1 General Responsibilities.....................................44
------------------------
9.2 Maintenance Procedures.......................................45
----------------------
9.3 Maintenance Supplies.........................................45
--------------------
9.4 Repair Timing................................................45
-------------
9.5 Staff Training...............................................46
--------------
ARTICLE X: PROPERTY RIGHTS AND OBLIGATIONS..............................46
-------------------------------
10.1 Rights of Way and Building Entrances.........................46
------------------------------------
10.2 Cross Licenses...............................................47
--------------
10.3 Route Designations...........................................48
------------------
10.4 Right of Entry...............................................48
--------------
10.5 Entry Conditions.............................................49
----------------
</TABLE>
- ii -
<PAGE>
<TABLE>
<C> <S> <C>
10.6 Property Right Obligations...................................50
--------------------------
10.7 Property Interest Documentation..............................52
-------------------------------
10.8 Memorandum of Agreement......................................52
-----------------------
10.9 Incremental Property Rights Costs............................52
---------------------------------
10.10 Franchise Rights and Licensing Costs.........................53
------------------------------------
10.11 Liens........................................................54
-----
10.12 Discontinuance and Relocation................................57
-----------------------------
ARTICLE XI: SYSTEM OPERATIONS AND COORDINATION...........................57
----------------------------------
11.1 Operations...................................................57
----------
11.2 Coordinating Committee.......................................59
----------------------
11.3 Network Deployment Committee.................................62
----------------------------
11.4 Staffing.....................................................64
--------
ARTICLE XII: REPRESENTATIONS, WARRANTIES AND COVENANTS....................64
-----------------------------------------
12.1 Representations, Warranties and Covenants of ELI.............64
------------------------------------------------
12.2 Representations, Warranties and Covenants of SRP.............67
------------------------------------------------
12.3 Confidentiality..............................................69
---------------
12.4 Cooperation..................................................72
-----------
12.5 Regulatory Compliance........................................73
---------------------
12.6 Certificates.................................................73
------------
12.7 Independent Contractor Status................................74
-----------------------------
12.8 Transactions with Affiliates.................................74
----------------------------
12.9 Further Assurances...........................................74
------------------
12.10 Nonexclusive Agreement.......................................75
----------------------
12.11 Damage and Destruction.......................................75
----------------------
ARTICLE XIII: INSURANCE....................................................76
---------
13.1 Required Insurance Coverage..................................76
---------------------------
13.2 General Conditions...........................................76
------------------
ARTICLE XIV: ASSIGNMENT, SUBLETTING AND OTHER TRANSFERS...................77
------------------------------------------
14.1 Transfers....................................................77
---------
14.2 ELI or SRP Financing.........................................78
--------------------
14.3 SRP and ELI Recognition of Transferees.......................78
--------------------------------------
14.4 No Assumption or Release.....................................79
------------------------
14.5 Mergers and Acquisitions.....................................79
------------------------
14.6 No Third Party Beneficiaries.................................79
----------------------------
</TABLE>
- iii -
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE XV: CONDEMNATION.................................................79
------------
15.1 Taking.......................................................79
------
15.2 Taking Awards................................................80
-------------
15.3 Notice of Taking.............................................80
----------------
ARTICLE XVI: ENVIRONMENTAL HAZARD LIABILITY...............................81
------------------------------
16.1 Representations..............................................81
---------------
16.2 Responsibilities of Parties..................................81
---------------------------
16.3 Alternate Locations..........................................82
-------------------
ARTICLE XVII: LIABILITY AND INDEMNITY......................................82
-----------------------
17.1 ELI Indemnity................................................82
-------------
17.2 SRP Indemnity................................................83
-------------
17.3 No Consequential Damages.....................................83
------------------------
17.4 Waiver of Subrogation........................................84
---------------------
17.5 Defense of Claims............................................84
-----------------
17.6 Third Party Claims...........................................84
------------------
17.7 Survival.....................................................84
--------
17.8 Limitation of ELI Liability..................................85
---------------------------
17.9 Limitation of SRP Liability..................................85
---------------------------
17.10 Applicability of Liability Limitations.......................85
--------------------------------------
ARTICLE XVIII: FORCE MAJEURE................................................86
-------------
18.1 Excuse of Performance........................................86
---------------------
18.2 Definition...................................................86
----------
18.3 Continuance after Force Majeure Event........................87
-------------------------------------
ARTICLE XIX: BREACH AND TERMINATION.......................................88
----------------------
19.1 Termination Events...........................................88
------------------
19.2 Actions Following Occurrence of Termination Event............90
-------------------------------------------------
19.3 Rights of ELI and SRP Upon Termination.......................91
--------------------------------------
ARTICLE XX: MISCELLANEOUS................................................93
-------------
20.1 Amendments...................................................93
----------
20.2 Binding Effect...............................................93
--------------
</TABLE>
- iv -
<PAGE>
<TABLE>
<C> <S> <C>
20.3 Waivers......................................................93
-------
20.4 Notices......................................................93
-------
20.5 Severability.................................................94
------------
20.6 Interpretation...............................................95
--------------
20.7 Governing Law and Choice of Forum............................95
---------------------------------
20.8 Commissions..................................................95
-----------
20.9 Counterparts.................................................95
------------
20.10 Attorney Fees................................................96
-------------
20.11 Costs........................................................96
-----
</TABLE>
EXHIBITS
- --------
Exhibit "A" ELI Construction Plan
Exhibit "B" Network Maps
Exhibit "C" Initial Base Case Financial Model
Exhibit "D" SRP Construction Plan
Exhibit "E" Existing SRP Network Contracts
Exhibit "F" Reserved Fiber Allocation for Existing Segments
Exhibit "G" Operating Lease Payment Calculation Examples
Exhibit "H" Coordinating Committee
Exhibit "I" Network Deployment Committee
Exhibit "J" Staffing
- v -
<PAGE>
OPTICAL FIBER LEASE AGREEMENT
-----------------------------
THIS OPTICAL FIBER LEASE AGREEMENT ("Agreement") is made and entered
into effective as of September 11, 1996, by and between ELECTRIC LIGHTWAVE,
INC., a Delaware corporation ("ELI"), and SALT RIVER PROJECT AGRICULTURAL
IMPROVEMENT AND POWER DISTRICT, an Agricultural Improvement District organized
and existing under the laws of the State of Arizona ("SRP").
R E C I T A L S
- - - - - - - -
A. ELI is a supplier of telecommunications services in the Phoenix,
Arizona metropolitan area.
B. SRP is a supplier of electric power and communications-enabled power
related products and services in portions of Maricopa County, Gila County and
Pinal County, Arizona.
C. ELI and SRP are each in the process of deploying fiber optic cable in
the Phoenix, Arizona metropolitan area to expand their existing communications
networks.
D. ELI desires to lease optical fibers from SRP, and SRP, upon the terms,
covenants and conditions set forth in this Agreement, is willing to lease
optical fiber to ELI.
NOW, THEREFORE, in consideration of the mutual promises contained in
this Agreement and for good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, ELI and SRP agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the meanings
specified below:
<PAGE>
"Acceptance of Construction" shall mean the written notification from
ELI to SRP, or from SRP to ELI, pursuant to Section 8.7, that specified work has
been inspected by such party and found to have been performed substantially in
accordance with the requirements of this Agreement.
"Additional Segment" shall mean those Segments identified on the ELI
Construction Plan and the SRP Construction Plan for construction after the date
of this Agreement by ELI or by SRP.
"Ad Valorem Taxes" shall mean ad valorem property taxes, special
assessments, local improvement district levies and other levies assessed against
the Facilities, the System or any Right of Way.
"Affected Portion" shall mean the portion of any Segment that is or
may: (1) be affected by a Taking; (2) become the subject of a lien or transfer;
or (3) be damaged or destroyed as the result of the occurrence of an event of
casualty.
"Affiliate" shall mean, with respect to either ELI or SRP, any
corporation that controls such party, is controlled by such party, or is with
such party under common control of another entity.
"Agent" shall mean the agent of any permitted Transferee who, pursuant
to Section 14.2, is entitled to receive any notices required to be given under
the terms of this Agreement.
"Agreement" shall mean this Optical Fiber Lease Agreement.
"Approvals" shall mean all permits, approvals and licenses from all
government authorities or other parties having jurisdiction or approval rights
respecting: (1) the use and
- 2 -
<PAGE>
occupation of any Right of Way where Facilities are located or to be
constructed; and (2) the use of Facilities.
"Base Case Financial Model" shall mean the economic analysis of the
revenues, expenses, capital outlays, income and cash flows projected over a
period beginning on the effective date of this Agreement and ending December 31,
2011. The Base Case Financial Model determines the present value of existing
and projected future capital investment (less Residual Value at the end of the
Term), then applies a formula to determine an Operating Lease Payment to
equalize the return of ELI and SRP on the present value of their respective
capital investments over the Term. The Base Case Financial Model will be
reevaluated from time to time as provided in Article V.
"Building Entrance" shall mean that portion of the System which runs
from a connection point on the System to the point-of-presence inside a
customer's building, including all Rights of Way, conduit, Fiber, fiber optic
patch panel and other Facilities necessary to establish the connection from a
connection point on the System to the customer's building.
"Changes" shall mean changes, additions to, deletions from or other
modifications to the construction plans for a Segment.
"Construction Plans" shall mean, collectively, the ELI Construction
Plan and the SRP Construction Plan.
"Coordinating Committee" shall mean the committee comprised of
representatives of ELI and SRP, as described in Section 11.2.
"Cost of Goods Sold" shall mean the actual cost of services purchased
for resale and the cost of leased Facilities.
- 3 -
<PAGE>
"Dark Fiber" shall mean Fiber through which no light is transmitted.
"Deferred Operating Lease Payment" shall mean the difference between
the hypothetical Operating Lease Payment, calculated as described in Section
5.5(a)(4), and the actual Operating Lease Payment paid by ELI to SRP in any of
the 15 consecutive calendar quarters beginning with year 1 of the Base Case
Financial Model. In no event will the Deferred Operating Lease Payment be less
than zero.
"Direct Operating Costs" shall include ELI Phoenix Direct Operating
Expenses and SRP Phoenix Direct Operating Expenses.
"Electric Services" shall mean those electric power generation,
transmission services, distribution services and other services relating to the
use of electric power, other than Utilicom Services, that SRP supplies to
customers.
"ELI Capital" shall include: (1) all capital expenditures ELI has
already incurred or, pursuant to the terms of this Agreement, will incur to
complete the ELI Construction Plan, including, without limitation, expenditures
to: (a) connect the existing ELI Network with the existing SRP Network; (b)
install a switch to provide Telecommunications Services; and (c) provide System
Electronics needed to deliver Telecommunications Services; (2) all ELI
expenditures to construct Future Segments, including the reasonable market value
of all Rights of Way and Building Entrances acquired to construct a Future
Segment; (3) any other capital expenditures approved by the Coordinating
Committee; and (4) ELI's Unreimbursed Direct Operating Expenses.
"ELI Construction Plan" shall mean the build-out plan for the
deployment by ELI of Additional Segments, including preliminary route
designations, construction schedule and Fiber
- 4 -
<PAGE>
capacity. A copy of the ELI Construction Plan is attached to and incorporated by
reference in this Agreement as Exhibit "A."
"ELI Facilities" shall mean those components of the System, other than
the SRP Facilities, whether located on or off a Right of Way, now owned or
hereafter (pursuant to the terms of this Agreement) acquired by ELI, including,
without limitation, Fiber, System Electronics, Building Entrances, Main Hubs,
Minihubs, junctions, terminals, regenerators, power sources, fault alarm
systems, structures and shelters, any conduit, poles or pole line attachments
associated with any of the foregoing, and all articles of personal property
owned or used by ELI connected with, necessary for, or useful to the
construction, installation, operation, maintenance, repair, reinstallation,
replacement, relocation and removal of any of the foregoing.
"ELI Network" shall mean the Fiber described on Exhibit "B" and ELI-
owned Future Segments deployed by ELI, including Fiber, System Electronics and
other ELI Facilities.
"ELI Operating Division" shall mean a regional office or service
center of ELI that, for internal accounting or regulatory purposes, has been
identified and designated as a separate division. An ELI Operating Division
shall be a geographic area reasonably consistent in size and population with
ELI's current operating divisions.
"ELI Phoenix Direct Operating Expenses" shall include the following
cost categories of the ELI Operating Division in Phoenix, Arizona that are
incurred consistent with the terms and provisions of this Agreement: (1)
corporate sales, carrier sales, marketing, technicians, maintenance,
engineering, real estate (including land rights acquisition), legal, insurance
(including all expenses incurred for loss, damage or liability not covered by
insurance), regulatory, facilities and property
- 5 -
<PAGE>
taxes; (2) SRP Direct Operating Services; and (3) a cost factor equal to the ELI
Vancouver Operating Expenses for the relevant accounting period divided by the
total number of ELI Operating Divisions existing at the end of such accounting
period, but in no event less than the number of ELI Operating Divisions shown on
the Initial Base Case Financial Model. If applicable, a reasonable component for
ELI overhead (other than a duplication for ELI Vancouver Operating Expenses) may
be included in the foregoing cost categories.
"ELI Vancouver Operating Expenses" shall mean the following services
and activities provided by ELI's home office in Vancouver, Washington for all
ELI Operating Divisions, wherever located: network control center, network
support, provisioning, customer service, system engineering and support,
telemarketing, sales support, carrier sales, marketing, accounting, finance,
billing, facilities, purchasing, legal, regulatory, and information systems, and
may include expenses of ELI's parent corporation or any ELI Affiliate directly
related to the System, but shall not include an allocation of overhead of ELI's
parent corporation or any ELI Affiliate.
"ELI's Preferred Rates" shall mean, from time to time during the Term,
the lowest prices then charged by ELI to similarly situated commercial
Telecommunications Services customers for a similar service or group of
services.
"Existing Segment" shall mean Segments owned by SRP or ELI existing as
of the date of this Agreement and identified on the ELI Construction Plan and
the SRP Construction Plan.
"Facilities" shall mean, collectively, the ELI Facilities and the SRP
Facilities.
- 6 -
<PAGE>
"Fiber" shall mean the fiber optic strands that, pursuant to the terms
of this Agreement, are designed, deployed, interconnected and used to create the
System for the transmission of Telecommunications Services and Utilicom Services
by ELI and SRP.
"Force Majeure" shall have the meaning given in Section 18.2.
"Future Segments" shall mean any Segments other than Additional
Segments that, after the date of this Agreement, may be proposed by either ELI
or SRP for addition to their respective networks and approved as described in
Section 8.2.
"Gross Margin" shall mean, for any accounting period, the difference
between the Gross Revenues generated from the sale of Telecommunications
Services for such period, and the Cost of Goods Sold for the corresponding
period.
"Gross Revenues" means all revenues billed by ELI for
Telecommunications Services provided by means of the System, less actual
uncollectibles (as determined consistent with ELI's business practices).
"Hazardous Substances" shall mean any waste, pollutant (as that term
is defined in 42 U.S.C. (S) 9601(33) or in 33 U.S.C. (S) 1362(13) or any
successor statutes thereto), hazardous substance (as that term is defined in 42
U.S.C. (S) 9601(14) or any successor statute thereto), hazardous chemical (as
that term is defined by 29 CFR Part 1910.1200(c) or any successor regulation
thereto), toxic substance, hazardous waste (as that term is defined in 42 U.S.C.
(S) 6901 or any successor statute thereto), radioactive material, special waste,
petroleum, including crude oil or any other hydrocarbon based substance, waste,
or breakdown or decomposition product thereof, or any
- 7 -
<PAGE>
constituent of any such substance or waste, including, but not limited to
polychlorinated biphenyls, and asbestos.
"Hub Site" shall mean the location of any Main Hub or Minihub.
"Initial Base Case Financial Model" shall mean the Base Case Financial
Model attached to and incorporated by reference in this Agreement as Exhibit
"C".
"Key Accounts" shall mean the customer accounts of SRP which are high
volume users of SRP's Electric Services which have been identified and
classified by SRP for special billing, accounting, customer service, marketing
or other purposes pursuant to the established Key Account program offered by SRP
to its customers, as now constituted or as it may hereafter be amended.
"Leased Fiber" shall mean all of the Fiber now or hereafter deployed
in the SRP Network.
"License" shall mean a license to exercise the rights granted to ELI
and SRP in Section 10.2 and elsewhere in this Agreement.
"Main Hub" shall mean any Hub Site, other than a Minihub, where
Facilities have been or are proposed to be constructed or installed to provide
the central point within the System to cross-connect traffic between end-users.
"Maps" shall mean: (1) the maps or drawings attached to and
incorporated by reference in this Agreement as Exhibit "B" which depict ELI's
and SRP's Existing Segments and Additional Segments; (2) any updates to the
foregoing; and (3) any other drawings or maps that either ELI or SRP is required
to prepare, update or submit to the Network Deployment Committee pursuant
- 8 -
<PAGE>
to the terms of this Agreement, or to any state or federal regulatory agency as
required by applicable statute, rule or regulation.
"Minihub" shall mean any Hub Site, other than a Main Hub site, where
Facilities have been or are proposed to be constructed or installed to provide a
network traffic concentration point for distribution to a Main Hub.
"Minimum Performance Standards" shall mean the performance criteria
and targets for the sale of Telecommunications Services over the System during
the Term identified in Section 5.8.
"Net Operating Income" shall mean, generally, Gross Margin less Direct
Operating Costs. However, as described in Section 5.5, the calculation of Net
Operating Income may also include a reduction for Unreimbursed Direct Operating
Expenses and for Deferred Operating Lease Payments for purposes of calculating
the Operating Lease Payment in certain years of the Term.
"Network Deployment Committee" shall mean the committee comprised of
representatives of ELI and SRP, as described in Section 11.3, whose primary
function shall be the coordination of efforts between ELI and SRP relating to
the design, construction and maintenance of the System.
"Operating Lease Payment" shall mean the quarterly lease payment of
ELI to SRP for use of the Leased Fiber.
"Operating Lease Percentage" shall mean the percentage factor
generated under the terms and assumptions of the Base Case Financial Model as
part of the annual budgeting process
- 9 -
<PAGE>
described in Section 5.4 that, when multiplied against the Net Operating Income
for any quarter, establishes the Operating Lease Payment (if any) for such
quarter.
"Reserved Fiber" shall mean that portion of the Fiber in the SRP
Network, now or hereafter deployed, which is allocated to the exclusive use of
SRP.
"Residual Value" shall mean the value of SRP Capital and ELI Capital
(not including Unreimbursed Direct Operating Expenses and Unreimbursed Deferred
Operating Lease Payments) remaining at the end of the Term, determined on a ten-
year straight-line depreciation schedule, using a mid-year convention.
"Right of Way" shall mean the real property and rights related thereto
used by ELI for its Telecommunications Services transmission system or by SRP
for its Electric Services and Utilicom Services transmission systems that are
used, owned, operated, leased or controlled by ELI or SRP, as applicable,
pursuant to either: (1) an historical use that is not based on a direct grant
of authority from the applicable property owner; or (2) a subsisting grant,
easement, lease, franchise, license or other agreement.
"Segment" shall mean a portion of the System with defined beginning
and end points.
"SONET" shall mean a synchronous optical network that is capable of
high speed transmission of digital signals.
"SRP Capital" shall include: (1) all capital expenditures SRP has
already incurred as shown on Exhibit "C" or, pursuant to the terms of this
Agreement, will incur to complete the SRP Construction Plan, including, without
limitation, all reasonable capital expenditures for the deployment of Fiber,
including the Reserved Fiber; (2) all SRP expenditures to construct Future
- 10 -
<PAGE>
Segments, including the reasonable market value of all Rights of Way and
Building Entrances contributed by SRP to construct a Future Segment; (3) any
other capital expenditures approved by the Coordinating Committee; and (4) SRP's
Unreimbursed Direct Operating Expenses.
"SRP Construction Plan" shall mean the build-out plan for the
deployment by SRP of Additional Segments, including preliminary route
designations, construction schedule and Fiber capacity. A copy of the SRP
Construction Plan is attached to and incorporated by reference in this Agreement
as Exhibit "D."
"SRP Direct Operating Services" shall mean those services provided by
SRP to ELI as described in Section 5.7.
"SRP Facilities" shall mean those components of the SRP Network, other
than the ELI Facilities now owned or hereafter (pursuant to the terms of this
Agreement) acquired by SRP, including, without limitation, Fiber, Building
Entrances, junctions, terminals, regenerators, power services, fault alarm
systems, structures and shelters, any conduit, poles or pole line attachments
associated with any of the foregoing, and all articles of personal property
owned or used by SRP connected with, necessary for, or useful to the
construction, installation, operation, maintenance, repair, reinstallation,
replacement, relocation and removal of any of the foregoing.
"SRP Network" shall mean the Fiber described in Exhibit "B" and SRP-
owned Future Segments, including Fiber and the other SRP Facilities.
"SRP Phoenix Direct Operating Expenses" shall include the following
cost categories of SRP associated with Telecommunications Services offered or
provided by ELI, or jointly by SRP and ELI, by means of the System, and that are
incurred consistent with the terms and provisions of
- 11 -
<PAGE>
this Agreement: business development, marketing, sales and sales support,
technicians, maintenance, engineering, real estate (including land rights
acquisition), legal, insurance (including all expenses incurred for loss, damage
or liability not covered by insurance) and property taxes. If applicable, a
reasonable component for SRP overhead may be included in the foregoing cost
categories.
"System" shall mean the combination of the ELI Network and the SRP
Network currently installed or to be deployed by ELI and SRP pursuant to the
terms of this Agreement, including all Segments, all improvements, Facilities,
Building Entrances and other equipment which creates the Fiber communications
system contemplated by this Agreement. The System shall not include the
Reserved Fiber or any equipment currently owned or hereafter purchased by or for
SRP solely for use in connection with the Reserved Fiber or SRP's Electric
Services transmission system.
"System Electronics" shall mean all items of equipment, hardware,
software, electronics, optronics and any components thereof owned by ELI that
are used to transmit or monitor Telecommunications Services or Utilicom Services
over the Leased Fiber or the System, including, without limitation, routers,
access nodes, MSDTs, channel banks, digital system cross connect equipment,
fiber optic terminals, fiber optic patch panels, multiplexers and switches.
"System Materials" shall mean all Fiber, System Electronics, equipment
and other materials obtained by ELI or SRP under the terms of this Agreement to
construct any Segment.
"Taking" shall mean the exercise of the power of eminent domain by any
public or quasi-public authority, other than an exercise by ELI or SRP in
accordance with statutory authority.
"Telecommunications Services" shall mean all services delivered by
means of the System (other than Utilicom Services), including, without
limitation, the two-way transmission of
- 12 -
<PAGE>
signals, messages, images, sounds, data and other information of any nature
transmitted to customers by means of the System.
"Term" shall mean the period of time beginning on the effective date
of this Agreement and terminating on December 31, 2011.
"Transferee" shall mean any individual or entity to which either ELI
or SRP, pursuant to Article XIV, transfers or assigns any interest in this
Agreement or, as applicable, in the ELI Facilities or the SRP Facilities.
"Unreimbursed Direct Operating Expenses" shall mean all ELI Phoenix
Direct Operating Expenses and SRP Phoenix Direct Operating Expenses that are not
recovered by the parties under the terms of the Base Case Financial Model in the
quarter in which they are incurred.
"Utilicom Services" shall mean all services delivered by means of the
System including, without limitation, the two-way transmission of signals,
messages, images, sounds, data and other information of any nature transmitted
to customers by means of the System (other than Telecommunications Services),
that are incidental to Electric Services and water services provided by SRP and
its Affiliates, to their customers.
ARTICLE II
SYSTEM
------
2.1 Existing SRP Operations and Network. SRP maintains an extensive
-----------------------------------
water delivery system and is a provider of electric power and water. As part of
its electrical power delivery system, SRP has installed a communications network
consisting of approximately 165.6 miles of 20-strand, 24-strand and 48-strand
Fiber cable.
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<PAGE>
2.2 Existing ELI Operations and Network. ELI provides
-----------------------------------
Telecommunications Services in the States of Washington, Oregon, California,
Arizona and Utah. ELI's Arizona operations are centered in the Phoenix
metropolitan area and consist of: (a) special access service types such as:
DS-0, DS-1, and DS-3; and (b) frame relay, FDDI, and other data related
services. ELI has applied for operating authority from the Arizona Corporation
Commission to provide intrastate Telecommunications Services, including local
exchange services, in Arizona. ELI has installed a metropolitan area network in
downtown Phoenix, Arizona consisting of approximately 8 miles of 96-strand Fiber
cable.
2.3 SRP Build-Out. Over the next four (4) fiscal years of SRP (May 1
-------------
to April 30), starting with SRP's 1996/1997 fiscal year, SRP, at its own
expense, shall construct the Additional Segments described in the SRP
Construction Plan, approximately along the routes identified on the Map attached
to this Agreement as Exhibit "B". SRP's total Fiber cable deployment commitment
consists of an additional approximately 324 miles of Fiber cable. It is
anticipated that SRP will expend approximately [*] to complete the SRP
Construction Plan. The Additional Segments to the SRP Network shall be
designed, constructed and maintained in accordance with the terms, covenants and
conditions of this Agreement.
2.4 ELI Build-Out. Over the next three (3) calendar years (including
-------------
1996), ELI, at its own expense, shall construct and install:
(a) Additional Segments. The Additional Segments described in
-------------------
the ELI Construction Plan, approximately along the routes identified on the
Map attached to this Agreement as Exhibit "B." ELI's total Fiber cable
deployment commitment consists of an
- 14 -
* Confidential material has been omitted pursuant to a request for confidential
treatment. Such material has been filed separately with the Securities and
Exchange Commission.
<PAGE>
additional approximately 54.74 miles of Fiber cable. It is estimated that
ELI will expend approximately $3,350,000.00 to complete the Additional
Segments.
(b) System Electronics. The System Electronics and related
------------------
Facilities (other than Fiber in the SRP Network) as described in Section
8.1. It is anticipated that ELI will expend approximately $27,008,700 to
install the System Electronics and related Facilities.
The Additional Segments to the ELI Network and the ELI System Electronics shall
be designed, constructed and maintained in accordance with the terms, covenants
and conditions of this Agreement.
ARTICLE III
LEASE OF FIBER
--------------
3.1 Lease of Fiber to ELI. SRP hereby leases to ELI, and ELI leases
---------------------
from SRP, all of the Leased Fiber during the Term in accordance with and subject
to the provisions of this Agreement. The Leased Fiber will be for the exclusive
use of ELI, with the exception of the Reserved Fiber as set forth in Article IV.
The Leased Fiber subject to this Agreement shall be Dark Fiber. ELI, at its
expense, shall supply all System Electronics and related Facilities (other than
Fiber in the SRP Network) needed to supply Telecommunications Services over the
System. All such System Electronics, and related Facilities shall be designed,
purchased, installed and maintained in accordance with the terms, covenants and
conditions of this Agreement.
3.2 Use of Leased Fiber. ELI may use the Leased Fiber solely for the
-------------------
purpose of providing Telecommunications Services. ELI shall use the Leased
Fiber in accordance with applicable laws, rules, regulations, orders and other
regulatory requirements, now or hereafter in effect, of any governmental
authority having jurisdiction over ELI, the Leased Fiber or the use
- 15 -
<PAGE>
thereof. ELI shall not use the Leased Fiber in connection with the marketing of
electric power, other than electric power supplied by SRP.
3.3 Term of Lease. The lease of the Leased Fiber to ELI shall
-------------
commence on the effective date of this Agreement and shall continue for the
Term, unless sooner terminated pursuant to the express provisions of this
Agreement
3.4 Operating Lease Payments. To the extent payable under the terms
------------------------
of the Base Case Financial Model, ELI shall make Operating Lease Payments to SRP
consistent with the following: (a) Operating Lease Payments shall be due and
payable thirty (30) days after the end of each calendar quarter; (b) an
Operating Lease Payment shall not be considered late if paid within fifteen (15)
days after it is due; and (c) each late payment will bear interest at the rate
of 12% per annum until paid. The Operating Lease Payment amount, if any, shall
be recalculated each year throughout the Term as part of the annual budgeting
process described in Section 5.3.
ARTICLE IV
RESERVED FIBER
--------------
4.1 Reserved Fiber. SRP reserves for its own use the Reserved Fiber.
--------------
SRP may use the Reserved Fiber solely for the following purposes: (a) to
provide electric and water system communications services; (b) to provide SRP
corporate telecommunications services; (c) to provide Utilicom Services; and (d)
to provide for other uses as identified in Exhibit "E" attached to and
incorporated in this Agreement by reference. Notwithstanding the foregoing, SRP
may use the Reserved Fiber for any purpose, to the extent that the Reserved
Fiber is no longer needed for the purposes set forth in subparts (a) through (d)
above. SRP shall use the Reserved Fiber in accordance with applicable laws,
rules, regulations, orders and other regulatory requirements, now or hereafter
- 16 -
<PAGE>
in effect, of any governmental authority having jurisdiction over SRP, the
Reserved Fiber or the use thereof.
4.2 Dark Fiber Reservation. SRP's Reserved Fiber shall be Dark
----------------------
Fiber. SRP shall not have the right to use System Electronics installed by ELI
for use in connection with the System for SRP's Reserved Fiber. However, ELI,
at SRP's request, may sell System services to SRP as provided in Section 4.4 and
in other sections of this Agreement.
4.3 Amount of Reserved Fiber. The amount of Reserved Fiber to which
------------------------
SRP shall be entitled for all Existing Segments and Additional Segments in the
SRP Network is identified on Exhibit "F" attached to and incorporated by
reference in this Agreement. The Coordinating Committee shall specify the
number of Reserved Fibers for Future Segments. Reserved Fiber shall be fixed
for the Term.
4.4 Sale of Network Services and Elements. To the extent it is
-------------------------------------
economically and technically feasible, SRP and its Affiliates may purchase
unbundled network elements, facilities or functions from ELI. In addition, SRP
and its Affiliates may resell all finished services sold or offered by or
through ELI. The price charged to SRP or any SRP Affiliate for all such services
and network elements shall be based on ELI's Preferred Rates.
ARTICLE V
FINANCIAL TERMS
---------------
5.1 Operating Revenues. Within the general parameters of this
------------------
Agreement, ELI and SRP shall cooperate with each other, in good faith, and shall
use their best efforts to maximize the revenues generated by the System to
provide Telecommunications Services. In addition, throughout the Term:
- 17 -
<PAGE>
(a) SRP Revenues. SRP shall be entitled to collect and retain
------------
all revenues generated by use of the System or the Reserved Fiber to
deliver services, including, without limitation, Utilicom Services, to SRP
customers.
(b) ELI Revenues. Except for SRP resale of Telecommunications
------------
Services, ELI shall collect all revenues generated by use of the System to
deliver Telecommunications Services. However, as consideration for ELI's
use of the SRP Network, ELI shall pay to SRP an Operating Lease Payment in
accordance with the terms and assumptions set forth in the Base Case
Financial Model.
5.2 Base Case Financial Model. The Base Case Financial Model
-------------------------
provides a method to calculate the Operating Lease Payment in an amount that
provides an equal internal rate of return to ELI Capital and SRP Capital, less
Residual Value, over the Term. The Base Case Financial Model:
(a) Is based on a calendar year cycle, and starts with a year "0"
to reflect capital investments of ELI and SRP which predate the effective
date of this Agreement, and capital investments and Direct Operating Costs
of ELI and SRP after the effective date of this Agreement through December
31, 1996, and has a year "1" beginning January 1, 1997 and ending December
31, 1997;
(b) Projects expected capital expenditures by ELI and SRP over
the Term;
(c) Determines the Residual Value of capital investment at the
end of the Term;
-18-
<PAGE>
(d) Determines a present value in year "0" of total capital
investment of each party, less Residual Value, using an adjustable annual
discount rate which is ten percent (10%) in year "1"; and
(e) Determines a ratio of the present value of SRP Capital and
the present value of the sum of SRP Capital and ELI Capital.
The Initial Base Case Financial Model is attached to this Agreement as Exhibit
"C." Each party certifies that the Initial Base Case Financial Model represents
the party's good faith best estimate of existing and future conditions.
5.3 Annual Budgeting Process. Each year during the Term, ELI, using
------------------------
the Base Case Financial Model, will develop a Telecommunication Services
capital, operating and maintenance budget for the coming calendar year. The
budgeting process shall occur during the fourth quarter of the calendar year.
The Base Case Financial Model shall be updated with cost and revenue results for
any prior year, and the current year actual results for the first three calendar
quarters. In addition, ELI shall incorporate projections for the fourth quarter
of the current calendar year and for all remaining years of the Term. The
discount rate to be applied to the current year will be readjusted to 300 basis
points over the ten year Treasury Bond Rate established at the most recent
August Treasury auction. The results of the budgeting process and Base Case
Financial Model update shall be the basis for calculating the Operating Lease
Payment for the coming year.
5.4 Operating Lease Percentage. The Operating Lease Payment is
--------------------------
calculated by multiplying the Net Operating Income by the Operating Lease
Percentage. The Operating Lease Percentage is calculated according to this
formula:
- 19 -
<PAGE>
Present blue (Year 0) of SRP Capital
---------------------------------------
Present Value (Year 0) of Total Capital
Initially, the Operating Lease Percentage shall be [*] as shown on the
Initial Base Case Financial Model attached to this Agreement as Exhibit "C."
However, subject to the terms and assumptions of the Base Case Financial Model,
the Operating Lease Percentage may be adjusted each year as part of the annual
budgeting and Base Case Financial Model update.
5.5 Operating Lease Payment. For any given quarter during the Term,
-----------------------
including the period between the effective date of this Agreement and December
31, 1996, the amount of the Operating Lease Payment, if any, shall be the
Operating Lease Percentage multiplied by Net Operating Income for the quarter,
plus or minus any adjustments required by Section 5.6(b).
(a) Variation of Calculation of Net Operating Income During First
-------------------------------------------------------------
15 Quarters of the Base Case Financial Model. The following formula shall
--------------------------------------------
be used at the end of Year 0 and at the end of each of the first 15
calendar quarters of the Base Case Financial Model to compute Net Operating
Income for the purpose of calculating the Operating Lease Payment:
Gross Margin
Less: Current Direct Operating Costs
Less: Accumulated Unreimbursed Direct Operating Expenses
--------------------------------------------------
Equals: Net Operating Income or (Unreimbursed Direct Operating Expenses)
Based on the foregoing calculation of Net Operating Income, the following
payment priorities and principles shall apply:
(1) The Gross Margin will first be used to pay current
Direct Operating Costs. If the Gross Margin is insufficient to pay
all current Direct
- 20 -
* Confidential material has been omitted pursuant to a request for confidential
treatment. Such material has been filed separately with the Securities and
Exchange Commission.
<PAGE>
Operating Costs, the Gross Margin will be used to pay each party's
current Direct Operating Costs on a prorated basis. Any resulting
Unreimbursed Direct Operating Expenses will be added to ELI Capital or
to SRP Capital, as applicable.
(2) If there is Gross Margin remaining after paying all
current Direct Operating Costs, the remaining Gross Margin will next
be used to repay any then accumulated Unreimbursed Direct Operating
Expenses, on a prorated basis, until all such Unreimbursed Direct
Operating Expenses have been fully repaid to ELI and SRP. The
proration will be based on the percentage that each party's
Unreimbursed Direct Operating Expenses bears to the total of
Unreimbursed Direct Operating Expenses.
(3) Any Net Operating Income remaining after paying all
current Direct Operating Costs and repaying all then accumulated
Unreimbursed Direct Operating Expenses, will be used to pay an
Operating Lease Payment to SRP.
(4) At the end of each quarter during the first 15 calendar
quarters of the Base Case Financial Model, an Operating Lease Payment
shall be hypothetically calculated as though all Unreimbursed Direct
Operating Expenses were added to capital at the end of each quarter.
In the event the hypothetical calculation produces an Operating Lease
Payment greater in amount than that actually paid, the difference is a
Deferred Operating Lease Payment and will be added to SRP Capital.
- 21 -
<PAGE>
(5) At the end of the 15th calendar quarter of the Base Case
Financial Model, any then Unreimbursed Direct Operating Expenses will
become a permanent addition to ELI Capital or SRP Capital, as
applicable.
(b) Variation of Calculation of Net Operating Income During the
-----------------------------------------------------------
16th through the 35th Quarters. The following formula shall be used at the
------------------------------
end of each of the 16th through the 35th calendar quarters of the Base Case
Financial Model to compute Net Operating Income for the purpose of
calculating the Operating Lease Payment:
Gross Margin
Less: Current Direct Operating Costs
------------------------------
Equals: Subtotal Net Operating Income, if positive
or (Unreimbursed Direct Operating Expenses), if negative.
If Subtotal Net Operating Income is positive, then:
If Subtotal Net Operating Income is greater than Prorated Portion of
Accumulated Deferred Operating Lease Payments, then:
Subtotal Net Operating Income
Less: Prorated Portion of Accumulated Deferred Operating Lease
--------------------------------------------------------
Payments
--------
Equals: Net Operating Income.
If Subtotal Net Operating Income is less than Prorated Portion of
Accumulated Deferred Operating Lease Payments, then:
Subtotal Net Operating Income
-----------------------------
Equals: Partial Payment of Prorated Portion of Accumulated Deferred
Operating Lease Payments; and
Net Operating Income is Zero.
Based on the foregoing calculation of Net Operating Income, the following
payment priorities and principles shall apply:
- 22 -
<PAGE>
(1) The Gross Margin will first be used to pay current
Direct Operating Costs. If the Gross Margin is insufficient to pay
all current Direct Operating Costs, the Gross Margin will be used to
pay each party's current Direct Operating Costs on a prorated basis.
The proration will be based on the percentage that each party's
current Direct Operating costs bears to the total of current Direct
Operating Costs. Any resulting Unreimbursed Direct Operating Expenses
will become a permanent addition to ELI Capital or to SRP Capital, as
applicable.
(2) If there is Gross Margin remaining after paying all
current Direct Operating Costs, the remaining Gross Margin will next
be used to pay a prorated portion of SRP's accumulated Deferred
Operating Lease Payments (on a quarterly basis), based on the
following table:
Percent of Total Remaining Accumulated Deferred
Quarters Operating Lease Payments Paid in Period
-------- ---------------------------------------
16 through 19 20%
20 through 23 25%
24 through 27 33%
28 through 31 50%
32 through 35 100%
(3) After paying all current Direct Operating Costs and the
prorated portion of SRP's accumulated Deferred Operating Lease
Payments, any remaining Net Operating Income will be used to pay an
Operating Lease Payment.
(4) At the end of the 35th calendar quarter of the Base Case
Financial Model, any then accumulated Deferred Operating Lease
Payments will become a permanent part of SRP Capital.
- 23 -
<PAGE>
(c) Calculation of Net Operating Lease Payment in Subsequent
--------------------------------------------------------
Quarters. Throughout the balance of the Term, Net Operating Income, for
--------
purposes of calculating the Operating Lease Payment, will be computed as
follows:
Gross Margin
Less: Current Direct Operating Costs
------------------------------
Equals: Net Operating Income or (Unreimbursed Direct Operating Expenses)
Based on the foregoing calculation of Net Operating Income, the following
payment priorities and principles shall apply:
(1) The Gross Margin will first be used to pay current
Direct Operating Costs. If the Gross Margin is insufficient to pay
all current Direct Operating Costs, the Gross Margin will be used to
pay each party's current Direct Operating Costs on a prorated basis.
The proration will be based on the percentage that each party's
current Direct Operating Costs bears to the total of current Direct
Operating Costs. Any resulting Unreimbursed Direct Operating Expenses
will become a permanent addition to ELI Capital or to SRP Capital, as
applicable.
(2) After paying all current Direct Operating Costs, any
remaining Net Operating Income will be used to pay an Operating Lease
Payment.
(d) Operating Lease Payment Examples. Examples of the
--------------------------------
calculation of the Operating Lease Payment under the principles described
in this Article V are attached to and incorporated by reference in this
Agreement as Exhibit "G."
5.6 Annual Adjustment for Past Operating Lease Payments. In the
---------------------------------------------------
event that the annual redetermination of the Base Case Financial Model changes
the Operating Lease Percentage:
- 24 -
<PAGE>
(a) The parties shall recalculate the Operating Lease Payment for
all prior years;
(b) An adjustment figure shall be calculated which in current
dollar terms (using the annual discount rate of 300 basis points above the
ten year Treasury Bond Rate as determined in Section 5.3) adjusts the prior
year payments to reflect the new Operating Lease Percentage;
(c) The Operating Lease Payments for the next four quarters shall
be proportionately increased or decreased to make the adjustment determined
in part (b); and
(d) At the end of the Term or earlier termination of this
Agreement, the parties shall determine a final, actual Operating Lease
Percentage, and ELI or SRP, as the case may be, shall make a final payment
to the other so that actual Operating Lease Payments match the final
Operating Lease Percentage.
It is the goal of this section to produce at the expiration of the Term or the
earlier termination of this Agreement equal returns on the invested capital of
ELI and SRP.
5.7 SRP Direct Operating Services. ELI may purchase from SRP certain
-----------------------------
SRP Direct Operating Services to satisfy ELI's maintenance and operating
obligations with respect to the System. A list of services SRP is willing to
provide and a projection of the annual cost of providing such services shall be
developed by SRP and submitted to ELI and the Coordinating Committee no later
than July 31 of each year. ELI may purchase all or any portion of such services
from SRP, but ELI shall approve the purchase of all such services to the extent
they are offered at market prices and at market quality. To facilitate payment
to SRP for the services selected by ELI, ELI shall include
- 25 -
<PAGE>
such services in the annual budget update. Services shall be paid on a monthly
basis and shall be in addition to any quarterly Operating Lease Payment payable
by ELI to SRP. SRP shall provide ELI with a monthly invoice describing the
services actually provided by SRP. The services that may be offered by SRP
include:
(a) Field technicians required to perform installation and
servicing duties as included in the annual budget;
(b) Services related to the procurement of Rights of Way,
Building Entrances and permits; and
(c) Network and customer project design and engineering.
5.8 Minimum Performance Standards. During the Term, ELI shall comply
-----------------------------
with the Minimum Performance Standards described in this Section 5.8. The
Minimum Performance Standards shall be calculated for each year of the Term
based on the Initial Base Case Financial Model. The Minimum Performance
Standards shall be measured on an annual basis consistent with the following:
Years of Term Performance Criteria
------------- --------------------
1 through 2 50% of projected Gross Revenues from the sale of
Telecommunications Services for such year
3 through 4 75% of projected Gross Revenues from the sale of
Telecommunications Services for such year
5 through 6 50% of the Operating Lease Payment amount in
effect for such year
7 through 15 75% of the Operating Lease Payment amount in
effect for such year
- 26 -
<PAGE>
5.9 Books, Records and Audit Rights. Each of ELI and SRP shall keep
-------------------------------
and maintain adequate books and records relating to services provided by,
revenues generated from, and costs expended with respect to the System. Each
party shall have the right, upon reasonable notice and during normal business
hours to: (a) audit the other's books and records pertaining to the operation
and performance of the System; (b) compare the System's operation to applicable
Minimum Performance Standards, budgets and the Base Case Financial Model; and
(c) monitor compliance with the terms, covenants and conditions of this
Agreement. The Coordinating Committee shall develop and approve accounting and
auditing procedures relating to the System, which procedures shall be consistent
with Generally Accepted Accounting Principles. The Coordinating Committee shall
develop standards for capitalization which will reasonably standardize the
capitalization procedures (with respect to the capitalization determinations
under this Agreement) of ELI and SRP.
ARTICLE VI
UTILICOM SERVICES
-----------------
6.1 Right of SRP to Provide Utilicom Services Over the System. SRP
---------------------------------------------------------
and its Affiliates shall have System-wide access to provide Utilicom Services to
its customers. Revenues generated from the sale of Utilicom Services shall be
excluded from the calculations of the Base Case Financial Model. Use of the
System by SRP and its Affiliates for Utilicom Services, however, is subject to
the limitations described in this Article VI.
6.2 System Costs and Charges for Utilicom Services.
----------------------------------------------
(a) Budgeting Process. During the annual budgeting process, ELI
-----------------
shall project billings for the sale of Telecommunications Services over the
System for the coming year, as described in Section 5.3. In addition, SRP
and its Affiliates shall project the type and
- 27 -
<PAGE>
quantity of Utilicom Services that will be provided over the System in the
coming year. ELI shall calculate the total charges that SRP and its
Affiliates, or their Utilicom Services customers, would be billed for the
projected Utilicom Services if such services were treated as
Telecommunications Services sold by ELI to its Telecommunications Services
customers. The charges shall be calculated using ELI's Preferred Rates to
be in effect for the coming year. The charges shall be calculated as
additional marginal costs to a customer. For example, the use of an
existing customer line for Utilicom Services shall not be considered in the
calculation, because this use would not create additional charges to the
customer. If the calculation of total Utilicom Services charges based on
the SRP budget (at ELI's Preferred Rates) exceeds five percent (5%) of the
total projected billings for the sale of Telecommunications Services for
such year, SRP and its Affiliates, shall reduce their projected Utilicom
Services to a level that does not exceed such five percent (5%) limit.
Alternatively, upon request by SRP and its Affiliates, ELI shall sell at
ELI's Preferred Rates in effect for such coming year the excess volume of
services desired by them for their Utilicom Services customers to the
extent that ELI reasonably has available capacity.
(b) Provisioning and Installations for Utilicom Services. SRP
----------------------------------------------------
shall notify ELI in writing of all orders obtained by SRP and its
Affiliates, for Utilicom Services. In the normal course of business
following receipt of notification from SRP, ELI shall provision all
Utilicom Services to be delivered over the System. ELI shall use existing
System Electronics, Fiber, circuits and customer premises equipment to
complete the provisioning requirements for the customer. If the Utilicom
Services cannot be provisioned using existing System
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<PAGE>
Electronics, Fiber, circuits and customer premises equipment, SRP or ELI at
SRP's request, shall provision and install the necessary System
Electronics, Fiber, circuits and customer premises equipment. SRP and its
Affiliates shall pay for any additional System Electronics, Fiber, circuits
and customer premises equipment needed to supply the Utilicom Services. If
no additional provisioning is required, SRP and its Affiliates shall not be
charged for the addition of new Utilicom Services customers to the System.
6.3 Tracking of Utilicom Services. ELI shall track use of the System
-----------------------------
to provide Utilicom Services through billing or another mechanism. The
mechanism shall calculate the charges that SRP, and its Affiliates, or their
Utilicom Services customers, would be required to pay for the use of the System,
at ELI's Preferred Rates. SRP shall cooperate reasonably with ELI to measure
Utilicom Services traffic on the System. ELI shall not bill SRP or its
Affiliates for Utilicom Services provided over the System except as described in
Section 6.4.
6.4 Quarterly Review of Utilicom Services. On a calendar quarter
-------------------------------------
basis, ELI shall compare actual use of the System by SRP and its Affiliates for
Utilicom Services with the projected use of the System set forth in the budget
described in Section 6.2(a). If charges for Utilicom Services actually provided
during such quarter (based on ELI's Preferred Rates then in effect) would exceed
five percent (5%) of the total billings for all Telecommunications Services
delivered over the System for the same quarter, ELI may bill SRP and its
Affiliates the amount of the excess charges.
ARTICLE VII
SYSTEM DESIGN
-------------
7.1 Integrated Design. The System shall be integrated and designed
-----------------
to provide a seamless interconnection to customers. The System shall also be
integrated to the ELI regional
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<PAGE>
network and physically interconnected with local exchange and interexchange
networks. The design of the System shall be consistent with the standards and
policies adopted by the Network Deployment Committee pursuant to the provisions
of Section 11.3(a).
7.2 Design Responsibilities.
-----------------------
(a) ELI Design Responsibilities. ELI shall design the
---------------------------
telecommunications transport network and shall design, engineer and specify
all System Electronics. ELI design specifications shall be shared with SRP
personnel to ensure consistency with System operational parameters. ELI
shall also design all Hub Sites.
(b) SRP Design Responsibilities. SRP shall design the SRP
---------------------------
Segments and shall do so in a manner that allows capacity to be readily
deployed for telecommunications purposes.
(c) Design Coordination Efforts. Throughout the Term, ELI and
---------------------------
SRP, through the Network Deployment Committee, shall:
(1) Coordinate the design of the telecommunications
transport and electric communications networks to ensure consistency
with each other's design specifications;
(2) Wherever possible, design the System to provide for
diverse routing, including, without limitation, use of a ring/sub-ring
architecture and use of SONET equipment, and for consistency with
ELI's telecommunications network practices and procedures;
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<PAGE>
(3) Jointly design the integrated aspects of the System,
including, without limitation, Facilities, and all System Electronics
and Fiber;
(4) Jointly develop an overall System architecture and Fiber
backbone design that is consistent with ELI's network architecture and
design standards;
(5) Jointly design service laterals, Building Entrances, and
other Facilities for the System as required; and
(6) Wherever possible, use common design standards for all
System assets and Facilities.
(d) Joint Responsibilities. ELI and SRP shall follow the
----------------------
prioritization schedules for the construction of Segments as outlined in
their respective Construction Plans. Before beginning construction of any
Additional Segment, ELI and SRP shall present the Segment to the Network
Deployment Committee. The Network Deployment Committee may direct the
construction of additional Fiber or choose, within reason, a different
construction schedule, route or alignment. Changes in the timing of the
construction of a Segment may be based on market conditions, such as the
demand for Telecommunications Services in the general vicinity to be served
by the Segment. To the extent any change in a proposed route or alignment
forces ELI or SRP to incur additional Right of Way expense, the amount of
the additional Right of Way expense shall be added to capital.
7.3 Information Requests. To facilitate planning and design of the
--------------------
System, ELI and SRP shall furnish or make available to each other and to the
Coordinating Committee or Network
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<PAGE>
Deployment Committee, as applicable, with reasonable promptness after request,
and at the reasonable cost of the requesting party:
(a) Engineering Data. Copies of all available Maps, charts and
----------------
other engineering data and documentation pertaining to specified sections
and the physical condition of any Right of Way needed for any Segment,
including, without limitation, the nature and location of all improvements
and Facilities thereon, and all relevant engineering data and plans related
thereto;
(b) Right of Way Documents. Right of Way documents shall
----------------------
include:
(1) Copies of all available documentation pertaining to
ownership or right to use any specified Right of Way (including
existing easements, rights of use or other use or occupancy rights, if
any, previously granted to others), and other existing agreements
respecting the Right of Way (including, without limitation, utility
crossings) and restrictions on the right to use or to occupy the Right
of Way for the purposes intended by this Agreement;
(2) Copies of maps and other available documentation
sufficient to describe the identity and location of any other users of
the specified portions of any Right of Way, as well as identification
of areas within the specified Right of Way which might involve title
or possession problems due to the nature of the ownership or any
third-party right of way ownership (including, without limitation,
reversionary or re-entry rights of underlying fee owners); and
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<PAGE>
(3) Any available information on pending relocation projects
by ELI or SRP, as applicable, or others along the specified Right of
Way, and information regarding material scheduling constraints
resulting from temporarily taking out-of-service any particular
segment of the Right of Way;
(c) Building Entrances Documents. Copies of all available
----------------------------
documentation pertaining to ownership or right to use any specified
Building Entrance, and other existing agreements respecting the Building
Entrance and restrictions on the right to use or to occupy Building
Entrances for the purposes intended by this Agreement; and
(d) Maps. A copy of each Map each year throughout the Term, when
----
prepared for or filed with any governmental agency, and copies of any
amendments or supplements to each Map which may be prepared and so filed
from time to time.
ARTICLE VIII
CONSTRUCTION OF SEGMENTS
------------------------
8.1 Construction of Segments. Additional Segments and Future
------------------------
Segments shall be constructed consistent with the design standards described in
Article VII. ELI shall install all System Electronics, wherever located, at
ELI's sole cost and expense. With respect to Future Segments, SRP shall have
the option of installing all Fiber, wherever located, at SRP's sole cost and
expense. However, with respect to a Future Segment proposed by SRP, ELI shall
have the option to direct that SRP install System Electronics and Fiber at SRP's
sole cost and expense. The party responsible for the construction of a Segment
shall obtain necessary Approvals to undertake and complete the construction.
ELI and SRP shall cooperate with each other in obtaining necessary Approvals.
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<PAGE>
8.2 Future Segments. From time to time throughout the Term, either
---------------
ELI or SRP may make proposals to the Coordinating Committee for the construction
of one or more Future Segments. Review of any such proposal shall be made in
accordance with the following:
(a) Review. The Coordinating Committee or the Network Deployment
------
Committee, if delegated such responsibility by the Coordinating Committee,
shall review preliminary route designations and the construction schedule
for a proposed Future Segment, and shall make such physical inspections of
the Right of Way associated with such Future Segment as it deems necessary
or appropriate for the purpose of: (1) identifying problem areas; (2)
arriving at suitable and economically viable alternatives; (3) establishing
a schedule for the commencement and completion of the work; and (4)
defining the final routes and any specialized construction or operational
considerations, including, without limitation, points of interconnection
and new Facilities required to make the Future Segment operational.
(b) Review Factors. The Coordinating Committee shall be
--------------
responsible for approving the construction of any proposed Future Segment.
In addition to the design standards described in Article VII, the following
factors shall be considered in making a decision to approve a proposed
Future Segment:
(1) The effect of the proposed construction on the Base Case
Financial Model;
(2) The difficulty of integrating the proposed Future
Segment into the then existing System;
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<PAGE>
(3) The estimated cost to construct and equip the proposed
Future Segment;
(4) The timing of the proposed construction in relation to
the phases identified in the parties' Construction Plans;
(5) The compatibility of the proposed Future Segment with
the then existing construction and marketing plans of ELI, SRP and the
System;
(6) The amount of Reserved Fiber to be allocated to SRP, for
the proposed Future Segment;
(7) Existing or anticipated customer demand for Telecommuni
cations Services and Utilicom Services in the area to be served by the
proposed Future Segment; and
(8) Such other factors as may be developed by the
Coordinating Committee relative to the approval of Future Segments.
(c) Decision by Coordinating Committee. Within ten (10) days
----------------------------------
after receipt of a proposal to approve the construction of a Future
Segment, the Coordinating Committee shall approve the same in whole or in
part, or raise any objections thereto, which objections shall be stated in
writing and in reasonable detail and shall include a statement of the
necessary modifications required to obtain approval. If the Coordinating
Committee does not respond in such ten (10) day period to a proposal to
construct a Future Segment, the Coordinating Committee shall be deemed to
have approved the same.
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<PAGE>
8.3 Work Standards. All work performed under this Agreement shall be
--------------
performed in a good, workmanlike manner, in accordance with generally accepted
professional standards of sound construction practices and shall comply with all
applicable requirements of federal, state and local laws, regulations, licenses,
permits and applicable engineering and construction codes and standards.
8.4 Supply of System Materials.
--------------------------
(a) Standards. All System Materials used to construct or equip
---------
an Additional Segment or a Future Segment shall meet or exceed the minimum
specifications developed by the Network Deployment Committee for System
Materials, which specifications shall be based on the more stringent of
ELI's specifications or industry specifications. ELI shall be responsible
for inspecting and testing all System Electronics and may reject any System
Electronics component that is defective or does not conform to approved
specifications. Similarly, SRP shall be responsible for inspecting and
testing any equipment relating to Electric Services and Utilicom Services
transmission and may reject any component that is defective or does not
conform to approved specifications. ELI shall have the right to select all
vendors and suppliers for System Electronics, wherever located, and
construction activities over which ELI has primary responsibility. SRP
shall have the right to select all vendors and suppliers for construction
activities over which SRP has primary responsibility.
(b) Manufacturer Warranties. In procuring and obtaining System
-----------------------
Materials under paragraph (a) above, each of ELI and SRP, as applicable,
shall use reasonable
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<PAGE>
efforts to obtain from the vendors and suppliers thereof, for the mutual
benefit of ELI and SRP, warranties that such System Materials are: (1) of
the kind and quality described in the purchase order or supply contract;
(2) free of defects in workmanship, material, design and title; (3) of good
and merchantable quality; and (4) where appropriate, fit for their intended
purpose. In addition, ELI and SRP, as applicable, shall attempt to obtain
standard warranty periods for all System Materials (it being understood
that standard materials warranties are in the range of one to two years
from the date of delivery), and shall use reasonable efforts to obtain
longer warranty periods, if such extended warranties do not materially
increase the cost of the System Materials. ELI's and SRP's sole obligation
and liability to each other with respect to the System Materials warranties
shall be to administer such warranties for and on behalf of the System and
to use reasonable efforts in enforcing such warranties. In no event shall
either ELI or SRP be deemed to have warranted to each other or to any third
party user any System Materials, or to have guaranteed any such warranties
provided by vendors or suppliers.
8.5 Changes. After work on a Segment has begun, material Changes to
-------
the design or construction plans for such Segment may be made only in accordance
with the terms of this Section 8.5.
(a) Grounds for a Change. A Change may result from any of the
--------------------
following:
(1) An event of Force Majeure;
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<PAGE>
(2) A failure by the constructing party's designated
representatives, contractors or agents to fulfill their obligations
under contracts or subcontracts with the contracting party;
(3) A failure, defect or delay in delivery with respect to
any System Materials which materially and adversely affects the cost
of ELI or SRP, as applicable, to perform its work under the terms of
this Agreement, or to meet its construction schedule or other
performance standards under this Agreement;
(4) A request by either ELI or SRP for a Change; or
(5) In the event of an emergency affecting the safety of
persons or property.
(b) Changes. ELI and SRP shall cooperate reasonably with each
-------
other and shall use the Network Deployment Committee to review and approve
Changes. No prior approval shall be required to make a Change resulting
from an emergency. Except to the extent a Change specifically amends one
or more provisions hereof, all provisions of this Agreement shall apply to
all Changes, and no Change shall be implied as a result of any other
Change.
8.6 Use of Contractors. Each of ELI and SRP shall have the right to
------------------
have any of the construction and installation work it is required to provide
under the terms of this Agreement performed by one or more contractors pursuant
to written agreements with such contractors. No agreement with any contractor
entered into by ELI shall create a contractual relationship between such
contractor and SRP, and ELI shall be solely responsible for the engagement and
management
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<PAGE>
of such contractors, for all work performed by such contractors, and for all
acts and omissions of such contractors in providing service or performing work
as contemplated by the terms of this Agreement. Similarly, no agreement with any
contractor entered into by SRP shall create a contractual relationship between
such contractor and ELI, and SRP shall be solely responsible for the engagement
and management of such contractors, for all work performed by such contractors,
and for all acts and omissions of such contractors in providing service or
performing work as contemplated by the terms of this Agreement.
8.7 Inspection of Work and Acceptance of Construction.
-------------------------------------------------
(a) Inspection. When work on any Segment has been completed, ELI
----------
or SRP, depending on which party had primary responsibility for
constructing the Segment, shall give notice to the other that work has been
completed. Within five (5) working days following receipt of such notice,
the party receiving notice shall make an inspection of such Segment for
conformance with the construction requirements of this Agreement, and may
perform operational readiness tests, as deemed necessary, in accordance
with standard operating procedures approved by the Network Deployment
Committee. Within five (5) working days following such inspection, the
inspecting party shall furnish the other party with either: (1) an
Acceptance of Construction respecting such Segment; or (2) a written
statement setting forth in reasonable detail any objections to or defects
in the construction of such Segment. Failure of the inspecting party to
respond by written notification within the time period specified in the
preceding sentence shall be deemed an Acceptance of Construction for
purposes of this Agreement.
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<PAGE>
(b) Response to Objections. Upon receipt of any such statement
----------------------
of objections, the party that had primary responsibility for constructing
the Segment shall either: (1) promptly correct the objections or defects,
whereupon the other party may re-inspect the same within ten (10) working
days following receipt of notice that the work has been corrected and, if
found corrected, issue an Acceptance of Construction; or (2) dispute such
statement of objections or defects by referring the disputed issues for
determination, without thereby waiving any rights with respect to any
matter in controversy, to the Network Deployment Committee.
(c) Effect of Acceptance of Construction. ELI's issuance of an
------------------------------------
Acceptance of Construction for work performed by or under the direction of
SRP shall signify approval of the construction of ELI's Telecommunications
Services transmission system only and shall in no way be deemed to
represent an opinion or guarantee of ELI concerning the adequacy of such
construction with respect to SRP's Electric Services and Utilicom Services
transmission systems. Similarly, SRP's issuance of an Acceptance of
Construction for work performed by or under the direction of ELI shall
signify approval of the construction of SRP's Electric Services and
Utilicom Services transmission systems only and shall in no way be deemed
to represent an opinion or guarantee of SRP concerning the adequacy of such
construction with respect to ELI's Telecommunications Services transmission
system.
8.8 As-Built Drawings.
-----------------
(a) Review of As-Built Drawings. Within ten (10) working days
---------------------------
following Acceptance of Construction of each Segment (or any alteration or
relocation thereof), the
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<PAGE>
party that had primary responsibility for constructing such Segment, as a
cost of construction to be paid by such party, shall furnish the other
party with "as-built" drawings of such Segment. The "as-built" drawings, as
the same may be amended from time to time, shall establish the locations of
the applicable Right of Way, any applicable Building Entrances and any
Facilities associated therewith. Within five (5) working days following the
delivery of the "as-built" drawings for any Segment, the non-constructing
party shall inspect the Segment for conformance with the "as-built"
drawings and the other construction requirements of this Agreement. Within
five (5) working days following such inspection, the inspecting party shall
furnish the other party with either: (1) an acceptance of the "as-built"
drawings for such Segment; or (2) a statement setting forth in reasonable
detail any reasonable objections to or defects in such "as-built" drawings.
Failure of the inspecting party to respond by written notification within
the time period specified in the preceding sentence shall be deemed an
acceptance of such "as-built" drawings for purposes of this Agreement.
(b) Response to Objections. Upon receipt of any such statement
----------------------
of objections, the party that had primary responsibility for constructing
the Segment shall either: (1) promptly amend the "as-built" drawings; (2)
correct the defects, whereupon the other party may re-inspect the same
within five (5) working days following receipt of notice that the work has
been corrected and, if found corrected, issue an acceptance of the "as-
built" drawings; or (3) dispute such statement of objections or defects by
referring the disputed issues for determination, without thereby waiving
any rights with respect to any matter in controversy, to the Network
Deployment Committee.
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<PAGE>
(c) Effect of Approvals. Notwithstanding the foregoing, ELI's
-------------------
approval of "as-built" drawings or statement of any objections to such "as-
built" drawings shall signify approval of or objections with respect to
ELI's Telecommunications Services transmission system only and shall in no
way be deemed to represent an opinion with respect to the adequacy of SRP's
Electric Services and Utilicom Services transmission systems. Similarly,
SRP's approval of "as-built" drawings or statement of any objections to
such "as-built" drawings shall signify approval of or objections with
respect to SRP's Electric Services and Utilicom Services transmission
systems only and shall in no way be deemed to represent an opinion with
respect to the adequacy of ELI's Telecommunications Services transmission
system.
8.9 Correction of Work. If following the issuance of an Acceptance
------------------
of Construction and an acceptance of the "as-built" drawings for any Segment, a
defect in the work performed to construct the Segment or a defect in the design
of the Segment is discovered which breaches the work standards set forth in
Section 8.3, the sole and exclusive remedy of ELI and SRP shall be as set forth
in this Section 8.9. As soon as reasonably possible following discovery of the
defect, but in no event later than one (1) year following the issuance of the
Acceptance of Construction for such Segment, the party that had primary
responsibility for the construction of the Segment shall be given written notice
of the defect. As soon as reasonably possible following receipt of notice of
the defect, the receiving party, at its sole cost and expense, shall: (a)
reperform any deficient services; and (b) repair, or if necessary, replace or
modify any deficient construction or installation work. THE WARRANTY SET FORTH
IN SECTION 8.3 AND THE WARRANTY
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<PAGE>
REMEDIES SET FORTH IN THIS SECTION 8.9 ARE EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES AND WARRANTY REMEDIES, EXPRESS OR IMPLIED, WITH RESPECT TO WORK
PERFORMED AND ITEMS PROVIDED BY EITHER ELI OR SRP UNDER THE TERMS OF THIS
AGREEMENT, AND ALL OTHER IMPLIED WARRANTIES OR WARRANTIES IMPOSED BY LAW,
INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, AND WARRANTIES ARISING FROM COURSE OF DEALING OR USAGE OR TRADE, ARE
HEREBY WAIVED AND DISCLAIMED BY ELI AND SRP.
8.10 Title and Risk of Loss. Legal title to and beneficial
----------------------
ownership of all ELI Facilities shall be and remain with ELI, and ELI shall at
all times have care, custody and control of the ELI Facilities, subject to the
provisions of this Agreement. Similarly, legal title to and beneficial
ownership of all SRP Facilities shall be and remain with SRP, and SRP shall at
all times have care, custody and control of the SRP Facilities, subject to the
provisions of this Agreement. Except as otherwise provided in this Agreement,
each of ELI and SRP shall be responsible for and shall be obligated to replace,
repair or reconstruct at its own expense all or any portion of any Facility
which it owns or controls that is lost, damaged or destroyed regardless of how
such loss or damage occurred. Notwithstanding the foregoing, each party shall
be responsible for any loss, damage or destruction caused by its own acts or
omissions.
8.11 Customer Installations. Notwithstanding any provision of
----------------------
Article VII or this Article VIII to the contrary, when either ELI or SRP
receives an order to make the necessary
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<PAGE>
installations to expand the System, by not more than 500 feet in length,
including a Building Entrance, the following provisions shall apply:
(a) Telecommunications Services Customers. With respect to all
-------------------------------------
Telecommunications Services customers, wherever located, ELI shall design,
provision, purchase, install and own all System Electronics. ELI and SRP
shall each design, provision, purchase, install and own all Fiber and other
Facilities necessary to connect Telecommunications Services customers to
its own network.
(b) Utilicom Services Customers. Utilicom Services shall be
---------------------------
provisioned in accordance with the provisions of Section 6.2(b).
(c) Other Approvals. No approval from the Network Deployment
---------------
Committee, the Coordinating Committee or from each other shall be required
for ELI or SRP to complete a customer installation in accordance with the
terms of this Section 8.11.
(d) Design Plans. Promptly after completing a customer
------------
installation, ELI or SRP, as applicable, shall furnish to the other a
complete set of the design and installation plans used to connect the
customer to the System.
ARTICLE IX
MAINTENANCE
-----------
9.1 General Responsibilities. ELI shall be responsible for
------------------------
maintaining the ELI Network and all System Electronics. SRP shall be
responsible for maintaining the Fiber used in connection with SRP Network.
Maintenance costs shall be included in the calculation of Direct Operating
Expenses. Where the ELI Network and the SRP Network interconnect, the fiber
optic patch panel shall be the point of demarcation between the maintenance
responsibilities of ELI and
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<PAGE>
SRP. SRP shall be responsible for maintenance of all Fiber and the fiber optic
patch panel. ELI shall be responsible for maintenance of all Fiber and System
Electronics on the ELI side of the fiber optic patch panel. Maintenance services
shall be available on an on-call basis twenty-four (24) hours a day.
9.2 Maintenance Procedures. The Network Deployment Committee shall
----------------------
coordinate maintenance procedures and protocols for use by ELI and SRP,
including, without limitation, direct measure of quality tests to be performed
no less frequently than on a quarterly basis. Standards developed for
preventative maintenance by the Network Deployment Committee shall meet or
exceed the more stringent of industry or ELI standards and practices then in
existence. Within one hundred twenty (120) days after the effective date of
this Agreement, the Network Deployment Committee shall adopt standard
maintenance procedures and practices for the System.
9.3 Maintenance Supplies. ELI and SRP shall purchase and maintain
--------------------
adequate inventories of maintenance supplies and spare parts for their own
Facilities.
9.4 Repair Timing. ELI and SRP shall cooperate with each other to
-------------
restore damaged or malfunctioning portions of the System as soon as reasonably
possible. ELI and SRP agree to use their reasonable efforts to do emergency
repair work affecting Telecommunications Services and Utilicom Services
simultaneously so that both networks experience minimal downtime. ELI and SRP
acknowledge the importance of uninterrupted operation of the System and agree to
use good faith efforts to arrive at repair sites with necessary personnel,
equipment and materials promptly after receiving notice of the existence of a
problem. Further, ELI and SRP acknowledge the importance of restoring electric
service, and understand that restoration of electric service may take priority
over the restoration of the System according to customary industry practices.
To the extent
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<PAGE>
repairs are required to the System to fix damage caused by a customer, ELI and
SRP shall recover repair costs from the customer.
9.5 Staff Training. Each of ELI and SRP, at its own expense, shall
--------------
train and obtain industry certifications for all field technicians used to
maintain Facilities. In addition, all field technicians shall be familiar with
System maintenance procedures and standards adopted by the Network Deployment
Committee.
ARTICLE X
PROPERTY RIGHTS AND OBLIGATIONS
-------------------------------
10.1 Rights of Way and Building Entrances.
------------------------------------
(a) Existing SRP Rights of Way and Building Entrances. Subject
-------------------------------------------------
to the provisions of this Section 10.1, SRP's existing Rights of Way and
Building Entrances may be used to deploy Fiber or to install System
Electronics. On a case-by-case basis, ELI and SRP shall jointly review and
determine the availability of SRP Rights of Way and Building Entrances for
use by the System. Any use of SRP's Rights of Way and Building Entrances
shall be based on the mutual determination of ELI and SRP that such use:
(1) is within the scope of the original grant of the Right of Way or
Building Entrance; (2) is legally permissible; and (3) is economically
feasible. SRP does not warrant that any of its Rights of Way or Building
Entrances may be legally used for telecommunications purposes. ELI
expressly acknowledges that it has been or will be given the opportunity to
inspect all documents and information in SRP's possession regarding the
value of SRP's interest in the Right of Ways, and that SRP's Rights of Way
and Building Entrances may not be usable for telecommunications purposes.
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(b) Additional Rights of Way and Building Entrances. It is
-----------------------------------------------
anticipated that SRP will use existing SRP Rights of Way to complete the
SRP Construction Plan. However, in the event SRP's existing Rights of Way
cannot be used to complete the SRP Construction Plan, and there is no other
reasonable alternative, SRP, at its own cost and expense, shall acquire any
additional Rights of Way needed to complete the SRP Construction Plan.
However, SRP is not obligated to use its power of eminent domain to acquire
additional Rights of Way and Building Entrances. ELI, at its own cost and
expense, shall acquire all additional Rights of Way needed to complete the
ELI Construction Plan. On a case-by-case basis as needed, ELI may request
assistance from SRP to acquire Rights of Way if existing SRP Rights of Way
are not available for telecommunications purposes. ELI shall reimburse SRP
for SRP's costs to obtain such additional Rights of Way. If either ELI or
SRP expends funds to acquire necessary Building Entrances to complete a
customer connection, such acquisition costs shall be added, as applicable,
to ELI Capital or SRP Capital.
10.2 Cross Licenses.
--------------
(a) Grant of License to SRP. ELI hereby grants to SRP a
-----------------------
nonexclusive License to use Rights of Way which are used by the System for
System purposes consistent with the requirements of Section 10.1. System
purposes may include design, engineering, construction, installation,
inspection, maintenance, repair, testing and replacement, relocation,
operation and removal of Segments, Facilities and System Materials on the
terms and subject to the covenants and conditions specified in this
Agreement.
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<PAGE>
(b) Grant of License to ELI. SRP hereby grants to ELI a
-----------------------
nonexclusive License to use Rights of Way which are used by the System for
System purposes consistent with the requirements of Section 10.1. System
purposes may include design, engineering, construction, installation,
inspection, maintenance, repair, testing and replacement, relocation,
operation and removal of Segments, Facilities and System Materials on the
terms and subject to the covenants and conditions specified in this
Agreement.
10.3 Route Designations. ELI and SRP have reviewed the Maps
------------------
attached to this Agreement depicting their respective existing and currently
planned communications networks and have approved such Maps for the purposes set
forth in Section 10.2.
10.4 Right of Entry. The cross Licenses granted in Section 10.2
--------------
shall include the right for each of ELI and SRP to enter the Right of Way or
other real property, as applicable, with its employees, agents and contractors
in order to exercise the rights granted under this Agreement, subject to the
following notice requirements:
(a) Engineering and Design Inspections. ELI and SRP shall give
----------------------------------
each other not less than two (2) hours prior notice by telephone before
entering any Existing Segment in the other's service territory for the
purpose of surveying and inspecting or making such engineering and other
tests as may be necessary or advisable to enable the notifying party to
determine the feasibility of using the Segment in the System or to evaluate
and approve engineering, design and installation plans and cost estimates
to upgrade such Segment.
(b) Inspection of Construction. During the actual performance of
--------------------------
any construction of the System, ELI and SRP shall each have the right to
enter the job site to
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<PAGE>
observe each other's performance of work under this Agreement, provided
that all observers shall adhere to such reasonable work safety rules as may
be promulgated by ELI and SRP for such job sites. After completion of
construction of a particular portion of a job for which ELI or SRP has
given the other notice of completion pursuant to Section 8.7, prior to
entering the relevant Segment to perform the inspection, the inspecting
party shall give the other party not less than two (2) hours prior notice
by telephone.
(c) Segments. ELI and SRP shall give each other not less than
--------
two (2) hours prior notice by telephone before entering any Segment inside
the other's service territory for the purpose of inspection, maintenance,
repair or to exercise of any other right with respect to a Segment
provided under the terms of this Agreement.
(d) Emergencies. In the case of an emergency with respect to a
-----------
Segment, each of ELI and SRP shall have the right to enter such Segment
without the need or requirement to give the other prior notice, provided
that notice of the entry shall be given as soon as practicable thereafter.
10.5 Entry Conditions. Notwithstanding the provisions of Section
----------------
10.4, each of ELI and SRP may from time to time by notice to the other specify
additional entry conditions or requirements arising out of a relationship with a
particular Right of Way or Building Entrance grantor or Hub Site lessor,
including, without limitation: (a) the need to give prior notice to such
grantor or lessor; (b) the requirement that no entry be made unless accompanied
by personnel of the party that has the relationship with such grantor or lessor;
and (c) the requirement that entry be made only through a specified route. In
addition, ELI shall not make any physical contact with the towers,
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cables or other elements of the SRP power transmission system (except as
required to access the Telecommunications Services transmission system utilizing
procedures approved by SRP). Further, each of ELI and SRP shall indemnify the
other with respect to such entry as provided in Article XVII. Each notice given
as provided in Section 10.4 shall disclose the scope and estimated duration of
the entry. If such scope or duration changes, additional notice shall be given.
Any required telephonic notice shall be given at the telephone numbers specified
in Section 20.4 (or at such other number or relevant local office number that
ELI and SRP may from time to time specify).
10.6 Property Right Obligations. Throughout the Term, ELI and
--------------------------
SRP shall have the following obligations pertaining to the property rights
described in this Agreement:
(a) Avoid Encumbrances. Subject to the provisions of Section
------------------
10.11(c), neither ELI nor SRP shall create or grant any lien or other
property interest against any of the Facilities, Rights of Way or Building
Entrances the foreclosure or enforcement of which could terminate or
prevent the exercise of the rights of the other under this Agreement.
(b) Maintain Property Rights. With respect to any Right of Way
------------------------
or Building Entrance, while designated a part of a Segment, ELI and SRP,
subject to the provisions of Section 10.12, shall timely perform all of
their respective obligations pertaining to the use of such Right of Way or
Building Entrance, in accordance with all applicable terms and conditions
of the grants and property conveyances by which they hold a property
interest therein, and shall take such other actions as may reasonably be
necessary to prevent the lapse, forfeiture or termination of any such
property interests.
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(c) Payment of Taxes. With respect to any Right of Way or
----------------
Building Entrance, while designated a part of a Segment, each of ELI and
SRP, as applicable, shall timely pay any and all Ad Valorem Taxes assessed
to it, the nonpayment of which could result in a lien upon such property.
Notwithstanding the foregoing, either party may withhold payment of
disputed amounts if such withholding is conducted in accordance with the
provisions of applicable law.
(d) Defense of Property Interest. Should the right of ELI or SRP
----------------------------
to use, in accordance with the terms and conditions of this Agreement, any
Right of Way or Building Entrance then designated a part of a Segment be
challenged by the holder or alleged holder of a property interest in such
Right of Way or Building Entrance, ELI or SRP, depending on which party has
the primary right to use the Right of Way and subject to the provisions of
Sections 10.9 and 10.10 shall defend the right to so use the Right of Way
or Building Entrance. Notwithstanding the foregoing, ELI shall defend its
ability to use the Right of Way, to the extent the challenge relates only
to the use of the Right of Way by ELI. The other party, subject to the
provisions of Sections 10.9 and 10.10, shall take all actions and execute
such additional documents as are deemed reasonably necessary in connection
with the establishment or defense of the challenged rights. All costs and
expenses of such defense shall be considered ELI Phoenix Direct Operating
Expenses or SRP Phoenix Direct Operating Expenses, as the case may be.
Neither ELI or SRP makes any warranty to the other regarding the adequacy
of any Right of Way or Building Entrance.
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10.7 Property Interest Documentation. From time to time upon
-------------------------------
request, ELI and SRP shall make available to each other for review at the ELI
regional office in Phoenix, Arizona or at SRP's main office, as applicable, all
agreements and other documents in their possession with respect to their
respective rights, titles and interests in and to Rights of Way and Building
Entrances which they own or have the right to use in connection with the System.
In addition, ELI and SRP shall inform each other of any facts relating to such
rights, titles and interests of which they have knowledge and which are material
to the exercise or defense of the rights granted under this Agreement.
10.8 Memorandum of Agreement. Upon request of ELI or SRP and at
-----------------------
the expense of the requesting party, the other party shall execute in form
appropriate for recordation a Memorandum or Short Form of the Licenses granted
by this Agreement (or similar document appropriately styled to permit
recordation) to give notice of the existence of the rights of ELI and SRP under
this Agreement. Such a recordation may be made in any county in which a
Segment, or portion thereof, is located. Such document shall not be styled as a
grant of an easement or a leasehold interest.
10.9 Incremental Property Rights Costs. If at any time during
---------------------------------
the Term, a third party Right of Way or Building Entrance grantor of either ELI
or SRP makes a demand for additional compensation or indicates its intent to
reopen, renegotiate or terminate the easement, license or other agreement
establishing rights in a Right of Way or Building Entrance as a result of the
existence of this Agreement, ELI or SRP, as applicable, shall promptly notify
the other in writing of such demand. After conferring with each other and
allowing the party that owns or has been granted the right to
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use the Right of Way or Building Entrance in question an opportunity to resolve
the issue, the other party may attempt at its expense to resolve the issue with
such grantor through negotiation or settlement. Any decision to commence
litigation on behalf of or in the name of either ELI or SRP shall be in the sole
discretion of such party, and any subsequent litigation, whether brought by ELI,
at SRP's request, or by SRP, at ELI's request, or by such third party Right of
Way or Building Entrance grantor, shall be conducted at the expense and under
the direction and control of the party named in the action. If the dispute is
resolved either through negotiation, settlement or litigation, and such
resolution requires the payment of additional consideration for such additional
or expanded use: (a) ELI shall be required to pay such additional compensation
and litigation expenses with respect to a Right of Way or Building Entrance the
original grant of which ran to SRP; and (b) SRP shall be required to pay such
additional compensation and litigation expenses with respect to a Right of Way
or Building Entrance the original grant of which ran to ELI. The terms of any
settlement must be approved by both ELI and SRP before it becomes binding. If
either ELI or SRP possesses the power of eminent domain within the relevant
jurisdiction, it shall have the right, in its sole discretion, independently of
the consent of the other to seek resolution of such a dispute by exercising such
power of eminent domain, provided that the condemning party shall pay all costs
of such exercise.
10.10 Franchise Rights and Licensing Costs. ELI and SRP
------------------------------------
shall each be responsible for all franchises and licenses as may be necessary
for their respective operations. If at any time during the Term, a governmental
authority having or asserting franchise or licensing authority over either ELI
or SRP makes a demand, as a result of this Agreement, for a new franchise or
license, for additional compensation under an existing franchise or license, or
indicates its intent to reopen,
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renegotiate or terminate an existing franchise or license or gives notice of a
forfeiture thereof, ELI or SRP, as applicable, shall promptly notify the other
in writing of such demand. After conferring with each other and allowing the
party under the jurisdiction or claimed jurisdiction of such governmental
authority an opportunity to resolve the issue, the other party may attempt at
its expense to resolve the issue with such governmental authority through
negotiation or settlement. Any decision to commence litigation on behalf of or
in the name of either ELI or SRP shall be in the sole discretion of such party,
and any subsequent litigation, whether brought by ELI, at SRP's request, or by
SRP, at ELI's request, or by such governmental authority, shall be conducted at
the expense and under the direction and control of the party names in the
action. If the dispute is resolved either through negotiation, settlement, or
litigation, and such resolution requires the payment of additional consideration
for such additional or expanded use: (a) ELI shall be required to pay such
additional compensation with respect to a franchise or license relating to the
SRP Network; and (b) SRP shall be required to pay such additional compensation
with respect to a franchise or license relating to the ELI Network. The terms of
any settlement must be approved by both ELI and SRP before it becomes binding.
10.11 Liens.
-----
(a) Release of Liens. In the event any of the ELI Facilities or
----------------
the SRP Facilities becomes subject to any mechanics', artisans' or
materialmen's lien the following provisions shall apply:
(1) If such a lien is chargeable to or through ELI, ELI
shall promptly cause the same to be discharged and released of record
(by payment, posting
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<PAGE>
of bond, court deposit or other means) without cost to SRP. ELI shall
indemnify SRP against all costs and expenses (including reasonable
attorney fees) reasonably incurred in discharging and releasing such
lien. If any such lien is not so discharged and released within ninety
(90) days after notice thereof by SRP to ELI, then SRP may pay or
secure the release or discharge thereof at the expense of ELI.
(2) If such a lien is chargeable to or through SRP, SRP
shall promptly cause the same to be discharged and released of record
(by payment, posting of bond, court deposit or other means) without
cost to ELI. SRP shall indemnify ELI against all costs and expenses
(including reasonable attorney fees) reasonably incurred in
discharging and releasing such lien. If any such lien is not so
discharged and released within ninety (90) days after notice thereof
by ELI to SRP, then ELI may pay or secure the release or discharge
thereof at the expense of SRP.
(b) Contest of Liens. Nothing in this Agreement shall preclude
----------------
ELI or SRP from contesting any lien described in paragraph (a) above or the
contract or action upon which the same arose after the same shall have been
bonded or otherwise released of record, as provided above.
(c) Facilities as Collateral. ELI hereby recognizes and agrees
------------------------
that the SRP Facilities, the Rights of Way and Building Entrances shall be
and remain at all times the property of SRP, its successors and assigns,
and shall at no time be or become subject to or collateral under any
mortgage, bond, indenture or other financing arrangement of ELI. Similarly,
SRP hereby recognizes and agrees that the ELI Facilities, the Rights of Way
and
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<PAGE>
Building Entrances shall be and remain at all times the property of ELI,
its successors and assigns, and shall at no time be or become subject to or
collateral under any mortgage, bond, indenture or other financing
arrangement of SRP. In addition, if either ELI or SRP pledges any of its
Facilities, Rights of Way or Building Entrances to a creditor under any
mortgage, bond, indenture or other financing arrangement, such pledging
party shall use its reasonable efforts to provide to the non-pledging party
written agreements in favor of the non-pledging party from such creditor to
the effect that: (1) the non-pledging party shall not be named or joined in
any proceeding to enforce any such mortgage, bond, indenture or other
financing arrangement unless such joining is required by law in order to
perfect the proceeding; (2) enforcement of any such mortgage, bond,
indenture or other financing arrangement shall not terminate this Agreement
nor disturb or interfere with the non-pledging party's use of the System
(except in the case where the non-defaulting party is in default beyond the
period, if any, provided in this Agreement to cure such default); (3) any
party succeeding to the interests of the pledging party as a result of the
enforcement of any such mortgage, bond, indenture or other financing
arrangement shall be bound to the non-pledging party, and the non-pledging
party shall be bound to such successor, under all the terms, covenants and
conditions of this Agreement, for the balance of the Term, including any
extensions thereof (if exercised by the non-pledging party), with the same
force and effect as if such successor were an original signatory to this
Agreement; and (4) whenever any provision of such mortgage, bond, indenture
or other financing arrangement is in conflict with or purports to
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<PAGE>
limit the rights or increase the obligations of the non-pledging party
under this Agreement, the provisions of this Agreement shall control.
10.12 Discontinuance and Relocation.
-----------------------------
(a) SRP Discontinuance of Electric Services. SRP shall be
---------------------------------------
entitled to discontinue its use of any part of its electrical power system
or any Right of Way for electric power transmission or distribution
purposes. However, SRP shall not take any action to release or relinquish
voluntarily its underlying property interests, which shall be protected as
provided in Section 10.6. In the event of any such discontinuance, SRP
shall give written notice to ELI as soon as reasonably practicable. The
notice of discontinuance shall be accompanied by a plan of any alternative
route, if available.
(b) Relocations. If ELI relocates any ELI Facilities or SRP
-----------
relocates any SRP Facilities, the relocating party shall grant the other
party permission to utilize the alternate location under the terms,
covenants and conditions contained in this Agreement. The relocating party
shall bear the cost of relocating the portion of the System affected by
such relocation. Further ELI and SRP shall have the right to seek
compensation from any third party that may have made such relocation
necessary.
ARTICLE XI
SYSTEM OPERATIONS AND COORDINATION
----------------------------------
11.1 Operations.
----------
(a) System Management and Control. ELI shall provide primary
-----------------------------
network management and control for the System from Vancouver, Washington.
ELI shall be responsible for circuit turn-ups and end-user service
deployment. SRP shall be provided its
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own operations, administration, maintenance and provisioning gateway into
the System so that proper functioning of SRP's System operations may be
monitored independently.
(b) Troubleshooting. System difficulties will be detected, in
---------------
most instances, by ELI at its network control center. SRP and ELI shall
respond according to their respective maintenance responsibilities set
forth in Section 9.1. ELI and SRP, through the Network Deployment
Committee, shall coordinate efforts to establish minimum system service
standards applicable to both ELI and SRP. Such standards shall meet or
exceed the more stringent of ELI's existing service standards or applicable
industry standards, and shall include procedures for notification and
documentation of trouble reports, service priorities and response levels.
(c) Customer Service. ELI and SRP customer service personnel
----------------
will be trained to handle all customer inquiries through the first point of
contact, as viewed by the customer. Therefore, ELI and SRP shall rely on
each other and coordinate efforts as needed to address Telecommunications
Services, Electric Services and Utilicom Services questions effectively.
ELI shall provide primary call center support for Telecommunications
Services customers as follows: (1) full customer service from 7:00 a.m. to
7:00 p.m. P.T. Monday through Friday; (2) on-call service from 7:00 p.m. to
7:00 a.m. P.T. Monday through Friday; and (3) on-call service twenty-four
(24) hours a day Saturday, Sunday and holidays. SRP shall provide primary
call center support for Electric Services and Utilicom Services issues. In
cases where SRP has installed or maintains service or equipment, SRP shall
meet or exceed the more stringent of ELI's standards or industry standards
for response time, restoral and
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other metrics. Key Account customers shall receive relationship management,
provisioning and customer service priority in accordance with Key Account
management and customer service systems developed by ELI and SRP. ELI shall
not market to a Key Account without participation by SRP.
(d) Billing. ELI shall provide billing services for all
-------
Telecommunications Services. Similarly, SRP shall provide billing services
for all Electric Services and Utilicom Services.
(e) Mapping. ELI shall provide and maintain network mapping
-------
systems for the System. ELI and SRP shall share mapping data, and shall
cooperate with each other and coordinate efforts to produce all maps
required for maintenance, provisioning or regulatory purposes.
(f) Information Sharing. Except as provided in this Agreement,
-------------------
there shall be no general requirement for either party to share marketing,
customer or other information. However, ELI and SRP may negotiate with each
other to share information as needed to enhance Telecommunications Services
operations, profitability and service offerings. Whenever information is
shared, ELI and SRP shall take reasonable precautions to protect each
other's confidential information, as provided in Section 12.3 of this
Agreement.
11.2 Coordinating Committee. The Coordinating Committee shall be
----------------------
established by ELI and SRP to coordinate efforts between ELI and SRP relating to
the deployment and operation of the System during the Term.
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<PAGE>
(a) Roles and Responsibilities. The Coordinating Committee shall
--------------------------
perform the functions described in this Agreement and shall have the
following roles and responsibilities:
(1) Provide a forum for exchanging ideas and information
relating to the System, its operation and profitability, and the
marketing of services offered by means of the System;
(2) Review of the annual budgets prepared by ELI and SRP,
and the Base Case Financial Model updates prepared by ELI;
(3) Review and approval of the initial capital deployment
plan for the System and annual updates to the plan;
(4) Defining the amount of Reserved Fiber to be allocated to
SRP;
(5) Review and approval of the project life and annual
capital and maintenance budgets for the System;
(6) Review and approval of performance objectives and
metrics for the System;
(7) Due diligence in accordance with the terms of this
Agreement including: (i) oversight of accounting and operations audit
procedures; and (ii) review of audit results and recommendations for
adjustments to operations and financial mechanisms for allocation of
benefits to each of ELI and SRP;
(8) Definition of the scope of decision making by the
Network Deployment Committee;
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(9) Liaison with the senior managements of ELI and SRP;
(10) Appointment of additional committees as necessary; and
(11) Conduct of periodic Coordinating Committee meetings.
(b) Decision Making. ELI and SRP intend that the members of the
---------------
Coordinating Committee, in good faith and with the mutual benefit of both
parties in mind, shall negotiate and deliberate on all issues that come
before the Coordinating Committee. Actions by the Coordinating Committee
shall be governed by the following:
(1) ELI and SRP shall each be entitled to one vote;
(2) All actions of the Coordinating Committee shall be on
the basis of one vote for ELI and one vote for SRP;
(3) One member from SRP and one member from ELI shall
constitute a quorum;
(4) The Coordinating Committee may meet in person, by
telephone, video conference or other means by which all persons
present can hear and communicate with each other; and
(5) Any action that may be taken at a meeting of the
Coordinating Committee may be taken without a meeting, by a written
consent, setting forth the action so taken, signed by all the members
of the Coordinating Committee.
(c) Composition of Coordinating Committee. Each of ELI and SRP
-------------------------------------
shall have the right to appoint two members of the Coordinating Committee.
Such appointments do not need the consent or approval of the other party,
and unless otherwise agreed, shall not
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be for any particular term or duration. Attached to and incorporated by
reference in this Agreement as Exhibit "H" is the initial list of the
members of the Coordinating Committee appointed by ELI and SRP.
(d) Deadlocks. In the event the Coordinating Committee is
---------
deadlocked with respect to any issue over which it has decision making
authority, the issue shall be presented to the President of ELI and to the
General Manager of SRP for decision. If the President of ELI and the SRP
General Manager cannot resolve the deadlock, they shall select a mutually
acceptable independent third party mediator, and both ELI and SRP shall
work in good faith to resolve the issue through mediation (which mediation
shall be conducted in accordance with the Rules of Commercial Mediation
established by the American Arbitration Association). If a good faith
effort to mediate the issue fails to achieve a mutually satisfactory
result, either party may demand arbitration (which shall be conducted in
accordance with the Rules of Commercial Arbitration established by the
American Arbitration Association).
11.3 Network Deployment Committee. The Network Deployment
----------------------------
Committee shall be established by ELI and SRP to coordinate efforts between ELI
and SRP relating to the design, construction and maintenance of the System.
(a) Roles and Responsibilities. The Network Deployment Committee
--------------------------
shall perform the functions described in this Agreement and shall have the
following roles and responsibilities:
(1) Development and execution of the annual network
construction plan and associated action plans;
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(2) Coordinating the build-out of the System;
(3) Establishment of uniform policies, standards and
procedures for System design criteria, System Materials, customer
service and testing the operational readiness of Segments, performing
validation tests for installed System Electronics, System maintenance,
and management and periodically renewing System capacity;
(4) Budgeting decisions for customer projects;
(5) Technical support for new communications-enabled product
development;
(6) Staff support for the Coordinating Committee; and
(7) Appointment of "Project Management Teams" as necessary.
(b) Meetings. The Network Deployment Committee shall meet at
--------
least quarterly. The Network Deployment Committee shall promptly review
issues and items over which it has review obligations under the terms of
this Agreement. The Network Deployment Committee shall keep and provide
minutes of each meeting. Meeting minutes shall be distributed to members
of the Network Deployment Committee and to the engineering departments of
both ELI and SRP. Each of ELI and SRP shall designate one of its
representatives on the Network Deployment Committee as a prime contact
person with signature authority to take action on its behalf at committee
meetings.
(c) Decision Making. Generally, the Network Deployment Committee
---------------
shall use a consensus decision making approach for all decisions over which
it has
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responsibility, whether under the express terms of this Agreement or by
delegation from the Coordinating Committee. In the event the Network
Deployment Committee cannot reach a consensus on any particular issue, the
issue shall be referred to the Coordinating Committee for resolution.
(d) Composition of Network Deployment Committee. Each of ELI and
-------------------------------------------
SRP shall have the right to appoint an equal number of members to the
Network Deployment Committee. Such appointments do not require the consent
or approval of the other party, and, unless otherwise agreed, shall not be
for any particular term or duration Attached to and incorporated by
reference in this agreement as Exhibit "I" is the initial list of the
members of the Network Deployment Committee appointed by ELI and SRP.
11.4 Staffing. Attached to and incorporated by reference in this
--------
Agreement as Exhibit "J" is a list of the general staffing obligations of ELI
and SRP to support the services and obligations they have each agreed to provide
under the terms of this Agreement. Each of ELI and SRP shall maintain such
staffing support throughout the Term.
ARTICLE XII
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
12.1 Representations, Warranties and Covenants of ELI. ELI
------------------------------------------------
represents and warrants to SRP, and covenants with SRP, as follows:
(a) Authority. ELI is a corporation duly organized, validly
---------
existing and in good standing under the laws of the State of Delaware, and
has all requisite corporate power and authority to enter into this
Agreement and to perform according to the terms, covenants and conditions
contained in this Agreement.
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(b) Restrictions. To the best of ELI's knowledge, the execution
------------
of this Agreement, any instrument or document required by this Agreement,
and the consummation of the transactions contemplated by this Agreement
will not violate any article, bylaw or other corporate restriction, or any
statute, ordinance, law, order, ruling, certificate or license, regulation
or demand of any court, regulatory agency or other tribunal to which ELI is
subject.
(c) Binding Obligation. This Agreement, when duly executed by
------------------
ELI, shall constitute a valid, legal and binding obligation of ELI, and
shall be enforceable in accordance with its terms.
(d) Governmental Approvals. ELI has all necessary governmental
----------------------
approvals to enter into and to perform its obligations under this
Agreement, excepting approvals, if any, required: (1) from local
governmental authorities regarding ELI's use of the SRP Network located
within the jurisdiction of any such governmental authority, which approvals
ELI shall use reasonable efforts to obtain; (2) by the Arizona Corporation
Commission for ELI to provide intrastate services in the State of Arizona;
and (3) any local government permits necessary to construct Additional
Segments and Future Segments.
(e) Proceedings. Except for U S West Communications, Inc. v.
-----------
Arizona Corporation Commission, Case No. CV95-14284 (Arizona Superior
Court), U S West Communications, Inc. v. Jennings, Case No. CIV-95-1832-
PHX-SMM (D. Ariz.), and ELI's pending application for intrastate authority
before the Arizona Corporation Commission, no litigation or governmental
proceeding, including, without limitation, any docket before the
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Arizona Corporation Commission, is pending, or to ELI's knowledge,
threatened which might adversely affect this Agreement, the transactions
contemplated by this Agreement, or ELI's rights under, or ability to
perform pursuant to the terms of, this Agreement. ELI shall promptly notify
SRP of any material adverse claims, actual or threatened, affecting any
part of the System or ELI's telecommunication's business in Arizona.
(f) ELI Facilities. The existing ELI Facilities are operational
--------------
and function in accordance with the design specifications thereof provided
by ELI to SRP. The ELI Facilities are and will be operated in a safe
manner and in compliance in all material respects with all applicable laws,
regulations and governmental orders.
(g) Compliance with Governmental Requirements. To its knowledge,
-----------------------------------------
subject to the approvals to be sought by ELI as set forth in Section
12.1(d), ELI has not violated any rule, order or regulation issued by any
governmental authority with respect to any license, permit, franchise or
right of way which may materially and adversely affect SRP's use thereof or
ELI's right to grant a License to SRP, or to execute and perform this
Agreement.
(h) Financing Restrictions. This Agreement does not violate any
----------------------
terms, covenants, conditions or restrictions in any mortgages, bonds and
other indentures of ELI, and the SRP Facilities will not be subject to or
deemed to be collateral under any such agreements of ELI.
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<PAGE>
(i) Resources and Capacity. ELI possesses sufficient financial,
----------------------
managerial, and technical capacity and resources to perform its obligations
under the terms of this Agreement.
12.2 Representations, Warranties and Covenants of SRP. SRP
------------------------------------------------
represents and warrants to ELI, and covenants with ELI, as follows:
(a) Authority. SRP is an Agricultural Improvement District duly
---------
organized, validly existing and in good standing under the laws of the
State of Arizona and believes in good faith that it has all requisite power
and authority to enter into this Agreement or to perform according to the
terms, covenants and conditions contained in this Agreement.
(b) Restrictions. Subject to paragraph 12.2(a), to the best of
------------
SRP's knowledge, the execution of this Agreement, any instrument or
document required by this Agreement, and the consummation of the
transactions contemplated by this Agreement will not violate any article,
bylaw or other organizational restriction, or any statute, ordinance, law,
order, ruling, certificate or license, regulation or demand of any court,
regulatory agency or other tribunal to which SRP is subject.
(c) Binding Obligation. This Agreement, when duly executed by
------------------
SRP, shall constitute a valid, legal and binding obligation of SRP, and
shall be enforceable in accordance with its terms.
(d) Governmental Approvals. SRP has all necessary governmental
----------------------
approvals to enter into and to perform its obligations under this
Agreement, except that SRP
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has not obtained all local government permits necessary to construct
Additional Segments and Future Segments.
(e) Proceedings. No litigation or governmental proceeding,
-----------
including, without limitation, before the Arizona Corporation Commission,
is pending, or to SRP's knowledge, threatened which might adversely affect
this Agreement, the transactions contemplated by this Agreement, or SRP's
rights under, or ability to perform pursuant to the terms of, this
Agreement. SRP shall promptly notify ELI of any material adverse claims,
actual or threatened, affecting any Segment.
(f) SRP Facilities. The existing SRP Facilities are operational
--------------
and function in accordance with the design specifications thereof provided
by SRP to ELI. The SRP Facilities are and will be operated in a safe
manner and in compliance in all material respects with all applicable laws,
regulations and governmental orders.
(g) Compliance with Governmental Requirements. To its knowledge,
-----------------------------------------
SRP has not violated any rule, order or regulation issued by any
governmental authority with respect to any license, permit, franchise or
right of way which may materially and adversely affect ELI's use thereof or
SRP's right to grant a License to ELI, or to execute and perform this
Agreement.
(h) Financing Restrictions. This Agreement does not violate any
----------------------
terms, covenants, conditions or restrictions in any mortgages, bonds and
other indentures of SRP. The ELI Facilities will not be subject to or
deemed to be collateral under any such agreements of SRP.
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(i) Resources and Capacity. SRP possesses sufficient financial,
----------------------
managerial, and technical capacity and resources to perform its obligations
under the terms of this Agreement.
12.3 Confidentiality. All information furnished by ELI and SRP
---------------
to each other, or by or to their respective representatives, whether or not
reduced to writing or specifically identified as non-public, confidential, or
proprietary, and all analyses, compilations, data, studies, or other documents
prepared by ELI or SRP containing, or based in whole or in part on, any such
furnished information, or reflecting review of, or interest in, all or part of
such information are hereinafter collectively referred to as the "Information."
As used in this Agreement, a "representative" of ELI or SRP, as the case may be,
shall mean any and all directors, officers, employees, agents or
representatives, including, without limitation, attorneys, accountants,
consultants and financial advisors of ELI or SRP, as the case may be. In
consideration of being furnished with the Information, ELI and SRP agree that:
(a) Nondisclosure. The Information will be kept confidential and
-------------
will not, without the prior written consent of the party providing the
information, be disclosed by the other party or any of its representative,
in any manner whatsoever, in whole or in part, and will not be used by a
party or any of its representatives directly or indirectly for any purpose
other than activities contemplated by this Agreement. Moreover, ELI and
SRP will transmit the Information only to those representatives who need to
know the Information for the purpose of performing or exercising each
party's obligations and rights under this Agreement,
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who have been informed of the confidential nature of the Information, and
who have agreed to be bound by the terms of this Agreement.
(b) Authorized Disclosure. Without the prior written consent of
---------------------
the other party, neither party or its representatives will disclose to any
other person the fact that the Information has been made available, or any
of the terms, conditions or other facts with respect to this Agreement,
except as required by law and then only with prior written notice given, as
soon as possible, to the other party and in compliance with the provisions
of Section 20.4 of this Agreement. The term "person" as used in this
Agreement shall be interpreted broadly to include, without limitation, any
corporation, company, group, partnership or individual.
(c) Nonconfidential Information. This Section 12.3 shall be
---------------------------
inoperative as to any portion of the Information which: (1) is or becomes
generally available to the public other than as a result of a disclosure by
a party or its representatives; (2) becomes available to a party in good
faith from a third-party no subject to a confidential obligation to the
party; or (3) was known to a party on a nonconfidential basis prior to its
disclosure by the other party or one of its representatives.
(d) Compelled Disclosure. In the event that either party or
--------------------
anyone to whom the party transmits the Information relating to this
Agreement is requested or becomes legally compelled (by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand, or any similar process) to disclose any of the
Information, the party so compelled will provide prompt written notice of
such event to the
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other party so that the notified party may seek a protective order or other
appropriate remedy, waive compliance with the provisions of this Agreement
or both. In the event that such protective order or other remedy is not
obtained or that the notified party waives compliance with the provisions
of this Agreement, the legally compelled party will furnish only that
portion of the Information which is legally required and will exercise its
best efforts to obtain reliable assurance that confidential treatment will
be accorded the Information.
(e) Public Records Law. It is understood that ELI and SRP are or
------------------
may be subject to in the future, public records disclosure laws, and that
these laws will govern the disclosure responsibilities of ELI and SRP
notwithstanding the terms of this Agreement. ELI and SRP each agree that
to the extent reasonably practical, it will notify the other of any public
records requests of any part of the Information, and will give the other
party a reasonable opportunity to contest the public records request.
(f) Non-Waiver. It is understood and agreed that no failure or
----------
delay by a party in exercising any rights, power or privilege under this
Agreement shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise of any right, power
or privilege hereunder.
(g) Equitable Relief. A party shall be entitled to equitable
----------------
relief, including injunctive relief and specific performance, in the event
of any breach of the provisions of this Agreement. Such remedies shall not
be deemed to be the exclusive remedies for a breach of this Agreement by a
party or its representatives, but shall be in addition to all other
remedies available by law or equity. For purposes of equitable relief, ELI
and SRP agree that breach
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of the provisions of this Agreement may subject that party who has provided
Information to irreparable harm and injury.
(h) Ownership of Information. The Information acquired from the
------------------------
other party or any of its representatives shall be and shall remain the
exclusive property of the disclosing party. Neither the disclosure of
Information, or the execution of this Agreement shall be construed as a
license to the party receiving Information, or to make use of, or sell the
Information or products derived from the Information, or to make use of it
in any way that damages or competitively disadvantages the party disclosing
the Information.
12.4 Cooperation. ELI and SRP shall cooperate with each other,
-----------
in good faith, and shall use their best efforts to:
(a) Committees. Establish and make staffing assignments to the
----------
Coordinating Committee, the Network Deployment Committee and such other
committees as may, from time to time, be established to implement the
understandings, agreements and intents set forth in this Agreement;
(b) Network Design and Deployment. Expeditiously complete the
-----------------------------
design, deployment and construction of the Facilities as provided in this
Agreement;
(c) Conflicts Resolution. Negotiate reasonable and mutually
--------------------
beneficial resolutions to all conflicts that may arise between ELI and SRP
relating to the design, deployment, construction, maintenance, operation
and use of the Facilities or any other duty, right or obligation of either
of them relating to or arising out of this Agreement;
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(d) Operating Plans. Develop budgets, cost estimates, operating
---------------
plans, marketing plans, and maintenance plans for the Facilities consistent
with the terms, covenants and conditions of this Agreement and to give and
receive information pertaining to the efficient design, deployment, use,
maintenance and performance of the System; and
(e) Approvals and Consents. Obtain all regulatory, governmental,
----------------------
third-party and shareholder approvals, consents, permits and franchises as
may be necessary or prudent for the operation of the Facilities and the
implementation of any operating plan for the use of the System as described
in this Agreement.
12.5 Regulatory Compliance. Each of ELI and SRP shall be
---------------------
responsible to comply with the regulatory requirements relating to its own
business practices and operations.
12.6 Certificates. Upon request of either ELI or SRP, at any
------------
time and from time to time hereafter, the other party without charge and within
thirty (30) days following receipt of such request, shall certify and confirm in
writing to the requesting party: (a) that this Agreement is in full force and
effect and has not been supplemented, modified or amended (or if there have been
supplements, modifications or amendments, specifying same); (b) whether, to the
best knowledge of the party issuing such certificate, any other sums then due
and payable by ELI to SRP or by SRP to ELI pursuant to any provisions of this
Agreement are then unpaid (and if such sums remain unpaid, the amount thereof);
(c) whether, to the best knowledge of the party issuing such certificate, the
other party is in default in the performance of any of the covenants or
agreements on its part to be performed under the terms of this Agreement (or, if
defaults exist, specifying each particular in which it is asserted such other
party is in default); (d) if such certificate is issued in connection with any
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financing of any Segment, that, subject to the provisions of Section 14.1, the
requesting party is authorized to enter into such financing transaction and that
the other party will adhere to and perform its obligations under Article XIV
hereof, following its receipt of notice of the Transfer; and (e) as to such
other matters in respect of this Agreement as the party requesting such
certificate may reasonably request.
12.7 Independent Contractor Status. ELI and SRP acknowledge and
-----------------------------
agree that they reserve no control whatsoever over the employment, discharge,
compensation of or services rendered by the employees or contractors of each
other, notwithstanding the ability of ELI and SRP under this Agreement to
exercise certain rights to enforce the various standards and specifications
agreed upon pursuant to the terms of this Agreement. Nothing in this Agreement
shall be construed as inconsistent with the foregoing independent status and
relationship or as creating or implying a partnership or joint venture between
ELI and SRP.
12.8 Transactions with Affiliates. From and after the effective
----------------------------
date of this Agreement, all transactions with an Affiliate involving the System
entered into by either ELI or SRP shall be at arm's-length and shall comply with
applicable regulatory requirements. Services purchased from or sold to an
Affiliate shall be evidenced by a written contract, the terms of which shall be
subject to then existing market rates, terms and conditions.
12.9 Further Assurances. Each of ELI and SRP, with reasonable
------------------
promptness, shall execute and deliver such further instruments, documents,
applications and requests or petitions for authority as may be necessary or
prudent to implement or carry out more effectively the understandings, purposes
and intents of this Agreement.
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12.10 Nonexclusive Agreement. Nothing in this Agreement shall be
----------------------
construed to prohibit SRP from making agreements with other telecommunications
carriers, not involving the SRP Network, or from competing with ELI.
Notwithstanding the generality of the immediately preceding sentence, to the
extent the System is available at competitive prices and terms, SRP shall use
the System in connection with the sale by SRP of telecommunications services.
In addition, SRP shall not compete with ELI in selling to the Key Accounts,
provided that ELI meets SRP's requirements (in SRP's sole but reasonable
discretion) in providing service to the Key Account customers. SRP's
requirements could include branding an ELI-provided service with a SRP brand.
12.11 Damage and Destruction. In the event any Segment is damaged
----------------------
or destroyed, ELI or SRP, as applicable, shall give immediate notice to the
other party of the occurrence of such damage or destruction. ELI and SRP shall
cooperate with each other to reroute or substitute services delivered by means
of the Affected Portion to allow for continued and uninterrupted service to
customers. Unless mutually agreed otherwise, ELI and SRP shall use any
available insurance proceeds to repair or reconstruct the damaged or destroyed
Affected Portion and to restore the Affected Portion to its full and proper use.
The Network Deployment Committee shall be notified of any temporary re-routings
or arrangements pending repair or reconstruction. The Network Deployment
Committee shall coordinate efforts to minimize any disruption of service that
may result from the occurrence of the damage or destruction. In the event the
damage or destruction renders the Affected Portion entirely unusable, the
decision to reconstruct the Affected Portion shall be treated as a Future
Segment, subject to the review and construction processes and procedures for
Future Segments set forth in Article VIII of this Agreement.
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ARTICLE XIII
INSURANCE
---------
13.1 Required Insurance Coverage. Without limiting any of the
---------------------------
liabilities or other obligations of SRP or ELI, both parties shall procure and
cause their respective contractors to procure and maintain in force at their own
cost and expense the following insurance coverages:
(a) Workers Compensation and Employers Liability Insurance.
------------------------------------------------------
Workers Compensation Insurance to cover obligations imposed by applicable
federal and state statutes and Employers Liability Insurance with a minimum
limit of $1,000,000.00.
(b) Commercial Liability Insurance. Commercial Liability
------------------------------
Insurance with a minimum combined single limit of $1,000,000.00 each
occurrence. The policy shall include coverage for bodily injury liability,
property damage liability, personal injury liability, and contractual
liability for liability assumed under this Agreement. The policy shall
contain a severability of interest provision.
13.2 General Conditions.
------------------
(a) ELI Policies. The policies required to be maintained by ELI
------------
and its contractors pursuant to Section 13.1(b) shall: (1) include SRP as
an additional insured; (2) provide that SRP shall not by reason of its
inclusion as an additional insured, incur liability to the insurer for
payment of premiums for such insurance; and (3) provide that such insurance
is primary and not excess without right of contribution from any other
insurance which might be otherwise available to SRP.
(b) SRP Policies. The policies required to be maintained by SRP
------------
and its contractors pursuant to Section 13.1(b) shall: (1) include ELI as
an additional insured; (2)
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provide that ELI shall not by reason of its inclusion as an additional
insured, incur liability to the insurer for payment of premiums for such
insurance; and (3) provide that such insurance is primary and not excess
without right of contribution from any other insurance which might be
otherwise available to ELI.
(c) Evidence of Insurance. Prior to commencing work at
---------------------
Facilities owned by the other party, SRP, ELI and their respective
contractors shall furnish a certificate of insurance as evidence attesting
that the insurance required under this Article XIII is in effect.
(d) Blanket Policies. Nothing in this Article XIII shall be
----------------
construed to prevent either ELI or SRP from satisfying its insurance
obligations pursuant to this Agreement under a blanket policy or policies
of insurance which meet or exceed the requirements of this Article XIII.
(e) Self-Insurance. Notwithstanding any provision in this
--------------
Article XIII to the contrary, ELI and SRP may self-insure all or any
portion of the insurance required under this Agreement.
ARTICLE XIV
ASSIGNMENT, SUBLETTING AND OTHER TRANSFERS
------------------------------------------
14.1 Transfers. This Agreement and the rights granted under this
---------
Agreement are being granted in reliance on the financial standing and technical
experience of ELI and SRP and are thus granted personally to ELI by SRP and to
SRP by ELI. Neither ELI nor SRP may assign any right under this Agreement,
whether in whole or in part, without the prior written consent of the other,
which consent shall not be unreasonably withheld. Notwithstanding the
generality of the foregoing, either party may assign its rights in this
Agreement in whole or in part without the consent
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of the other party to an Affiliate, provided that such assignment shall not
relieve the assigning party of any of its obligations under this Agreement. Any
assignment which does not comply with the provisions of this Article XIV shall
be null and void.
14.2 ELI or SRP Financing. In the event that ELI or SRP, after
--------------------
obtaining the consent of the other pursuant to Section 14.1, assigns its
interest under this Agreement pursuant to a sale-leaseback or other financing
transaction, the other party agrees that, upon written notice to it specifying:
(a) the name and address of the Transferee; and (b) the name and address of the
Transferee's Agent, the other party will simultaneously give to the Agent any
notices required to be given to the financing party under this Agreement. ELI
and SRP shall accept payment or performance by the Agent of any obligation of
the other party provided such payment or performance shall be made within the
applicable cure periods allowed by this Agreement. The Agent shall have the
right to cure any default by SRP or ELI, as the case may be, within the
applicable cure periods allowed by this Agreement. Subject to the terms of this
Section 14.2, the Transferee may further assign or transfer any rights or
interests it may have under this Agreement from time to time, in whole or in
part, with the consent of ELI or SRP, as the case may be, which consent shall
not be unreasonably withheld or delayed.
14.3 SRP and ELI Recognition of Transferees. If any such
--------------------------------------
Transferee shall obtain use of all or any part of the Affected Portion of the
Facilities, through enforcement of any agreement with ELI or SRP, then, so long
as all of the obligations of the other party under this Agreement are being
performed and such Transferee agrees to be bound by and to observe and perform
the obligations of the financing party under this Agreement with respect to the
Affected Portion, the other
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party shall not disturb the use of the Affected Portion by such Transferee and
shall recognize such Transferee's right to use thereof, subject to the terms of
this Agreement.
14.4 No Assumption or Release. Except as set forth in Section
------------------------
14.3, no assignment under this Article XIV shall be deemed to be an assumption
by the Transferee of the obligations of ELI under this Agreement, and ELI or
SRP, as the case may be, shall not in any event be released, relieved or
discharged of or from any of the obligations assumed under this Agreement unless
specifically agreed to by the other.
14.5 Mergers and Acquisitions. Notwithstanding any provision of
------------------------
this Agreement to the contrary, neither ELI nor SRP shall be restricted or
prohibited by this Agreement from participating in or completing any mergers
with or acquisitions of businesses similar to or comparable in nature with the
business in which they are now engaged, provided that the successor by merger to
either ELI or SRP shall be subject to the terms, covenants and conditions of
this Agreement and shall be deemed to have assumed all obligations of the
merging party hereunder, including, with respect to a successor to ELI, the
obligation to pay to SRP the Operating Lease Payment for all Net Operating
Income its generated by the merged entity from the operation of the System.
14.6 No Third Party Beneficiaries. Except as otherwise expressly
----------------------------
provided in this Agreement, neither this Agreement, nor any of its terms or
provisions, nor any inclusion by reference herein, shall be construed as being
for the benefit of any signatory not a party to this Agreement.
ARTICLE XV
CONDEMNATION
------------
15.1 Taking. Should any Segment be made the subject of a Taking,
------
the rights of ELI and SRP relative to the property and interest in such property
shall be as set out below.
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(a) Taking Affecting ELI Interests. If the Taking affects ELI
------------------------------
Facilities, or Rights of Way or Building Entrances owned or controlled by
ELI, or any other interest belonging to ELI, the License granted to SRP
under the terms of this Agreement, to the extent appropriated by such
Taking, shall terminate.
(b) Taking Affecting SRP Interests. If the Taking affects SRP
------------------------------
Facilities, or Rights of Way or Building Entrances owned or controlled by
SRP, or any other interest belonging to SRP, the License granted to ELI
under the terms of this Agreement, to the extent appropriated by such
Taking, shall terminate.
15.2 Taking Awards. In the proceeding for any such Taking (or an
-------------
involuntary discontinuance of the use of a Segment in anticipation of a Taking),
the interests of ELI and SRP in and to the Affected Portion of the Segment shall
be severed. Any awards resulting from the proceeding shall be allocated between
and payable in accordance with the respective interests of ELI and SRP (both
physical and occupational, including any incremental value of the Right of Way
by virtue of the installation therein of the System). In addition, each of ELI
and SRP shall be entitled to claim and receive the portion of the total award
attributable to its interest in the System and may claim damages payable on
account of relocation or re-routing expenses relating to the System.
15.3 Notice of Taking. Each of ELI and SRP shall notify the
----------------
other immediately of any Taking threatened or filed against any portion of a
Right of Way or Building Entrance which includes (or, based upon preliminary
route designations approved by the Network Deployment Committee, could include)
any part of the System. In addition, each of ELI and SRP agree not to sell or
convey any portion of a Right of Way or Building Entrance containing (or, based
upon
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preliminary route designations approved by the Network Deployment Committee,
could contain) any Facilities to such acquiring authority in lieu of
condemnation without giving prior notice to and the opportunity to the other
party to participate in the negotiations with respect to such conveyance. Upon
giving any such notice of a proposed or pending Taking, ELI and SRP, to the
extent reasonably available, shall procure alternate Rights of Way or Building
Entrances within which or to which the System may be relocated following such
Taking. Each of ELI and SRP shall bear its share of the cost of relocating the
System affected by such relocation.
ARTICLE XVI
ENVIRONMENTAL HAZARD LIABILITY
------------------------------
16.1 Representations. Neither ELI nor SRP has any knowledge of,
---------------
nor has either of them received any notice from any governmental agency
concerning the existence of, any Hazardous Substances on or under any Rights of
Way or Building Entrances controlled or used by either of them (including any
proposed Additional Segment or any Future Segment) or relating to any existing
Facilities which would: (a) materially and adversely affect or interfere with
the deployment or use of the System or the respective rights of ELI and SRP
under the terms of this Agreement; or (b) require any corrective action or any
form of remediation respecting an affected or contaminated area, except that SRP
has knowledge of groundwater contamination and other contamination in certain of
its Rights of Way.
16.2 Responsibilities of Parties. If any Hazardous Substance is
---------------------------
introduced or released by either ELI or SRP which affects a Right of Way,
Building Entrance, Hub Site or other Facility, the responsible party shall
defend, indemnify and hold the other party harmless from and against any and all
expenses, claims, fines and actions arising out of the existence, introduction
or
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release of any such Hazardous Substance. In addition, the responsible party
shall also bear all costs of removing, neutralizing, containing or otherwise
remediating any such Hazardous Substance. In cases where both ELI and SRP have
caused or contributed to the existence, introduction or release of any such
Hazardous Substance, each party shall be liable therefor and shall indemnify and
hold the other harmless to the extent of such party's contribution to the
release or contamination.
16.3 Alternate Locations. Upon learning of the existence,
-------------------
introduction or release of Hazardous Substances on Right of Way areas within
which the System is or is intended to be located, ELI and SRP, to the extent
available, shall use alternate contiguous areas within which the System may be
relocated to avoid the contaminated areas.
ARTICLE XVII
LIABILITY AND INDEMNITY
-----------------------
17.1 ELI Indemnity. ELI shall indemnify, defend and hold
-------------
harmless SRP, its officers, agents and employees of and from any claim, demand,
lawsuit, or action of any kind for injury to or death of persons, including, but
not limited to, employees of ELI or SRP, and damage or destruction of property,
including, but not limited to, property of either ELI or SRP, arising out of:
(a) negligent or willful acts or omissions of ELI, its agents, officers,
directors, employees or contractors; (b) the exercise by ELI of the privileges
or rights given herein; and (c) the performance by ELI of any of its obligations
under this Agreement. Such obligation to indemnify shall extend to and
encompass all costs incurred by SRP in defending such claims, demands, lawsuits
or actions, including, but not limited to, attorney, witness and expert witness
fees, and any other litigation related expenses. ELI's obligations pursuant to
this Section 17.1 shall not extend to claims, demands, lawsuits or actions for
liability attributable to the active negligence or willful action of SRP, its
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directors, officers, employees, contractors, successors or assigns. ELI shall
pay any cost that may be incurred by SRP in enforcing this indemnity, including
reasonable attorney fees.
17.2 SRP Indemnity. SRP shall indemnify, defend and hold
-------------
harmless ELI, its officers, agents and employees of and from any claim, demand,
lawsuit, or action of any kind for injury to or death of persons, including, but
not limited to, employees of SRP or ELI, and damage or destruction of property,
including, but not limited to, property of either SRP or ELI, arising out of:
(a) negligent or willful acts or omissions of SRP, its agents, officers,
directors, employees or contractors; (b) the exercise by SRP of the privileges
or rights given herein; and (c) the performance by SRP of any of its obligations
under this Agreement. Such obligation to indemnify shall extend to and
encompass all costs incurred by ELI in defending such claims, demands, lawsuits
or actions, including, but not limited to, attorney, witness and expert witness
fees, and any other litigation related expenses. SRP's obligations pursuant to
this Section 17.2 shall not extend to claims, demands, lawsuits or actions for
liability attributable to the active negligence or willful action of ELI, its
directors, officers, employees, contractors, successors or assigns. SRP shall
pay any cost that may be incurred by ELI in enforcing this indemnity, including
reasonable attorney fees.
17.3 No Consequential Damages. Notwithstanding any provision in
------------------------
this Agreement to the contrary, neither ELI, SRP nor their respective
contractors or subcontractors shall be liable to the other for incidental,
consequential, special, punitive or indirect damages, including without
limitation, loss of use, loss of profits or revenue, cost of capital or
increased operating costs, arising out of this transaction whether by reason of
contract, indemnity, strict liability, negligence, intentional conduct, breach
of warranty or from breach of this Agreement.
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17.4 Waiver of Subrogation. To the extent that such insurance is
---------------------
in force and collectible and to the extent permitted by law, each of ELI and SRP
hereby releases and waives all right of recovery against the other or anyone
claiming through or under each of them by way of subrogation or otherwise. The
foregoing release and waiver shall be in force and effect only if the releasing
party's insurance policies contain provisions to the effect that such a release
and waiver shall not invalidate the insurance, and each of ELI and SRP shall use
its best efforts to secure such provisions in its policies.
17.5 Defense of Claims. Either ELI or SRP as the indemnifying
-----------------
party hereunder shall have the right to defend the other by counsel of the
indemnifying party's selection reasonably satisfactory to the indemnified party,
with respect to any claims within the indemnification obligations of this
Article XVII. ELI and SRP shall give each other prompt notice of any asserted
claims or actions indemnified against, shall cooperate with each other in the
defense of any such claims or actions, and shall not settle any such claims or
actions without the prior written consent of the other.
17.6 Third Party Claims. Except as set forth in Sections 14.2,
------------------
17.1 and 17.2, nothing in this Agreement shall be construed to create rights in,
or duties or liabilities to, or any standard of care with reference to, or to
grant remedies to, any person or entity not a party to this Agreement. ELI and
SRP by entering into this Agreement do not hold themselves out as furnishing
like or similar services to any other person or entity.
17.7 Survival. The obligations of the respective parties under
--------
this Article XVII shall survive the expiration or earlier termination of this
Agreement.
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17.8 Limitation of ELI Liability. Notwithstanding anything to
---------------------------
the contrary in this Agreement, SRP alone shall have the responsibility for:
(a) the SRP Utilicom Services or Reserved Fiber transmission systems; (b) the
fitness of the SRP Facilities as and when constructed; and (c) the correctness
of the "as-built" drawings of the SRP Facilities. ELI's issuance of an
acceptance or approval of the foregoing shall signify approval of or objections
with respect to ELI's Telecommunications Services transmission system only and
shall in no way be deemed to represent an opinion or guarantee with respect to
the adequacy of SRP's Electric Services, Utilicom Services and Reserved Fiber
transmission systems or the support thereof.
17.9 Limitation of SRP Liability. Notwithstanding anything to
---------------------------
the contrary in this Agreement, ELI alone shall have responsibility for: (a)
the ELI Telecommunications Services transmission system; (b) the fitness of the
ELI Facilities as and when constructed; and (c) the correctness of the "as-
built" drawings of the ELI Facilities. SRP's issuance of an acceptance or
approval of any of the foregoing shall signify an approval of or objections to
SRP's Electric Services, Utilicom Services and Reserved Fiber transmission
systems only and shall in no way be deemed to represent an opinion or guarantee
with respect to the adequacy of ELI's Telecommunications Services transmission
system or the support thereof.
17.10 Applicability of Liability Limitations. ELI and SRP intend
--------------------------------------
that the waivers and disclaimers of liability, releases from liability,
exclusive remedy provisions, and (except as expressly stated to the contrary
therein) indemnity and hold harmless provisions expressed throughout this
Agreement shall apply even in the event of the fault, negligence (in whole or in
part), strict liability, or breach of contract of the party released or whose
liability is waived, disclaimed, limited,
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apportioned or fixed by such exclusive remedy provision, or who is indemnified
or held harmless, and shall extend to their respective Affiliates and its and
their partners, directors, officers, employees and agents. ELI and SRP also
intend and agree that such provisions shall continue in full force and effect
notwithstanding the completion, termination, suspension, cancellation or
rescission of this Agreement, or termination of the rights and privileges
granted by this Agreement. No officer, director, employee, agent or other
individual representative of either ELI or SRP shall be personally responsible
for any liability arising under this Agreement.
ARTICLE XVIII
FORCE MAJEURE
-------------
18.1 Excuse of Performance. Notwithstanding anything in this
---------------------
Agreement to the contrary, neither ELI or SRP shall be liable or responsible for
a delay or failure in performing or carrying out any of its obligations (other
than obligations to make payments) under this Agreement caused by Force Majeure
(as defined below).
18.2 Definition. The term "Force Majeure" as used in this
----------
Agreement shall mean any cause beyond the reasonable control of ELI or SRP, as
applicable, or beyond the reasonable control of any of their respective
contractors, subcontractors, suppliers or vendors, including without limitation:
(a) Acts of God. Acts of God, including, but not necessarily
-----------
limited to, lightning, earthquakes, adverse weather of greater duration or
intensity than normally expected for the job area and time of year, fires,
explosions, floods, other natural catastrophes, sabotage, acts of a public
enemy, acts of government or regulatory agencies, wars, blockades,
embargoes, insurrections, riots or civil disturbances;
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(b) Labor Disputes. Labor disputes, including, but not
--------------
necessarily limited to, strikes, work slowdowns, work stoppages or labor
disruptions, labor or material shortages, or delays or disruptions of
transportation;
(c) Court Orders. Orders and judgments of any federal, state or
------------
local court, administrative agency or governmental body;
(d) Change in Law. The adoption of or change in any federal,
-------------
state or local laws, rules, regulations, ordinances, permits or licenses,
or changes in the interpretation of such laws, rules, regulations,
ordinances, permits or licenses, by a court or public agency having
appropriate jurisdiction after the date of the execution of this Agreement;
or
(e) Government Approvals. Any suspension, termination,
--------------------
interruption, denial or failure to issue or renew by any governmental
authority or other party having approval rights of any Approval required or
necessary hereunder for the construction, installation or operation of the
Facilities or for either party to perform its obligations hereunder, except
when such suspension, termination, interruption, denial or failure to issue
or renew results from the negligence or failure to act of the party
claiming the occurrence of an event of Force Majeure.
18.3 Continuance after Force Majeure Event. Subject to the
-------------------------------------
provisions of Section 8.5, if either ELI or SRP is rendered unable to fulfill
any of its obligations under this Agreement by reason of Force Majeure, such
party shall promptly notify the other and shall exercise due diligence to remove
such inability with all reasonable dispatch; provided, that nothing contained in
this Section 18.3 shall be construed as requiring ELI or SRP to settle any
strike, work stoppage or other labor
- 87 -
<PAGE>
dispute in which it may be involved, or to accept any permit, certificate,
license or other Approval on terms deemed unacceptable to such party, or to
enter into any contract or other undertaking on terms which the party deems to
be unduly burdensome or costly.
ARTICLE XIX
BREACH AND TERMINATION
----------------------
19.1 Termination Events. The occurrence and continuance of the
------------------
following events may result in the termination of this Agreement, subject to the
provisions of this Article XIX:
(a) Change of Conditions. A change of conditions under which
--------------------
ELI, SRP or the System operates which is beyond the control of the parties
such that the System cannot continue to operate as contemplated by the
terms of this Agreement, or meet the Minimum Performance Standards for the
sale of Telecommunications Services, including, without limitation:
(1) Adverse Change in Financial Condition. A change in the
-------------------------------------
financial condition of ELI or SRP that materially and adversely
affects the ability of ELI or SRP to perform in accordance with the
terms, covenants and conditions of this Agreement;
(2) Change in Ownership. An unsolicited change in the
-------------------
controlling ownership of ELI, SRP or Citizens Utilities Company, which
for purposes hereof means a change in the direct or beneficial
ownership of any such entity in excess of 50%; or
(3) Adverse Change in Law. Changes in law or in the
---------------------
regulatory environment materially affecting ELI, SRP or the use of the
System.
- 88 -
<PAGE>
(b) Breach or Default. A material breach or material default
-----------------
under the terms, covenants or conditions of this Agreement by either ELI or
SRP, including, without limitation:
(1) Failure to Pay. The failure of either ELI or SRP to
--------------
make any payment required under the terms of this Agreement when due;
and
(2) Failure to Satisfy Minimum Performance Standards. The
------------------------------------------------
revenues generated from the sale of Telecommunications Services fails
to satisfy the Minimum Performance Standards.
(c) Intentional Termination. An intentional termination of this
-----------------------
Agreement by either ELI or SRP, including, without limitation:
(1) Intentional Termination. Either ELI or SRP announces to
-----------------------
the other its intention to terminate this Agreement for strategic or
other reasons that are unrelated to the parties' performance under
this Agreement;
(2) Willful Failure to Perform. The willful failure by
--------------------------
either ELI or SRP to perform its obligations under the terms of this
Agreement; and
(3) Termination Effected by Willful Acts or Omissions.
-------------------------------------------------
Either ELI or SRP, by willful acts or omissions, places either itself
or the System in a position or condition which breaches the terms,
covenants and conditions of this Agreement or effectively terminates
this Agreement, including, without limitation, a willful failure to
cure a breach or default after having received written notice thereof
from the other party.
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<PAGE>
19.2 Actions Following Occurrence of Termination Event. Should
-------------------------------------------------
any termination event described in Section 19.1 occur, ELI and SRP shall have
the following rights and obligations:
(a) Change of Conditions. If the termination event is a change
--------------------
in conditions described in Section 19.1(a), ELI and SRP covenant and agree
to meet expeditiously and to discuss and negotiate in good faith the effect
of the changed condition on this Agreement, their respective performance
obligations hereunder, and their ability to perform under the terms,
covenants and conditions of this Agreement. By mutual consent, ELI and SRP
may terminate this Agreement, or modify this Agreement to address and
account for the changed condition in a mutually acceptable manner. If ELI
and SRP cannot agree on a solution to the effect of the changed condition,
either party, by written notice to the other, may elect to terminate this
Agreement.
(b) Breach or Default. If the termination event is a breach or
-----------------
default described in Sections 19.1(b) and 19.1(c), the non-defaulting party
shall give written notice of such occurrence to the defaulting party. The
defaulting party shall be given a reasonable time to cure any breach or
default as follows:
(1) Monetary Default. In the case of a monetary default,
----------------
the defaulting party shall have thirty (30) days after receipt of the
written notice in which to effectuate a cure.
(2) Nonmonetary Default. In the case of a nonmonetary
-------------------
default, the defaulting party shall have sixty (60) days after receipt
of the written notice in which to effectuate a cure. If the
nonmonetary default cannot be corrected within such sixty (60) day
period, the defaulting party shall have an additional reasonable
- 90 -
<PAGE>
time in which to effectuate a cure, provided the defaulting party
commences corrective action within the original sixty (60) day period
and thereafter diligently prosecutes the corrective action to
completion. If the defaulting party does not timely cure the breach or
default within the time periods specified above, the non-defaulting
party may elect to terminate this Agreement by providing written
notice of such election to the defaulting party.
In the event of an uncured breach or default described in Section 19.1(b)
or 19.1(c), the non-breaching party, in addition to the remedies and
obligations set forth in Section 19.3, shall have available to it all legal
remedies available for breach of contract.
19.3 Rights of ELI and SRP Upon Termination. Upon the
--------------------------------------
termination of this Agreement, for any reason:
(a) Transition Period. At termination, ELI and SRP shall
-----------------
continue to abide by the terms of this Agreement, including the methods
established hereunder and in the Base Case Financial Model for the
accounting and distribution of profits from the sale of Telecommunications
Services. The transition period shall last a maximum of two (2) years
following the effective date of termination. During such transition
period, SRP and ELI may seek alternative suppliers for Fiber and services
needs. ELI's and SRP's rights to use the System shall continue for the
duration of the transition period, however, the exclusivity of ELI's rights
in the Leased Fiber shall terminate. If at the conclusion of the
transition period SRP has not found replacement suppliers of the services
previously provided by ELI, SRP shall have the right to purchase such
services from ELI, for resale or otherwise, to permit continued service to
SRP's customers. SRP's purchase of such services from ELI, for resale
- 91 -
<PAGE>
or otherwise, shall be subject to then existing market rates, terms and
conditions. If at the conclusion of the transition period, ELI has not
found replacement suppliers of the services previously provided by SRP, ELI
shall have the right to lease Dark Fiber from SRP, at then existing market
rates, terms and conditions, including, without limitation, length of term,
and with sufficient capacity to service, without interruption, ELI's
customers, but in no event shall this provision obligate SRP to provide
greater capacity than the capacity being used by ELI at termination. In no
event shall the purchase and lease rights set forth in this section extend
beyond five (5) years following termination.
(b) Valuation of Telecommunications Services Customer Base. As
------------------------------------------------------
of the effective date of the termination of this Agreement, the goodwill
and other intangible value of the Telecommunications Services customer base
shall be appraised, by independent appraisal. If ELI and SRP cannot agree
on an appraiser to perform the appraisal, each party may select its own
appraiser and, except as provided in below, the arithmetic mean of the two
appraisals shall be deemed to be the value of such goodwill and other
intangibles. However, if the value established by the higher of the two
appraisals is more than fifteen percent (15%) higher than the lower of the
two appraisals, the two appraisers shall select a third appraiser. The
value of the goodwill and other intangibles relating to the
Telecommunications Services customer base shall then be established by
calculating the arithmetic mean of the value given by the third appraiser
with the next closest value given by one of the other two appraisers. ELI
shall pay to SRP, as SRP's share of the value of goodwill and other
intangibles associated with the Telecommunications Services customer base
of the System, one-half (50%) of the final appraised value obtained as
provided in this Section 19.3(b).
- 92 -
<PAGE>
ARTICLE XX
MISCELLANEOUS
-------------
20.1 Amendments. Neither this Agreement nor any provisions
----------
hereof may be changed, waived, discharged or terminated orally and may only be
modified or amended by an instrument in writing, singed by both ELI and SRP.
20.2 Binding Effect. This Agreement shall be binding upon and
--------------
shall inure to the benefit of ELI, SRP and their respective successors and
assigns.
20.3 Waivers. The failure by ELI or SRP at any time or times
-------
hereafter to require strict performance by the other of any of the undertakings,
agreements or covenants contained in this Agreement shall not waive, affect or
diminish any right of ELI or SRP hereunder to demand strict compliance and
performance therewith. None of the undertakings, agreements or covenants of ELI
and SRP under this Agreement shall be deemed to have been waived unless such
waiver is evidenced by an instrument in writing signed by the party to be
charged specifying such waiver.
20.4 Notices. Unless otherwise specifically provided in this
-------
Agreement, any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telecopied, telexed or
sent by courier or United States certified mail and shall be deemed to have been
given when delivered in person or by courier service, upon receipt of a telecopy
or telex, or five (5) days after deposit in the United States mail, with postage
prepaid and properly addressed, as follows:
If to ELI, to: Electric Lightwave, Inc.
8100 N.E. Parkway Drive, #200
Vancouver, Washington 98662
Attn: Legal Department
Telecopy Number: (360) 253-4425
Telephone Number: (360) 892-1000
- 93 -
<PAGE>
and to: Electric Lightwave, Inc.
2600 North Central Avenue, Suite 300
Phoenix, Arizona 85004
Attn: General Manager
Telecopy Number: (602) 277-8343
Telephone Number: (602) 277-1122
If to SRP, to: Salt River Project Agricultural and
Improvement District
1600 North Priest Drive
Tempe, Arizona 85281
Attn: Corporate Secretary
Telecopy Number: (602) 236-2188
Telephone Number: (602) 236-5005
and to: Salt River Project Agricultural and
Improvement District
1600 North Priest Drive
Tempe, Arizona 85281
Attn: Manager SRP Telecom
Telecopy Number: (602) 236-3407
Telephone Number: (602) 236-6699
and to: Salt River Project Agricultural and
Improvement District
1600 North Priest Drive
Tempe, Arizona 85281
Attn: Legal Department
Telecopy Number: (602) 236-5397
Telephone Number: (602) 236-7249
Such addresses may be changed by notice to the other party given in the same
manner as above provided.
20.5 Severability. If any term or provision of this Agreement
------------
shall, to any extent, be determined by a court of competent jurisdiction to be
void, voidable or unenforceable, such void, voidable or unenforceable term or
provision shall not affect any other term or provision of this Agreement.
- 94 -
<PAGE>
20.6 Interpretation. Whenever the context shall require, the
--------------
plural shall include the singular, the whole shall include any part thereof, and
any gender shall include both other genders. The article, section and paragraph
headings contained in this Agreement are for purposes of reference only and
shall not limit, expand or otherwise affect the construction of any provisions
hereof. All references in this Agreement to articles, sections and paragraphs,
unless expressly noted otherwise, are to articles, sections and paragraphs
contained in this Agreement.
20.7 Governing Law and Choice of Forum. This Agreement and all
---------------------------------
matters relating hereto shall be governed by, construed and interpreted in
accordance with the laws of the State of Arizona. Any arbitration or mediation
under this agreement shall be held in the State of Arizona, County of Maricopa.
Jurisdiction for any disputes arising out of this agreement shall be exclusively
in the courts of the State of Arizona, state or federal, and any litigation
shall be brought in Maricopa County, Arizona.
20.8 Commissions. No brokerage, finder's or other fee,
-----------
commission or compensation shall be paid by ELI or SRP in connection with the
transaction contemplated by this Agreement. ELI and SRP shall indemnify and
hold each other harmless (including attorney fees and costs) from and against
any and all claims for brokerage and finder's fees or commissions which may be
asserted against the other based on the actions or omissions of the indemnifying
party.
20.9 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which when so executed and delivered, shall be deemed
an original, but all such counterparts taken together shall constitute only one
instrument.
- 95 -
<PAGE>
20.10 Attorney Fees. ELI and SRP agree that should either of them
-------------
default in any of the covenants or agreements contained herein, the defaulting
party shall pay all costs and expenses, including reasonable attorney fees and
costs, incurred by the non-defaulting party to protect its rights hereunder,
regardless of whether an action is commenced or prosecuted to judgment.
20.11 Costs. Except as otherwise set forth in this Agreement, ELI
-----
and SRP shall each be responsible for its own costs, including legal fees,
incurred in negotiating and finalizing this Agreement.
DATED effective as of the date first above written.
ELI:
ELECTRIC LIGHTWAVE, INC., a Delaware
corporation
By: /s/ David B. Sharkey
---------------------------------------
Title: President
-----------------------------------
SRP:
SALT RIVER PROJECT AGRICULTURAL
IMPROVEMENT AND POWER DISTRICT, an Agricultural
Improvement District organized and existing
under the laws of the State of Arizona
By: /s/ William P. Schrader
---------------------------------------
Title: President
-----------------------------------
- 96 -
<PAGE>
Approved as to form:
/s/ Kenneth C. Sundlof, Jr.
- --------------------------------------
Kenneth C. Sundlof, Jr.
Jennings, Strouss & Salmon, P.L.C.
Date: September 9, 1996
---------------------------------
<PAGE>
EXHIBIT A [*]
ELI CONSTRUCTION PLAN
---------------------
- --------------------
[*] Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT B [*]
NETWORK MAPS
------------
- --------------------
[*] Confidential material (2pgs) has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
2
<PAGE>
EXHIBIT C [*]
ECONOMIC ANALYSIS
-----------------
- --------------------
[*] Confidential material (6pgs) has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
3
<PAGE>
EXHIBIT D: SRP CONSTRUCTION PLAN
Segment Description/Approximate Route Miles[*]
ELI Connections/Upgrades: (FY '96/97 or as needed)
96 fiber [*] 6.25 miles
96 fiber [*] 4.0 miles
48 fiber [*]
5.3 miles
48 fiber [*] 1.8 miles
48 fiber [*] 2.0 miles
96 fiber [*] 4.2 miles
48 fiber [*] 1.9 miles
48 fiber [*] 2.0 miles
48 fiber [*] 2.0 miles
48 fiber [*] 4.4 miles
- -----------------------------------------------------------------
Total 33.85 miles
SRP Substation Buildout
Fiscal Year `96/97
------------------
Ring [*]
72 fiber [*] 2.0 miles
48 fiber [*] 3.0 miles
24 fiber [*] 2.3 miles
96 fiber [*] 0.7 miles
48 fiber [*]
Ring [*]
48 fiber [*] 4.0 miles
48 fiber [*] 2.0 miles
Ring [*]
48 fiber [*] 2.5 miles
48 fiber [*] 2.2 miles
48 fiber [*] 3.0 miles
48 fiber [*] 2.0 miles
48 fiber [*] 2.5 miles
48 fiber [*] 2.5 miles
24 fiber [*] 2.0 miles
Ring [*]
48 fiber [*] 5.0 miles
48 fiber [*] 2.0 miles
48 fiber [*] 1.5 miles
24 fiber [*] 2.0 miles
24 fiber [*] 1.2 miles
Ring [*]
48 fiber [*] 2.0 miles
24 fiber [*] 1.5 miles
24 fiber [*] 1.1 miles
24 fiber [*] 1.3 miles
24 fiber [*] 2.0 miles
24 fiber [*] 0.5 miles
Ring [*]
48 fiber [*] 4.0 miles
24 fiber [*] 1.0 miles
24 fiber [*] 1.3 miles
24 fiber [*] 2.5 miles
48 fiber [*] 1.7 miles
48 fiber [*] 3.0 miles
Ring [*]
48 fiber [*] 1.5 miles
- -----------------------------------------------------------------
Total '96-'97 65.80 miles
- --------------------
* Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
<PAGE>
Fiscal Year `97/98[*]
---------------------
Ring [*]
48 fiber [*] 1.3 miles
48 fiber [*] 3.0 miles
48 fiber [*] 2.1 miles
48 fiber [*] 0.2 miles
48 fiber [*] 2.0 miles
48 fiber [*] 2.3 miles
Ring [*]
24 fiber [*] 2.0 miles
24 fiber [*] 1.1 miles
24 fiber [*] 0.6 miles
24 fiber [*] 0.3 miles
24 fiber [*] 2.4 miles
24 fiber [*] 3.5 miles
24 fiber [*] 0.8 miles
24 fiber [*] 0.4 miles
Ring [*]
24 fiber [*] 2.1 miles
24 fiber [*] 2.7 miles
24 fiber [*] 8.5 miles
48 fiber [*] 0.5 miles
Ring [*]
24 fiber [*] 2.1 miles
24 fiber [*] 3.4 miles
48 fiber [*] 1.3 miles
24 fiber [*] 2.5 miles
24 fiber [*] 2.0 miles
24 fiber [*] 1.0 miles
24 fiber [*] 1.6 miles
Ring [*]
24 fiber [*] 3.2 miles
24 fiber [*] 2.0 miles
24 fiber [*] 1.2 miles
24 fiber [*] 2.0 miles
24 fiber [*] 2.5 miles
24 fiber [*] 0.6 miles
24 fiber [*] 5.3 miles
Ring [*]
24 fiber [*] 3.6 miles
24 fiber [*] 2.0 miles
24 fiber [*] 2.8 miles
48 fiber [*] 4.1 miles
24 fiber [*] 0.1 miles
Ring [*]
24 fiber [*] 1.3 miles
24 fiber [*] 2.2 miles
24 fiber [*] 2.0 miles
24 fiber [*] 2.5 miles
24 fiber [*] 2.3 miles
24 fiber [*] 4.1 miles
24 fiber [*] 1.0 miles
Ring [*]
24 fiber [*] 1.2 miles
24 fiber [*] 2.0 miles
24 fiber [*] 2.0 miles
- -----------------------------------------------------------------
Total '97-'98 99.70 miles
- --------------------
* Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
<PAGE>
Fiscal Year `98/99[*]
---------------------
Ring [*]
24 fiber [*] 4.0 miles
24 fiber [*] 2.0 miles
24 fiber [*] 1.5 miles
24 fiber [*] 1.0 miles
24 fiber [*] 2.8 miles
24 fiber [*] 2.2 miles
Ring [*]
24 fiber [*] 7.5 miles
24 fiber [*] 3.0 miles
24 fiber [*] 2.0 miles
48 fiber [*] 3.0 miles
48 fiber [*] 9.5 miles
Ring [*]
24 fiber [*] 2.2 miles
24 fiber [*] 3.3 miles
24 fiber [*] 1.8 miles
24 fiber [*] 3.5 miles
24 fiber [*] 2.8 miles
Ring [*]
48 fiber [*] 1.5 miles
24 fiber [*] 1.3 miles
24 fiber [*] 2.3 miles
24 fiber [*] 2.1 miles
24 fiber [*] 3.0 miles
24 fiber [*] 3.0 miles
24 fiber [*] 2.3 miles
24 fiber [*] 4.0 miles
Ring [*]
24 fiber [*] 3.3 miles
24 fiber [*] 2.2 miles
24 fiber [*] 4.0 miles
24 fiber [*] 2.0 miles
Ring [*]
48 fiber [*] 1.0 miles
24 fiber [*] 2.0 miles
24 fiber [*] 1.0 miles
24 fiber [*] 1.5 miles
24 fiber [*] 2.1 miles
- -----------------------------------------------------------------
Total '98-'99 90.70 miles
- --------------------
* Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
3
<PAGE>
Fiscal Year `99/00[*]
---------------------
Ring [*]
24 fiber [*] 2.0 miles
24 fiber [*] 5.0 miles
24 fiber [*] 6.0 miles
24 fiber [*] 3.0 miles
24 fiber [*] 5.0 miles
24 fiber [*] 2.3 miles
Ring [*]
48 fiber [*] 3.0 miles
24 fiber [*] 6.0 miles
24 fiber [*] 2.0 miles
- -----------------------------------------------------------------
Total '99 - '00 34.30 miles
- --------------------
* Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
4
<PAGE>
EXHIBIT "E"
EXISTING OR PENDING SRP NETWORK CONTRACTS
-----------------------------------------
MESA UNIFIED SCHOOL DISTRICT #4
A pending bid for bandwidth and transmission services for a district wide
communications network. If accepted this bid requires that SRP deploy a private
fiber optic network connecting all Mesa Public School facilities utilizing
reserved fiber on the SRP Network backbone and additional fiber for spurs and
building entrances. In addition, SRP will lease T-1 circuits and resell dial
tone services from US WEST Communications. This bid was submitted in conjunction
with Fujitsu Business Communications Systems, Inc., on May 30, 1996.
MOTOROLA
A month-to-month service agreement with Motorola, Inc. (an Illinois corporation
located at 1299 E. Algonquin Road, Schaumburg, Illinois) for point-to-point
Digital Signal-3 service between Motorola facilities located at 2501 S. Price
Road, Chandler, Arizona, and Motorola operations located at the Orbital Sciences
Center facility located at 3380 S. Price Road, Chandler, Arizona. This service
was initiated July 1, 1996.
TELEPORT COMMUNICATIONS GROUP
A ten-year license for fiber optic telecommunications facilities for use by TCG
Phoenix (a New York general partnership having its principal place of business
at 2730 East Camelback Road, Phoenix, Arizona) to provide telecommunications
services. These fiber optic cable facilities are located along SRP Arizona Canal
right-of-way between 16th Street and 40th Street in Phoenix, Arizona.
US WEST COMMUNICATIONS
A ten-year license for fiber optic telecommunications facilities for use by US
WEST Communications (a Delaware corporation having its principal place of
business at 12999 Deer Creek Canyon Road, Littleton, Colorado) to provide
telecommunications services. These fiber optic cable facilities are located
along SRP Arizona Canal right-of-way between 16th Street and 4Oth Street in
Phoenix, Arizona.
<PAGE>
EXHIBIT F
RESERVED FIBER ALLOCATION FOR SEGMENTS IN SRP SERVICE TERRITORY
<TABLE>
<CAPTION>
EXISTING ADDITIONAL ADD STRANDS STRANDS CABLE STRAND-MILES STRAND-MILES STRAND-MILES
FIBER SEGMENT NAME/*/ COUNT COUNT YR RESERVED AVAILABLE MILES RESERVED AVAILABLE TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
/*/ 72 1 54 18 2 108 36 144
/*/ 48 1 30 18 3 90 54 144
/*/ 48 1 30 18 0.2 6 3.6 9.6
/*/ 96 1 24 72 0.2 4.8 14.4 19.2
/*/ 24 8 16 3 24 48 72
/*/ 24 6 18 2.3 13.8 41.4 55.2
/*/ 24 8 16 2 16 32 48
/*/ 24 4 20 2 8 40 48
/*/ 24 10 14 1 10 14 24
/*/ 24 1 12 12 2.3 27.6 27.6 55.2
/*/ 24 14 10 3 42 30 72
/*/ 20 16 4 1.3 20.8 5.2 26
/*/ 6 6 0 3 18 0 18
/*/ 18 16 2 5 80 10 90
/*/ 48 1 10 38 4 40 152 192
/*/ 48 1 10 38 2 20 76 96
/*/ 48 1 10 38 5 50 190 240
/*/ 48 1 10 38 2 20 76 96
/*/ 48 1 10 38 1.5 15 57 72
/*/ 24 1 6 18 2 12 36 48
/*/ 24 1 6 18 1.2 7.2 21.6 28.8
/*/ 20 20 0 2 40 0 40
/*/ 20 20 0 3.3 66 0 66
/*/ 20 20 0 5 100 0 100
/*/ 48 1 6 42 2.2 13.2 92.4 105.6
/*/ 48 1 6 42 3 18 126 144
/*/ 48 1 10 38 2 20 76 96
/*/ 48 1 6 42 2.5 15 105 120
/*/ 48 1 6 42 2.5 15 105 120
/*/ 20 10 10 3 30 30 60
/*/ 20 10 10 4 40 40 80
/*/ 48 1 10 38 2 20 76 96
/*/ 24 1 6 18 1.5 9 27 36
/*/ 24 1 6 18 1.1 6.6 19.8 26.4
/*/ 24 1 6 18 1.3 7.8 23.4 31.2
/*/ 24 1 6 18 2 12 36 48
/*/ 24 1 8 16 0.5 4 8 12
/*/ 48 1 8 40 4 32 160 192
/*/ 48 1 8 40 1.5 12 60 72
/*/ 24 1 8 16 1 8 16 24
/*/ 24 1 8 16 1.3 10.4 20.8 31.2
</TABLE>
- ---------------
/*/ Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT F
RESERVED FIBER ALLOCATION FOR SEGMENTS IN SRP SERVICE TERRITORY
<TABLE>
<CAPTION>
EXISTING ADDITIONAL ADD STRANDS STRANDS CABLE STRAND-MILES STRAND-MILES STRAND-MILE
FIBER SEGMENT NAME/*/ COUNT COUNT YR RESERVED AVAILABLE MILES RESERVED AVAILABLE TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
/*/ 24 1 8 16 2.5 20 40 60
/*/ 48 1 8 40 1.7 13.6 68 81.6
/*/ 48 1 8 40 3 24 120 144
/*/ 24 8 16 3 24 48 72
/*/ 20 10 10 1.3 13 13 26
/*/ 20 12 8 2 24 16 40
/*/ 20 12 8 2 24 16 40
/*/ 20 12 8 2.3 27.6 18.4 46
/*/ 20 12 8 4.6 55.2 36.8 92
/*/ 24 8 16 6 48 96 144
/*/ 24 8 16 3 24 48 72
/*/ 24 6 18 2.5 15 45 60
/*/ 48 2 6 42 1 3 7.8 54.6 62.4
/*/ 48 2 6 42 3 18 126 144
/*/ 48 2 6 42 2.1 12.6 88.2 100.8
/*/ 48 2 6 42 0.2 1.2 8.4 9.6
/*/ 48 2 6 42 2 12 84 96
/*/ 48 2 8 40 2.3 18.4 92 110.4
/*/ 24 12 12 11 132 132 264
/*/ 24 12 12 2 24 24 48
/*/ 24 12 12 4 48 48 96
/*/ 24 12 12 3 36 36 72
/*/ 24 1 6 18 2 12 36 48
/*/ 48 1 12 36 1.25 15 45 60
/*/ 48 1 12 36 1.25 15 45 60
/*/ 24 2 6 18 2.4 14.4 43.2 57.6
/*/ 24 2 12 12 0.6 7.2 7.2 14.4
/*/ 24 2 12 12 0.3 3.6 3.6 7.2
/*/ 24 2 12 12 0.4 4.8 4.8 9.6
/*/ 24 2 6 18 1.1 6.6 19.8 26.4
/*/ 24 2 6 18 0.8 4.8 14.4 19.2
/*/ 24 2 6 18 2 12 36 48
/*/ 24 2 6 18 3.5 21 63 84
/*/ 24 8 16 1.2 9.8 19.2 28.8
/*/ 48 12 36 2.2 26.4 79.2 105.6
/*/ 24 12 12 3.5 42 42 84
/*/ 24 12 12 2 24 24 48
/*/ 24 2 8 16 2.7 21.6 43.2 64.8
/*/ 24 2 6 18 2.1 12.6 37.8 50.4
/*/ 24 2 10 14 2.1 21 29.4 50.4
/*/ 24 2 14 10 3.4 47.6 34 81.6
/*/ 24 2 12 12 1.6 19.2 19.2 38.4
/*/ 24 2 6 18 1 6 18 24
/*/ 24 12 12 1 12 12 24
</TABLE>
- ---------------
/*/ Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT F
RESERVED FIBER ALLOCATION FOR SEGMENTS IN SRP SERVICE TERRITORY
<TABLE>
<CAPTION>
EXISTING ADDITIONAL ADD STRANDS STRANDS CABLE STRAND-MILES STRAND-MILES STRAND-MILES
FIBER SEGMENT NAME/*/ COUNT COUNT YR RESERVED AVAILABLE MILES RESERVED AVAILABLE TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
/*/ 24 2 8 16 2 16 32 48
/*/ 24 2 14 10 2.5 35 25 60
/*/ 48 2 12 36 1.3 15.6 46.8 62.4
/*/ 24 12 12 13 156 156 312
/*/ 48 20 28 2 40 56 96
/*/ 48 18 30 1.7 30.6 51 81.6
/*/ 48 18 30 2 36 60 96
/*/ 48 18 30 3 54 90 144
/*/ 24 2 12 12 3.2 38.4 38.4 76.8
/*/ 24 2 8 16 2 16 32 48
/*/ 24 2 10 14 1.2 12 16.8 28.8
/*/ 24 2 10 14 2 20 28 48
/*/ 24 2 10 14 2.5 25 35 60
/*/ 24 2 10 14 0.6 6 8.4 14.4
/*/ 24 2 12 12 5.3 63.6 63.6 127.2
/*/ 24 2 6 18 3.6 21.6 64.8 86.4
/*/ 24 2 6 18 2 12 36 48
/*/ 24 2 6 18 2.8 16.8 50.4 67.2
/*/ 48 2 12 36 4.1 49.2 147.6 196.8
/*/ 24 2 6 18 0.1 0.6 1.8 2.4
/*/ 24 2 6 18 1.3 7.8 23.4 31.2
/*/ 24 2 6 18 2.2 13.2 39.6 52.8
/*/ 24 2 6 18 2 12 36 48
/*/ 24 2 6 18 2.5 15 45 60
/*/ 24 2 6 18 2.3 13.8 41.4 55.2
/*/ 24 2 6 18 4.1 24.6 73.8 98.4
/*/ 24 2 6 18 1 6 18 24
/*/ 48 12 36 1.5 18 54 72
/*/ 48 12 36 3 36 108 144
/*/ 48 12 36 2 24 72 96
/*/ 48 12 36 1 12 36 48
/*/ 24 2 8 16 1.2 9.6 19.2 28.8
/*/ 24 2 8 16 2 16 32 48
/*/ 24 2 8 16 2 16 32 48
/*/ 48 16 32 1.7 27.2 54.4 81.6
/*/ 48 16 32 4 64 128 192
/*/ 48 16 32 2.2 35.2 70.4 105.6
/*/ 48 16 32 6 96 192 288
/*/ 24 3 6 18 4 24 72 96
/*/ 24 3 6 18 2 8 16.8 50.4 67.2
/*/ 24 3 6 18 2 12 36 48
/*/ 24 3 6 18 1.5 9 27 36
/*/ 24 3 6 18 1 6 18 24
/*/ 24 3 6 18 2.2 13.2 39.6 52.8
</TABLE>
- ---------------
/*/ Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT F
RESERVED FIBER ALLOCATION FOR SEGMENTS IN SRP SERVICE TERRITORY
<TABLE>
<CAPTION>
EXISTING ADDITIONAL ADD STRANDS STRANDS CABLE STRAND-MILES STRAND-MILES STRAND-MILES
FIBER SEGMENT NAME/*/ COUNT COUNT YR RESERVED AVAILABLE MILES RESERVED AVAILABLE TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
/*/ 24 3 6 18 2 12 36 48
/*/ 24 3 6 18 3.3 19.8 59.4 79.2
/*/ 24 3 6 18 2.2 13.2 39.6 52.8
/*/ 24 3 6 18 4 24 72 96
/*/ 12 6 6 3.5 21 21 42
/*/ 12 6 6 3.5 21 21 42
/*/ 48 3 6 42 1 6 42 48
/*/ 24 3 8 16 2 16 32 48
/*/ 24 3 8 16 1 8 16 24
/*/ 24 3 8 16 1.5 12 24 36
/*/ 24 3 8 16 2.1 16.8 33.6 50.4
/*/ 48 12 36 6 72 216 288
/*/ 24 3 8 16 7.5 60 120 180
/*/ 24 3 8 16 3 24 48 72
/*/ 24 3 8 16 3 24 48 72
/*/ 24 3 8 16 2 16 32 48
/*/ 24 3 6 18 2.2 13.2 39.8 52.8
/*/ 24 3 6 18 3.3 19.8 59.4 79.2
/*/ 24 3 8 16 1.8 14.4 28.8 43.2
/*/ 24 3 8 16 3.5 28 56 84
/*/ 24 3 8 16 2.8 22.4 44.8 67.2
/*/ 24 24 0 5 120 0 120
/*/ 48 24 24 2 48 48 96
/*/ 48 24 24 4 96 96 192
/*/ 48 3 8 40 1.5 12 60 72
/*/ 24 3 6 18 1.3 7.8 23.4 31.2
/*/ 24 3 6 18 2.3 13.8 41.4 55.2
/*/ 24 3 6 18 2.1 12.6 37.8 50.4
/*/ 24 3 6 18 3 18 54 72
/*/ 24 3 6 18 3 18 54 72
/*/ 24 3 6 18 2.3 13.8 41.4 55.2
/*/ 24 3 6 18 4 24 72 96
/*/ 24 8 16 2 16 32 48
/*/ 24 4 6 18 2 12 36 48
/*/ 24 4 6 18 5 30 90 120
/*/ 24 4 6 18 6 36 108 144
/*/ 24 4 6 18 3 18 54 72
/*/ 24 4 6 18 5 30 90 120
/*/ 24 4 6 18 2.3 13.8 41.4 55.2
/*/ 48 4 6 42 3 18 126 144
/*/ 24 4 6 18 6 36 108 144
/*/ 24 4 12 12 2 24 24 48
/*/ 24 2 6 18 8.5 51 153 204
/*/ 48 4 10 38 9.5 95 361 456
</TABLE>
- ---------------
/*/ Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filed separately with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT F
RESERVED FIBER ALLOCATION FOR SEGMENTS IN SRP SERVICE TERRITORY
<TABLE>
<CAPTION>
EXISTING ADDITIONAL ADD STRANDS STRANDS CABLE STRAND-MILES STRAND-MILES STRAND-MILES
FIBER SEGMENT NAME/*/ COUNT COUNT YR RESERVED AVAILABLE MILES RESERVED AVAILABLE TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
/*/ 48 2 12 36 0.5 6 18 24
ADDITIONAL BULLDOUT TO SUPPORT ELI/SRP JOINT OPERATIONS
/*/ 72 1 12 60 6.25 75 375 450
/*/ 96 1 12 84 4 48 336 384
/*/ 48 1 12 36 5.3 63.6 190.8 254.4
/*/ 48 1 12 36 2 24 72 96
/*/ 48 1 12 36 2 24 72 96
/*/ 48 1 6 42 4.4 26.4 184.8 211.2
/*/ 48 1 12 36 2 24 72 96
/*/ 96 1 12 84 4.2 50.4 352.8 403.2
/*/ 48 1 12 36 1.9 22.8 68.4 91.2
/*/ 48 2 12 36 2 24 72 96
=============================================================================================================================
TOTALS 489.9 4900.4 10932.8 15833.2
PERCENTAGE 31.0 69.0
NOTES: *
</TABLE>
- ---------------
/*/ Confidential material has been omitted pursuant to a request for
confidential treatment. Such material has been filied separately with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT "G"
Operating Lease Payment Examples
--------------------------------
FIRST 15 QUARTERS:
- ------------------
<TABLE>
<CAPTION>
Example #1 Example #2 Example #3
------------------ ------------------ -----------------
CALCULATION OF OPERATING LEASE PAYMENT:
- ---------------------------------------
<S> <C> <C> <C>
Gross Revenue $ 1,000,000 $ 5,000,000 $10,000,000
Cost of Goods Sold (400,000) (2,000,000) (4,000,000)
Gross Margin 600,000 3,000,000 6,000,000
Current Direct Operating Costs (1,000,000) (1,500,000) (2,000,000)
Accumulated Unreimbursed Direct
Operating Expenses 0 (400,000) 0
Deferred Operating Lease Amortization (2) N/A N/A N/A
Net Operating Income (400,000) 1,100,000 4,000,000
Operating Lease Percentage [*] [*] [*]
Operating Lease Payment $ 0 [*] [*]
==========================================================
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED UNREIMBURSED DIRECT OPERATING EXPENSES (1):
- -------------------------------------------------------
<S> <C> <C> <C>
Beginning of Year $0 ($400,000) $0
Current Year Unreimbursed (400,000) 0 0
Prior Year Deduction 0 400,000 0
End of Year ($400,000) $ 0 $0
==============================
</TABLE>
<TABLE>
<CAPTION>
DEFERRED OPERATING LEASE (2):
- -----------------------------
<S> <C> <C> <C>
Beginning of Year $0 $0 [*]
Current Year Deferred 0 [*] 0
Current Year Amortization N/A N/A N/A
End of Year $0 [*] [*]
=========================
</TABLE>
* Confidential material has been omitted pursuant to a request for confidential
treatment. Such material has been filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT "G"
Operating Lease Payment Examples
--------------------------------
DURING 16TH THROUGH 35TH QUARTERS:
- ----------------------------------
<TABLE>
<CAPTION>
Example #1 Example #2 Example #3
------------ ------------ ------------
CALCULATION OF OPERATING LEASE PAYMENT:
- ---------------------------------------
<S> <C> <C> <C>
Gross Revenue $ 1,000,000 $ 5,000,000 $10,000,000
Cost of Goods Sold (400,000) (2,000,000) (4,000,000)
Gross Margin 600,000 3,000,000 6,000,000
Current Direct Operating Costs (1,000,000) (1,500,000) (2,000,000)
Accumulated Unreimbursed Direct
Operating Expenses N/A N/A N/A
Deferred Operating Lease Amortization (2) 0 [*] [*]
Net Operating Income (400,000) [*] [*]
Operating Lease Percentage [*] [*] [*]
Current Operating Lease Payment $ 0 [*] [*]
=========================================
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED UNREIMBURSED DIRECT OPERATING EXPENSES (1):
- -------------------------------------------------------
<S> <C> <C> <C>
Beginning of Year $0 $0 $0
Current Year Unreimbursed N/A N/A N/A
Prior Year Deduction N/A N/A N/A
End of Year $0 $0 $0
=========================
</TABLE>
<TABLE>
<CAPTION>
DEFERRED OPERATING LEASE (2):
- -----------------------------
<S> <C> <C> <C>
Quarter (16-19) (20-23) (24-27)
Percent 20% 25% 33%
Beginning of Year [*] [*] [*]
Current Year Deferred N/A N/A N/A
Current Year Amortization 0 [*] [*]
End of Year [*] [*] [*]
================================
</TABLE>
* Confidential material has been omitted pursuant to a request for confidential
treatment. Such material has been filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT "G"
Operating Lease Payment Examples
--------------------------------
AFTER 35TH QUARTERS:
- --------------------
<TABLE>
<CAPTION>
Example #1 Example #2 Example #3
------------ ------------ ------------
CALCULATION OF OPERATING LEASE PAYMENT:
- ---------------------------------------
<S> <C> <C> <C>
Gross Revenue $ 1,000,000 $ 5,000,000 $10,000,000
Cost of Goods Sold (400,000) (2,000,000) (4,000,000)
Gross Margin 600,000 3,000,000 6,000,000
Current Direct Operating Costs (1,000,000) (1,500,000) (2,000,000)
Accumulated Unreimbursed Direct
Operating Expenses N/A N/A N/A
Deferred Operating Lease Amortization (2) N/A N/A N/A
Net Operating Income (400,000) 1,500,000 4,000,000
Operating Lease Percentage [*] [*] [*]
Operating Lease Payment $ 0 [*] [*]
=========================================
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED UNREIMBURSED DIRECT OPERATING EXPENSES (1):
- -------------------------------------------------------
<S> <C> <C> <C>
Beginning of Year $0 $0 $0
Current Year Unreimbursed N/A N/A N/A
Prior Year Deduction N/A N/A N/A
End of Year $0 $0 $0
=========================
</TABLE>
<TABLE>
<CAPTION>
DEFERRED OPERATING LEASE (2):
- -----------------------------------------------------------
<S> <C> <C> <C>
Beginning of Year $0 $0 $0
Current Year Deferred N/A N/A N/A
Current Year Amortization N/A N/A N/A
End of Year $0 $0 $0
===============
</TABLE>
* Confidential material has been omitted pursuant to a request for confidential
treatment. Such material has been filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT "H"
COORDINATING COMMITTEE
----------------------
ELECTRIC LIGHTWAVE (1) The Vice President with responsibility for sales; and
(2) The Vice President with responsibility for engineering.
SALT RIVER PROJECT (1) The senior-most manager responsible for commercial
telecommunications services; presently Richard M.
Hayslip, Manager of Environmental, Land and Risk
Management Services.
(2) The senior-most manager responsible for internal
telecommunications services; presently Robert M.
Thomas, Manager of Electric System Operations &
Maintenance.
<PAGE>
EXHIBIT "I"
NETWORK DEPLOYMENT COMMITTEE
----------------------------
ELECTRIC LIGHTWAVE (1) The Vice President with responsibility for engineering;
(2) A Senior Engineering Representative Designated by the
Vice President of Engineering; and
(3) The Phoenix General Manager.
SALT RIVER PROJECT (1) The manager responsible for internal
telecommunications; presently Mark L. Etherton, Manager
of Communications Engineering.
(2) The manager(s) responsible for telecommunications
business management; presently Michael C. Sherman,
Manager of Telecommunications Business Development and
Christopher R. Forsyth, Manager of SRP Telecom.
(3) A senior telecommunications technical advisor;
presently Mr. Ron L. Taylor, Principal Engineer-
Communications Engineering.
<PAGE>
EXHIBIT "J"
STAFFING
--------
ELECTRIC LIGHTWAVE
PHOENIX
General Manager--Phoenix: Responsible for sales operations and overall
direction of the Phoenix office, including budgets and coordination of non-sales
personnel. The General Manager will serve as primary contact to SRP.
Sales Engineer--Phoenix: Assists the Account Executive with the sales process,
technical resource for highly technical and complex customer requirements.
Account Executive: Responsible for producing Telecommunications Services
revenue, as well as account management.
OSP Engineer: Designs OSP and supports the sales process, supports the
implementation of the System, serves as resource to SRP engineering personnel in
design of the System.
Hub Technician: Installs and maintains all services for ELI customer base.
Administrative Assistant: Supports the General Manager in the overall
management of the Phoenix office, supports the sales personnel in their sales
efforts as directed by the General Manager.
Receptionist: Supports the Administrative Assistant, serves as primary contact
for visitors to the office, answers phones.
CORPORATE
ELI corporate headquarters will provide support personnel and other resources
necessary to provide: assistance in design and engineering of communications
outside plant facilities; design and engineering of System electronics and
optronics; System operation and maintenance (including 7x24 monitoring via ELI's
network control center); communications product development and marketing;
service sales and provisioning; customer service; billing and collections; local
area number portability; and compliance with state and federal regulatory
requirements.
SALT RIVER PROJECT
The following describes staff dedicated to the operation of the System as a
telecommunications network ("SRP Telecom"), or having support for SRP Telecom as
a primary objective. This includes those employees, the majority of whose time
will be charged to SRP Telecom direct operating expenses, or to capital projects
within SRP Telecom.
<PAGE>
Manager, SRP Telecom: Strategic development of telecommunications initiative;
integration of backbone network and customer lateral decisions; capital budget
management; business interface with engineering, legal, finance, and accounting
departments; development of enhanced energy services.
Manager, Telecommunications Business Development: Strategic development of
telecommunications initiative; business interface with marketing, real estate
and communications departments; development of enhanced energy services; key
trade ally/vendor relationship management.
Secretary, Telecommunications: Secretarial support for SRP Telecom department.
Analyst, Telecommunications: Financial analysis, process design, secondary
research, market analysis; competitive assessment.
Principal Engineer, Communications Engineering: Backbone network design,
project management, customer lateral/CPE network design.
Senior Engineering, Communications Engineering: Network design, CPE equipment
specification, network hardware integration.
Technician/Designer, Communications Engineering: Design, mapping, fiber
tracking.
Designer, Transmission Line Design: Construction design of physical plant,
project coordination of cable construction jobs.
Right of Way Agent, Land Management: Acquisition of rights-of-way, easements as
required to support network completion, research of existing rights.
Business Account Representative, Business Account Management: Coordination of
training, account management systems and product information dissemination.
J-2
<PAGE>
EXHIBIT 10.5
PARTICIPATION AGREEMENT
(Electric Lightwave, Inc. Trust No. 1995-A)
Dated as of April 28, 1995
Among
ELECTRIC LIGHTWAVE, INC., as Construction Agent and Lessee,
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
not in its individual capacity except as expressly
stated herein, but solely as Certificate Trustee,
THE PERSONS NAMED ON SCHEDULE I,
as Certificate Purchasers,
THE PERSONS NAMED ON SCHEDULE II,
as Lenders,
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
not in its individual capacity except as expressly
stated herein, but solely as Administrative Agent,
and
BA LEASING & CAPITAL CORPORATION,
not in its individual capacity except as expressly
stated herein, but solely as Information Agent,
and
CITIZENS UTILITIES COMPANY,
as Guarantor
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS............................................................ 2
ARTICLE II
EFFECTIVENESS; ACQUISITION AND LEASE; GENERAL PROVISIONS................ 3
SECTION 2.1. Effectiveness of Agreement................................ 3
SECTION 2.2. Agreement to Acquire, Lease, Guaranty and Make Advances... 3
SECTION 2.3. Participation by Lenders.................................. 3
SECTION 2.4. Participation by Certificate Purchasers................... 4
SECTION 2.5. Advance Dates; Continuations and Conversions.............. 4
SECTION 2.6. Commitment Fee............................................ 9
SECTION 2.7. Participants' Instructions to Certificate
Trustee and Administrative Agent............ 10
SECTION 2.8. Nature of Transaction..................................... 10
SECTION 2.9. Computations ............................................ 11
SECTION 2.10. Commitment Reduction...................................... 11
SECTION 2.11. Commitment Increase....................................... 12
SECTION 2.12. Event of Taking........................................... 13
ARTICLE III
CONDITIONS TO ADVANCES AND COMPLETION................................... 13
SECTION 3.1. Conditions to All Advances................................ 13
SECTION 3.2. Conditions to Advances for Construction and
Related Costs of Equipment.................. 16
SECTION 3.3. Conditions to Delivery Dates.............................. 17
SECTION 3.4. Conditions to First Advance Date for Construction
and Related Costs of Equipment.............. 18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES.......................................... 19
SECTION 4.1. Representations and Warranties of Lessee.................. 19
SECTION 4.2. Representations and Warranties of each
Certificate Purchaser and each Lender....... 23
SECTION 4.3. Representations and Warranties of Bank.................... 25
SECTION 4.4. Representations and Warranties of Administrative Agent.... 27
SECTION 4.5. Representations and Warranties of Information Agent....... 28
SECTION 4.6. Representations and Warranties of Guarantor............... 30
ARTICLE V
COVENANTS OF LESSEE..................................................... 34
SECTION 5.1. Further Assurances........................................ 34
SECTION 5.2. Consolidation, Merger, Sale, etc.......................... 34
SECTION 5.3. Corporate Existence, etc.................................. 37
SECTION 5.4. Liens..................................................... 37
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
SECTION 5.5. Compliance Certificates.................................. 37
SECTION 5.6. Change of Name or Address................................ 37
SECTION 5.7. Investigation by Authorities............................. 38
SECTION 5.8. Information Regarding Systems; Other Information......... 38
SECTION 5.9. Securities ........................................... 38
SECTION 5.10. Interest Rates........................................... 38
SECTION 5.11. Tax Reporting............................................ 39
SECTION 5.12. Searches ............................................ 39
ARTICLE VI
OTHER COVENANTS AND AGREEMENTS......................................... 39
SECTION 6.1. Cooperation with Lessee.................................. 39
SECTION 6.2. Covenants of Certificate Trustee and the
Certificate Purchasers..................... 39
SECTION 6.3. Restrictions on and Effect of Transfer................... 42
SECTION 6.4. Covenants and Agreements of Participants................. 45
SECTION 6.5. Required Transfers....................................... 46
SECTION 6.6. Affirmative Covenants of Guarantor....................... 46
SECTION 6.7. Negative Covenants of Guarantor.......................... 50
ARTICLE VII
INDEMNIFICATION........................................................ 54
SECTION 7.1. General Indemnification.................................. 54
SECTION 7.2. General Tax Indemnity.................................... 56
SECTION 7.3. Withholding Tax Exemption................................ 60
SECTION 7.4. Excessive Use Indemnity.................................. 60
SECTION 7.5. Gross Up................................................. 61
ARTICLE VIII
THE AGENTS............................................................. 61
SECTION 8.1. Appointment of Administrative Agent and Information
Agent; Powers and Authorization to Take
Certain Actions.................................... 61
SECTION 8.2. Reliance ................................................ 63
SECTION 8.3. Action Upon Instructions Generally....................... 63
SECTION 8.4. Indemnification.......................................... 64
SECTION 8.5. Independent Credit Investigation......................... 65
SECTION 8.6. Refusal to Act........................................... 65
SECTION 8.7. Resignation or Removal of an Agent; Appointment
of Successor............................... 66
SECTION 8.8. Separate Agent........................................... 66
SECTION 8.9. Termination of Agencies.................................. 67
SECTION 8.10. Compensation of Agents................................... 67
SECTION 8.11. Limitations.............................................. 67
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
ARTICLE IX
MISCELLANEOUS........................................................... 68
SECTION 9.1. Survival of Agreements.................................... 68
SECTION 9.2. No Broker, etc............................................ 69
SECTION 9.3. Notices ............................................ 69
SECTION 9.4. Counterparts ............................................ 69
SECTION 9.5. Amendments ............................................ 69
SECTION 9.6. Headings, etc............................................. 71
SECTION 9.7. Parties in Interest....................................... 71
SECTION 9.8. GOVERNING LAW ............................................ 71
SECTION 9.9. Payment of Transaction Costs and Other Costs.............. 71
SECTION 9.10. Severability ............................................. 72
SECTION 9.11. Unconstructed Systems..................................... 72
SECTION 9.12. Limited Liability of Certificate Trustee.................. 72
SECTION 9.13. Liabilities of the Participants........................... 73
SECTION 9.14. Liabilities of Administrative Agent....................... 73
SECTION 9.15. Limitations of Recourse................................... 73
SECTION 9.16. Reproduction of Documents................................. 74
SECTION 9.17. Consideration for Consents to Waivers and
Amendments.................................. 74
SECTION 9.18. Role of Arranger and its Affiliates....................... 75
SECTION 9.19. Notices to Certificate Trustee under Loan Agreement....... 75
SECTION 9.20. Submission to Jurisdiction; Waivers....................... 75
SECTION 9.21. FINAL AGREEMENT........................................... 76
SECTION 9.22. Consent to Assignment of Documents........................ 76
-iii-
<PAGE>
SCHEDULE I Certificate Purchaser Commitments
SCHEDULE II Lenders Commitments
SCHEDULE III Addresses For Notice; Wire Instructions
SCHEDULE IV Types of Equipment
APPENDIX 1 Definitions
APPENDIX 2 Conditions Precedent to Document Closing Date
EXHIBIT A Form of Guaranty
EXHIBIT B Form of Construction Agency Agreement
EXHIBIT C Form of Lease
Exhibit A - Form of Lease Supplement
EXHIBIT D-1 Form of Advance Request
EXHIBIT D-2 Form of Continuation/Conversion Request
EXHIBIT E Form of Loan Agreement
Exhibit A - Form of Note
EXHIBIT F Form of Trust Agreement
Exhibit A - Form of Trust Certificate
EXHIBIT G Form of Support Agreement
EXHIBIT H-1/ Form of Combined Opinion of Leasee's General
H-2 Counsel and Special Counsel
EXHIBIT H-3 Form of Opinion of Certificate Trustee's Special Counsel
EXHIBIT H-4 Form of Opinion of Guarantor's Special Counsel
EXHIBIT H-5 Form of Opinion of Special [State] Counsel
EXHIBIT I-1 Form of Officer's Certificate of Electric Lightwave, Inc.
EXHIBIT I-2 Form of Officer's Certificate of Citizens Utilities Company
EXHIBIT J Form of Investor's Letter
EXHIBIT K Form of Security Agreement and Assignment of Leases
EXHIBIT L Form of Purchase Order Assignment
EXHIBIT M Form of Certificate of Acceptance
EXHIBIT N-1 Form of Bill of Sale
EXHIBIT N-2 Form of Certificate of Transfer
-iv-
<PAGE>
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT (Electric Lightwave, Inc. Trust No.
1995-A), dated as of April 28, 1995 (this "Agreement"), is among ELECTRIC
LIGHTWAVE, INC., a Delaware corporation, as Construction Agent and Lessee;
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, a national banking association,
not in its individual capacity except as expressly stated herein, but solely in
its respective capacities as Certificate Trustee and Administrative Agent for
the Certificate Purchasers and Lenders, respectively; the Persons named on
Schedule I hereto (together with their respective permitted successors, assigns
and transferees), as Certificate Purchasers; the Persons listed on Schedule II
hereto (together with their respective permitted successors, assigns and
transferees), as Lenders; BA Leasing & Capital Corporation, a California
corporation, not in its individual capacity except as expressly stated herein,
but solely as Information Agent for the Lenders and Certificate Purchasers
(together with Administrative Agent and any successor of each, the "Agents," and
individually, an "Agent"), and Citizens Utilities Company, a Delaware
corporation, as Guarantor.
W I T N E S S E T H:
WHEREAS, Lessee is engaged in the business, among others, of
constructing and operating (a) metropolitan area telecommunications networks
(each a "MAN" and, collectively, "MANs") that may provide, subject to the
issuance of applicable authorizations where needed, (i) high speed dedicated
private line service on a jurisdictionally interstate basis which is sold to
customers on a circuit basis rather than on a minutes-of-use basis, (ii) high
speed dedicated private line service for an interlata access transport area
(LATA) and (iii) local switched exchange services between and among customers in
a LATA, and (b) fiber optic cable links (each an "FCL" and, collectively,
"FCLs"); and
WHEREAS, the Trust under the Trust Agreement has been created for the
purpose of providing financing for the purchase, construction and installation
of certain new equipment (the "Equipment") of the types identified on Schedule
IV and comprising, as so constructed and installed, one or more Systems subject
to a Lease Supplement that are to be operated for voice, data transmission,
video or other communications purposes as component parts or the whole of, or as
enhancements to, one or more MANs located in the Designated Locations and the
FCL connecting Las Vegas, Nevada and Phoenix, Arizona (the "Southwest FCL"); and
<PAGE>
Participation Agreement
WHEREAS, (a) Lessee, as Construction Agent for Lessor, shall construct
certain Systems using Advances from Lessor, and (b) Lessee shall lease each
System from Lessor for the applicable Lease Supplement Term pursuant to the
Lease; and
WHEREAS, Lessor wishes to obtain, and the Certificate Purchasers are
willing to provide to Lessor, a portion of the funding of the costs for the
purchase, construction and installation of the Equipment for the foregoing
purposes; and
WHEREAS, Lessor wishes to obtain, and the Lenders are willing to
provide, financing (the "Financing") for the remaining portion of the funding of
the costs of the purchase, construction and installation of the Equipment for
the foregoing purposes; and
WHEREAS, to secure the Financing, Administrative Agent, on behalf of
the Participants, will have the benefit of an unperfected Lien from Lessor on
all of Lessor's right, title and interest in and to the Systems and the related
Equipment, and on substantially all of Lessor's rights against Lessee under the
Lease and the Construction Agency Agreement with respect to the Systems and the
related Equipment; and
WHEREAS, to secure further the payment of all sums due from Lessee and
the performance of all obligations of Lessee under the Operative Documents, and
as a material inducement to the Certificate Purchasers and the Lenders to enter
into this Agreement and each of the other Operative Documents, Guarantor is
executing and delivering the Guaranty;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in Appendix 1 for
all purposes hereof.
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Participation Agreement
ARTICLE II
EFFECTIVENESS; ACQUISITION AND LEASE; GENERAL PROVISIONS
SECTION 2.1. Effectiveness of Agreement. This Agreement shall become
effective (as of April 30, 1995) on the date on which all the conditions
precedent thereto set forth in Appendix 2 shall have been satisfied or waived by
the applicable parties as set forth therein (the "Document Closing Date").
SECTION 2.2. Agreement to Acquire, Lease, Guaranty and Make Advances.
On the Document Closing Date, Certificate Trustee and Lessee shall enter into
(i) the Lease pursuant to which Lessee shall agree to lease certain Systems,
from time to time, from Lessor, and (ii) the Construction Agency Agreement
pursuant to which Certificate Trustee shall appoint Lessee as construction agent
to construct such Systems on the terms and conditions herein and therein set
forth. Also on the Document Closing Date, Guarantor shall execute and deliver to
Administrative Agent the Guaranty. On each Advance Date, which may include the
Document Closing Date, Certificate Trustee shall, on the terms and conditions
herein set forth, make an Advance for the purposes of (x) funding all or a
portion of the cost of purchasing the Equipment, (y) funding all or a portion of
the cost of constructing and installing the Equipment so as to comprise a
System, and/or (z) funding all or a portion of the invoiced Transaction Costs
and the Arrangement Fee.
SECTION 2.3. Participation by Lenders. Subject to the terms and
conditions of this Agreement and in reliance on the representations and
warranties of each of the parties hereto contained herein or made pursuant
hereto, on each Advance Date each Lender shall finance a portion of each Advance
that is to be made by Certificate Trustee by making a secured loan to
Certificate Trustee (in accordance with Certificate Trustee's payment
instructions set forth on Schedule III) in an amount in immediately available
funds on such Advance Date equal to such Lender's Commitment Percentage of such
Advance and in the aggregate (including all prior Advances made by such Lender
pursuant to the Operative Documents and all allocable Capitalized Interest) not
more than its Commitment, each as set forth on Schedule II hereto; provided,
however, that, if any Participant's Remaining Commitment shall be insufficient
to fund such Participant's Commitment Percentage of a requested Advance, such
insufficiency shall be funded by any other Participant or Participants that have
a Remaining Commitment sufficient to fund such Participants' respective
Commitment Percentages of such requested Advance as well as such insufficiency.
Such Loans shall be evidenced by a Note (and attached grid or other appropriate
documentation or records)
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Participation Agreement
issued to each Lender under and repayable with interest in accordance with the
terms of the Loan Agreement.
SECTION 2.4. Participation by Certificate Purchasers. Subject to the
terms and conditions of this Agreement and in reliance on the representations
and warranties of each of the parties hereto contained herein or made pursuant
hereto, on each Advance Date each Certificate Purchaser shall acquire an
interest in the Overall Transaction by making available to Certificate Trustee
(in accordance with Certificate Trustee's payment instructions set forth on
Schedule III) an amount in immediately available funds on such Advance Date
equal to such Certificate Purchaser's Commitment Percentage of such Advance and
in the aggregate (including all Advances made by such Certificate Purchaser
pursuant to the Operative Documents and all allocable Capitalized Yield) not
more than its Commitment, each as set forth on Schedule I hereto; provided,
however, that, if any Certificate Purchaser's Remaining Commitment shall be
insufficient to fund such Certificate Purchaser's Commitment Percentage of a
requested Advance, such insufficiency shall be funded by any other Participant
or Participants that have a Remaining Commitment sufficient to fund such
Participants' respective Commitment Percentages of such requested Advance as
well as such insufficiency. Such amounts made available shall be evidenced by a
Certificate (and attached grid or other appropriate documentation or records)
issued to the related Certificate Purchaser. Each holder of a Certificate shall
be entitled to receive the Yield on the Certificate Purchaser Amount set forth
in its Certificate, which Yield, other than Capitalized Yield, shall be payable
on each Payment Date, and to the return to it of such Certificate Purchaser
Amount at the Stated Maturity thereof, in accordance with the terms of such
Certificate and the Trust Agreement.
SECTION 2.5. Advance Dates; Continuations and Conversions.
(a) Notices and Closing. At least three (3) Business Days (or one (1)
Business Day, if the first Advance is in connection with the Document Closing
Date and is to bear interest at the Alternate Base Rate) prior to each Advance
Date, Lessee (in its capacity as Construction Agent, in the case of clause (ii)
below) shall deliver to Administrative Agent (with sufficient copies for
Administrative Agent to deliver to Certificate Trustee, Information Agent and
all Participants) an irrevocable written notice substantially in the form of
Exhibit D-1 (an "Advance Request"), setting forth:
(i) the proposed Advance Date;
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Participation Agreement
(ii) in the case of an Advance to fund any portion of the cost
of the purchase, construction or installation of any Equipment, the
identification (in a manner reasonably acceptable to Information Agent
and sufficient to enable Lessor to obtain the particulars thereof from
Lessee's books and records on request) of the applicable System and MAN
or FCL to which such purchase, construction or installation relates or
is to relate;
(iii) in the case of an Advance to fund any Transaction Costs
or the Arrangement Fee, a description of such Transaction Costs or the
Arrangement Fee and a statement specifying the System or Systems to
which any such Transaction Costs or Arrangement Fee are allocable;
(iv) whether such Advance is to accrue interest at a rate
equal to the Alternate Base Rate or the LIBO Rate, and the Interest
Period if a LIBO Rate Loan is requested; and
(v) the amount of the requested Advance, which shall be made
in an amount equal to or greater than $5,000,000 and an integral
multiple of $500,000, or in the unused amount of the applicable
Commitments, or in respect of any Advance Date for which Transaction
Costs and/or the Arrangement Fee is to be paid, in the amount of such
costs and fees;
All documents and instruments required to be delivered on the Document Closing
Date pursuant to this Agreement shall be delivered at the offices of Mayer,
Brown & Platt, 1675 Broadway, New York, New York 10019-5820. All documents and
instruments required to be delivered on any other Advance Date pursuant to this
Agreement shall be delivered at the offices of Administrative Agent at 777 Main
Street, MSN 238, Hartford, Connecticut, 06115: Corporate Trust Administration
(Electric Lightwave, Inc. Trust No. 1995-A). On the scheduled Advance Date, and
subject to the terms and conditions of this Agreement, and upon receipt of funds
by Certificate Trustee from the Participants sufficient therefor, Certificate
Trustee shall make the requested Advance.
(b) Commitment Limits. The aggregate amount disbursed, including
Capitalized Interest and Capitalized Yield, by each of the Participants
hereunder shall not exceed the respective amounts of their Commitments.
(c) Frequency and Timing of Advance Dates. There may not be more than
one Advance Date in any calendar month.
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Participation Agreement
(d) Obligations Several. The obligations of the parties hereto or
elsewhere in the Operative Documents shall be several and not joint, and no
party shall be liable or responsible for the acts or defaults of any other party
hereunder or under any other Operative Document.
(e) Termination of Commitment. Notwithstanding anything in this
Agreement or any other Operative Document to the contrary, no party hereto shall
be obligated to make any fundings pursuant to this Agreement after 1:00 p.m.,
Hartford, Connecticut time, on the Commitment Termination Date, and no Advance
Date may occur following such date.
(f) Failure of a Participant to Fund. If Administrative Agent
determines that any Participant (a "Defaulting Participant") will not make
available the amount (the "Defaulted Amount") which would constitute its portion
of the Advance specified in an Advance Request, Administrative Agent shall
promptly notify each other Participant (each, a "Non-Defaulting Participant")
and specify the additional amounts required to be funded by each Non-Defaulting
Participant. Each Non-Defaulting Participant, as soon as practical after receipt
of notice but not before the Advance Date, shall transfer to Administrative
Agent, in immediately available funds, its pro rata share of the Defaulted
Amount, determined in the same proportion that such Non-Defaulting Participant's
Commitment bears to the aggregate Commitments of all Non-Defaulting
Participants; provided, that such amount, together with all amounts previously
funded by each Non-Defaulting Participant (including allocable Capitalized
Interest and allocable Capitalized Yield, as appropriate), shall not exceed the
Non-Defaulting Participant's Commitment. If the Defaulted Amount cannot be fully
funded by the Non-Defaulting Participants, Administrative Agent shall so notify
the Non-Defaulting Participants and give to all Non-Defaulting Participants the
opportunity to increase their respective Commitments by notice in writing to
Administrative Agent; provided, that should the aggregate proposed increased
Commitments by one or more Non-Defaulting Participants exceed the Defaulted
Amount, Administrative Agent shall increase the Commitments of the participating
Non-Defaulting Participants on a pro rata basis in accordance with the
respective amounts by which such Non-Defaulting Participants have offered to
participate, it being understood that in no event shall the aggregate amount
funded by any Participant (including allocable Capitalized Interest and
allocable Capitalized Yield, as appropriate), exceed the amount of such
Participant's Commitment, after giving effect to any increase in such Commitment
pursuant to this sentence.
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Participation Agreement
In the event of any funding of all or a portion of the Defaulted Amount
by the Non-Defaulting Participants, the following rules shall apply,
notwithstanding any other provision in any Operative Agreement:
(i) The Commitment of the Defaulting Participant shall
be decreased in an amount equal to the total
aggregate increase, if any, in the Commitments of
the Non-Defaulting Participants pursuant to this
Section 2.5(f), and the Commitment Percentages of
the Participants shall be revised accordingly;
(ii) A Defaulting Participant shall be obligated to fund
any Advances occurring after its default, which
funding shall be based upon its revised Commitment
Percentage, if the Commitment Percentages are
revised in accordance with the immediately
preceding clause (i); and to the extent that the
----------
Commitment Percentage of any Defaulting Participant
shall not be so revised, Administrative Agent may
thereafter call upon such Defaulting Participant to
fund a share of one or more future Advances in an
amount greater than such Defaulting Participant's
Commitment Percentage so that the aggregate amount
disbursed by such Defaulting Participant shall
equal (after giving effect to such Advance or
Advances) its Commitment Percentage of the
aggregate amount of all Advances (including
Capitalized Interest and Capitalized Yield) then
and theretofore made by all Participants;
(iii) A Defaulting Participant shall not have the right
to fund its Defaulted Amount without the written
consent of Administrative Agent and Lessee, and
then only to the extent such Defaulted Amount has
not been funded by the Non-Defaulting Participants
in a manner that resulted in a decrease in the
Defaulting Participant's Commitment Percentage;
(iv) If and to the extent that the Defaulted Amount is
not funded by the Non-Defaulting Participants,
Administrative Agent may reduce the stated amount
of the Advance Request so that the total Advance
specified in the Advance Request as so restated
equals the aggregate revised fundings to be made
by the Non-Defaulting Participants for the Advance
Date;
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Participation Agreement
(v) None of Lessor, either Agent or any Participant,
including the Defaulting Participant shall be
responsible for any incidental or consequential
damages suffered by any Lessee or any of Lessee's
Affiliates as a result of its failure to so fund;
and
(vi) To the extent of the Defaulted Amount, (A) the
right of the Defaulting Participant to receive any
payments made under the Notes or the Certificates
or otherwise in accordance with the Operative
Documents shall be subordinate in all respects to
the right of the Non-Defaulting Participants to
receive such payments, and (B) no such payments
described in clause (A) shall be made to the
----------
Defaulting Participant until each Non-Defaulting
Participant shall have received all sums due to it.
(g) Postponement of Advance Date. In the event that any Participant
shall make the funding requested pursuant to any Advance Request and the
relevant Advance Date shall not have occurred on the date specified in such
Advance Request, Lessee (in its capacity as Construction Agent to the extent
such Advance Request was made by Lessee in such capacity) shall pay Lessor
damages equal to interest on the amount funded by each Participant at the
Assumed Interest Rate for the period from the date of each such Participant's
Advance to the date such Advance is returned to such Participant or such Advance
Date shall have occurred, less any interest earned by Lessor (or Administrative
Agent) on behalf of the Participants by investing such funded amounts (which
damages Lessor (or Administrative Agent) will remit to the appropriate
Participant(s)); provided, that this provision shall not be construed to require
Lessor (or Administrative Agent) to invest such funds in interest-bearing
accounts unless the Required Entities shall have instructed Administrative Agent
in writing (including telecopy) to do so prior to 3:00 p.m., Hartford,
Connecticut time, on the applicable proposed Advance Date; and provided,
further, that Administrative Agent shall not be required to invest such funds in
any investment in which it does not typically invest overnight funds, and then
only to the extent that appropriate overnight investments are reasonably
available to it in accordance with its standard cut-off requirements. Such
damages shall be due and payable by Lessee upon the occurrence of such postponed
Advance Date, and such payment shall be an additional condition precedent to
such Advance Date; provided, however, that if such Advance Date shall not have
occurred by the third (3rd) Business Day following the funding by the
Participants in respect
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Participation Agreement
thereof, then all such damages shall be due and payable on such date, and Lessor
(or Administrative Agent on its behalf, as the case may be) shall refund to each
Participant all amounts funded by such Participant and all accrued interest
allocable to such Participant. No additional Advance Request shall be required
to be given if an Advance Date is postponed and thereafter timely consummated on
the date to which it has been postponed.
(h) Construction Advances. Certificate Trustee shall establish and
maintain at Shawmut Bank Connecticut, National Association, in Hartford,
Connecticut, or at such other place as Certificate Trustee shall designate by
written notice to Lessee and the Participants, a deposit account in the name of
Certificate Trustee into which any Advances made in order to fund any portion of
the cost of constructing Equipment shall be directly paid. All such funds placed
in such deposit account shall at all times be for the account of Construction
Agent. Certificate Trustee hereby grants Construction Agent a power of attorney,
which shall be effective so long as no Lease Event of Default exists, to
withdraw funds from such account for the performance of its agency duties under
the Lease. Neither Certificate Trustee nor either Agent shall account for or
inquire into Construction Agent's use of funds so withdrawn from the deposit
account.
(i) Continuation and Conversion Election. By delivering a
Continuation/Conversion Request to Administrative Agent on or before 12:00 noon,
Hartford, Connecticut time, on a Business Day, Lessee, in its capacity as Lessee
or as Construction Agent, may from time to time irrevocably elect, on not less
than three (3) nor more than five (5) Business Days' notice, that all or any
portion in an aggregate minimum amount of $5,000,000 and an integral multiple of
$500,000 of any Loans be, in the case of Alternate Base Rate Loans, converted
into LIBO Rate Loans or, in the case of LIBO Rate Loans, be converted into an
Alternate Base Rate Loan or continued as a LIBO Rate Loan; provided, however,
that no portion of the outstanding principal amount of any Loans may be
continued as, or be converted into, LIBO Rate Loans when any Lease Default has
occurred and is continuing. In the absence of delivery of a
Continuation/Conversion Request with respect to any LIBO Rate Loan at least
three (3) Business Days before the last day of the then current Interest Period
with respect thereto, such LIBO Rate Loan shall, on such last day, automatically
convert to an Alternate Base Rate Loan.
SECTION 2.6. Commitment Fee. On the last Business Day of
each calendar quarter and the Commitment Termination Date for the
period commencing on the Document Closing Date and continuing
through the Commitment Termination Date, Lessee shall pay to Lessor
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Participation Agreement
a fully-earned, non-refundable Commitment Fee (the "Commitment Fee") equal to
the number of basis points per annum set forth in a letter, dated the date
hereof, from Lessee to the Participants (with a copy to Lessor) multiplied by
the average daily unused portion of the aggregate Commitments for the applicable
period of computation. From time to time upon receipt, Lessor will promptly
deliver to the Participants (other than any Defaulting Participant) their pro
rata portions of such Commitment Fee in accordance with such Participants'
proportionate share of the aggregate Remaining Commitments.
SECTION 2.7. Participants' Instructions to Certificate Trustee and
Administrative Agent. (a) By making its monies available pursuant to Section
2.4, each Certificate Purchaser agrees that such act shall constitute, without
further act, (i) evidence that the conditions set forth in Article III have been
satisfied or waived; provided, that any Certificate Purchaser's failure to raise
the issue of noncompliance with respect to any such condition shall not be
deemed to be a waiver of such condition unless such Certificate Purchaser shall
have acknowledged such waiver in writing, and (ii) authorization and direction
by such Certificate Purchaser to Certificate Trustee to take the actions
specified in Section 1.1 of the Trust Agreement.
(b) By making its monies available pursuant to Section 2.3, each Lender
agrees that such act shall constitute, without further act, (i) evidence that
the conditions set forth in Article III have been satisfied or waived; provided,
that any Lender's failure to raise the issue of noncompliance with respect to
any such condition shall not be deemed to be a waiver of such condition unless
such Lender shall have acknowledged such waiver in writing, and (ii)
authorization and direction by such Lender to Administrative Agent to make a
Loan pursuant to Section 2.3 of the Loan Agreement.
SECTION 2.8. Nature of Transaction. It is the intent of the parties
hereto that: (i) the Overall Transaction constitutes an operating lease from
Certificate Trustee to Lessee for purposes of Lessee's financial reporting, (ii)
the transaction contemplated hereby preserves ownership of the Equipment in
Lessee for Federal and state income tax and bankruptcy purposes, including the
substantive law upon which bankruptcy decisions are based, (iii) the Lease
grants a Lien on the Equipment and the other Collateral in favor of Certificate
Trustee, (iv) Lessee's payment of Base Rent shall be treated as payment of
interest for Federal and state income tax purposes, and (v) the Security
Agreement creates a Lien on the Trust Estate (provided, that the Lien on the
Equipment thereby created shall be unperfected), subject to certain limited
exceptions. Nevertheless, Lessee acknowledges and agrees
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Participation Agreement
that none of Lessor, Arranger, any Agent or any Participant has provided or will
provide tax, accounting or legal advice to Lessee regarding the Overall
Transaction or made any representations or warranties concerning the tax,
accounting or legal characteristics of the Operative Documents upon which the
Lessee may rely and that Lessee has obtained and relied upon such tax,
accounting and legal advice concerning the Operative Documents as it deems
appropriate.
SECTION 2.9. Computations. For all purposes under the Operative
Documents, all computations of interest, Yield, Commitment Fees and other
accrued amounts (including the Overdue Rate) shall be made on the basis of
actual number of days elapsed in a 360-day year, or, in the case of interest in
an Alternate Base Rate Loan, 365 days, or if appropriate, 366 days.
SECTION 2.10. Commitment Reduction. At the option of Lessee,
exercisable from time to time by written notice to Certificate Trustee and
Administrative Agent, Lessee may request Administrative Agent to reduce the
aggregate unused portion of the Participants' respective Commitments, whereupon
Administrative Agent shall notify the Participants of such request, and the
Commitment of each Participant shall thereby be so reduced, subject to the
following provisions:
(i) Such notice from Lessee shall specify the aggregate amount of
such reduction for all Participants, which amount shall be
$1,000,000 or an integral multiple thereof;
(ii) Such notice shall specify the effective date of such
reduction, such effective date to be a date not earlier than
three (3) Business Days after the date of such notice;
(iii) The remaining unused portions of the Commitments, after
giving effect to such reduction, shall be sufficient to
fund fully the remaining acquisition and construction
costs, including Capitalized Interest and Capitalized
Yield, to be funded under this Agreement and the other
Operative Documents in respect of Systems as to which
Advances for construction have theretofore been made, and
Lessee shall so certify in such notice;
(iv) Any reduction of the unused portions of Commitments shall be
made pro rata among the Participants based upon each
Participant's Commitment Percentage; and
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Participation Agreement
(v) No such reduction of the Commitments shall be undertaken that
would reduce the aggregate amount of the Commitments, after
giving effect to such requested reduction, below the
outstanding aggregate amount of the Advances, including all
Capitalized Interest and
Capitalized Yield.
SECTION 2.11. Commitment Increase.
(a) From time to time on any Business Day after the initial Delivery
Date and not less than 360 days prior to the Final Maturity Date, Lessee may
notify Certificate Trustee, Administrative Agent and the Participants of its
desire to purchase or construct additional Systems in the Designated Locations
and the amount of additional financing requested in order to purchase or
construct such additional Systems. Within twenty (20) Business Days following
receipt of such notice, each Participant shall, in its sole discretion, commit
or decline to commit to make additional Loans or investments (relative to such
Participant, its "Supplemental Funding") to finance such acquisition or
construction. At the time of such acceptance and/or rejection, Lessee may, in
its sole discretion, request that any Participant declining to commit to make
such Supplemental Funding sell its Notes and Certificates to another Participant
or financial institution (a "Replacement Participant"); provided, that no
declining Participant shall be obligated to sell its Notes and/or Certificates
to any Replacement Participant. Any Participant selling its Notes and/or
Certificates shall receive the amount of principal (or Certificate Purchaser
Amount, as the case may be) and accrued but unpaid interest (or Yield, as the
case may be) then outstanding on the Notes and Certificates held by such
Participant, plus any breakage fees. Nothing in this Section 2.11 shall diminish
any selling Participant's right to indemnification under Article VII. At no time
shall any Participant be permitted or required to make any Supplemental Funding
unless all Participants (including any Replacement Participant) consent to make
a Supplemental Funding.
(b) The obligation of each Participant (including any Replacement
Participant) to make a Supplemental Funding (and Advances thereunder) shall be
subject to the fulfillment to the satisfaction of (including, with respect to
writings, such writings being in form and substance reasonably satisfactory to
the addressee or beneficiary thereof), or the waiver in writing by, such
Participant of the applicable conditions precedent set forth in Sections 3.1 and
3.2 on or prior to the date of such Supplemental Funding (except that the
obligation of any party
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Participation Agreement
hereto shall not be subject to such party's own performance or compliance).
SECTION 2.12. Event of Taking. Upon the occurrence of an Event of
Taking with respect to a Qualified MAN or FCL, neither Lessor nor any
Participant shall thereafter have any obligation under the Operative Documents
to provide any financing with respect to any Systems comprising such Qualified
MAN or FCL.
ARTICLE III
CONDITIONS TO ADVANCES AND COMPLETION
SECTION 3.1. Conditions to All Advances. The obligation of each
Participant to perform its obligations on any Advance Date shall be subject to
the fulfillment to the satisfaction of (including, with respect to writings,
such writings being in form and substance reasonably satisfactory to Information
Agent, or the waiver in writing by, Information Agent (at the direction of the
Required Entities)) of the conditions precedent set forth in this Section 3.1
(in addition to the conditions precedent set forth in Section 3.2 and, if
applicable, Section 3.4) on or prior to such Advance Date (except that the
obligation of any party hereto shall not be subject to such party's own
performance or compliance):
(a) Advance Request. Lessee (as Lessee and as Construction Agent) shall
have delivered an Advance Request conforming with the requirements of Section
2.5(a) in respect of the proposed Advance Date.
(b) Performance. Each party to any Operative Document shall have
performed and complied with all agreements and conditions contained herein and
in any other Operative Document to which it is a party that are required to be
performed or complied with by it on or prior to such Advance Date. Without
limiting the foregoing, each Participant shall have funded the full amount to be
funded by such Participant on such Advance Date as described in Article II, or
the full amount of the required funding shall have been obtained through the
alternative arrangements provided for in Section 2.5(f).
(c) Consents and Approvals. All Governmental Approvals and other
approvals and consents required to be taken, given or obtained, as the case may
be, by or from any Governmental Authority or any other Person, or by or from any
trustee or holder of any indebtedness or obligation of Lessee or Guarantor, that
are necessary or, in the reasonable opinion of Information Agent or counsel to
Information Agent, advisable in connection with the
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Participation Agreement
execution, delivery and performance of the Operative Documents by all other
parties hereto, shall have been taken, given or obtained, as the case may be,
shall be in full force and effect and (if the same shall have been contested)
the time for appeal with respect to any thereof shall have expired (or, if an
appeal shall have been taken, the same shall have been dismissed) and shall not
be subject to any pending proceedings or appeals (administrative, judicial or
otherwise); it being understood that in respect of the portion of any Advance to
finance the construction or acquisition of a System to be located in the State
of Oregon, Lessee shall be classified as a "competitive telecommunications
provider" in the State of Oregon, or under Applicable Law shall otherwise be
exempt from any requirement for prior approval or authorization by applicable
Governmental Authority of such financing, or shall have received all then
necessary final authorizations, approvals or exemptions for entering into the
Operative Documents from applicable Governmental Authority or for such
financing.
(d) Representations and Warranties True; Absence of Defaults and
Material Adverse Effect. Each representation and warranty of Lessee and
Guarantor contained herein or in any other Operative Document shall be true and
correct in all material respects as though made on and as of such Advance Date,
except that any such representation or warranty which is expressly made only as
of a specified date need be true and correct only as of such date. No Lease
Default, Lease Event of Default, or Construction Agency Event of Default shall
have occurred and be continuing. Since the Document Closing Date, no Material
Adverse Effect shall have occurred.
(e) Officer's Certificate of Lessee. Administrative Agent shall have
received, with sufficient copies for Administrative Agent to distribute to
Certificate Trustee, Information Agent and all Participants, an Officer's
Certificate of Lessee stating that (i) each and every representation and
warranty of Lessee contained in the Operative Documents is true and correct in
all material respects on and as of such Advance Date as though made on and as of
such Advance Date, except to the extent such representations or warranties
relate solely to an earlier date, in which case such representations and
warranties shall have been true and correct in all material respects on and as
of such earlier date; (ii) no Lease Default, Lease Event of Default or
Construction Agency Event of Default has occurred or would occur as a result of
such Advance and be continuing; (iii) each Operative Document to which Lessee is
a party is in full force and effect with respect to it; and (iv) Lessee has duly
performed and complied with all covenants, agreements and conditions contained
herein or in any other
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Participation Agreement
Operative Document required to be performed or complied with by it on or prior
to such Advance Date.
(f) Officer's Certificate of Guarantor. Administrative Agent shall have
received, with sufficient copies for Administrative Agent to distribute to
Certificate Trustee, Information Agent and all Participants, an Officer's
Certificate of Guarantor stating that (i) each and every representation and
warranty of Guarantor contained in the Operative Documents is true and correct
in all material respects on and as of such Advance Date as though made on and as
of such Advance Date, except to the extent such representations or warranties
relate solely to an earlier date, in which case such representations and
warranties shall have been true and correct in all material respects on and as
of such earlier date; (ii) each Operative Document to which Guarantor is a party
is in full force and effect with respect to it; and (iii) Guarantor has duly
performed and complied with all covenants, agreements and conditions contained
herein or in any other Operative Document required to be performed or complied
with by it on or prior to such Advance Date.
(g) Officer's Certificate of Certificate Trustee. On each Advance Date,
Administrative Agent shall have received, with sufficient copies for
Administrative Agent to distribute to Information Agent and each Participant, an
Officer's Certificate of Certificate Trustee, dated such Advance Date, stating
that (i) each and every representation and warranty of Certificate Trustee
contained in the Operative Documents to which it is a party is true and correct
in all material respects on and as of such Advance Date as though made on and as
of such Advance Date, except to the extent such representations and warranties
relate solely to an earlier date, in which case such representations and
warranties shall have been true and correct in all material respects as of such
earlier date, (ii) it has duly performed and complied with all agreements and
conditions herein and in any other Operative Document required to be performed
or complied with by it on or prior to such Advance Date, and (iii) each
Operative Document to which it is a party is in full force and effect with
respect to it.
(h) Arrangement Fee and Transaction Costs. Lessee shall have paid the
Arrangement Fee and all Transaction Costs invoiced three (3) Business Days prior
to such Advance Date to the parties to whom such Transaction Costs are payable
(or shall have requested payment thereof or reimbursement therefor pursuant to
an Advance Request). Such payment shall be made by wire transfer of immediately
available funds.
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Participation Agreement
(i) Proceedings Satisfactory, Etc. All proceedings taken in connection
with such Advance Date and all documents relating thereto (the form of which was
not previously approved pursuant to the terms of this Agreement) shall be
reasonably satisfactory to Administrative Agent and its counsel, and Information
Agent and its counsel shall have received copies of such documents as
Information Agent, its counsel and each Participant or its counsel may
reasonably request in connection therewith (with sufficient copies for
Administrative Agent to distribute to Certificate Trustee, Information Agent and
each Participant).
(j) Taxes. All taxes (other than taxes based on net income or that are
the subject of Permitted Contest), charges, fees and costs, if any, due and
payable in connection with the execution, delivery, recording and filing of the
Operative Documents and the transactions contemplated to be consummated on each
Advance Date shall have been paid in full, or arrangements for such payment
shall have been made to the satisfaction of the Required Entities.
SECTION 3.2. Conditions to Advances for Construction and Related Costs
of Equipment. The obligation of each Participant to perform its obligations on
any Advance Date for the payment of costs for the purchase, construction or
installation of or relating to Equipment that is to comprise a System shall be
subject to the fulfillment to the satisfaction of (including, with respect to
writings, such writings being in form and substance reasonably satisfactory to,
or the waiver in writing by, Information Agent (at the direction of the Required
Entities)) of the conditions precedent set forth in this Section 3.2 (in
addition to the conditions precedent set forth in Section 3.1 and, if
applicable, Section 3.4) on or prior to such Advance Date (except that the
obligation of any party hereto shall not be subject to such party's own
performance or compliance).
(a) Assurance of Completion. Lessee, as Construction Agent, shall
deliver its certification to Administrative Agent (in form and substance
satisfactory to Information Agent and the Participants) that the available
Commitments are sufficient to complete the construction of the Systems being
constructed in accordance with the Design Objectives by the Commitment
Termination Date.
(b) Construction Progress Information. In the event that mechanics,
materialmen's or other statutory liens with an aggregate amount claimed which
equals or is greater than $5,000,000 are filed with respect to any System,
Lessee, as Construction Agent, shall promptly (and in any event not later than
the delivery of the next following Advance Request) furnish to Administrative
Agent and
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Participation Agreement
Information Agent, and shall thereafter continue to furnish to Administrative
Agent and Information Agent as a condition to each Advance with respect to such
Systems, as applicable, notice of the amount and nature of each such lien claim,
together with such additional details concerning the construction of such
Equipment as Information Agent shall require.
SECTION 3.3. Conditions to Delivery Dates. The occurrence of any
Delivery Date and of the obligation of Lessor to lease any System to Lessee
(except with respect to any System which becomes subject to the Lease, at the
election of Lessor, as a result of a Construction Agency Event of Default) shall
be subject to the fulfillment to the satisfaction of (including, with respect to
writings, such writings being in form and substance reasonably satisfactory to,
or the waiver in writing by, Information Agent (at the direction of the Required
Entities)) of the conditions precedent set forth in this Section 3.3 on or prior
to such Delivery Date (except that the obligation of any party hereto shall not
be subject to such party's own performance or compliance).
(a) Construction Completion. The construction of the Systems proposed
to be leased upon such Delivery Date shall have been completed substantially in
accordance with all Applicable Laws, free and clear of all Liens other than
Permitted Liens, and such Systems shall be in compliance with the applicable
Design Objectives and be ready for operation and use as intended, as certified
in an Officer's Certificate executed by an officer of Lessee knowledgeable about
such Systems.
(b) Lessee Certification. Lessee, as Construction Agent, shall have
furnished Certificate Trustee and Administrative Agent with a certification of
Lessee, as Construction Agent, to the effect that:
(i) The representations and warranties of Lessee set forth in
Sections 4.1(e), (g), (j), (n) and (q) are true and correct as of the
Delivery Date for the Systems, including the Equipment comprising such
Systems, to be delivered on such date;
(ii) All amounts owing to third parties for the Systems to be
delivered on the Delivery Date and for the purchase, construction and
installation of the Equipment relating thereto have been paid in full
(other than obligations that are the subject of a Permitted Contest by
Lessee, as Construction Agent); and
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Participation Agreement
(iii) The Systems to be delivered on the Delivery Date would
be treated, if owned by Lessee as of such date, as placed in service
for financial reporting purposes in the fiscal quarter in which the
delivery is to be made.
(c) Bill of Sale. Construction Agent shall have executed and delivered
or caused to be executed and delivered a Bill of Sale or other document,
acceptable in form and substance to Information Agent, confirming title to the
Systems proposed to be leased to and in Lessor.
(d) Third Party Approvals. All third party approvals necessary in the
reasonable opinion of Information Agent for the operation and use of the Systems
and for Lessee to perform its obligations with respect to the applicable Lease
Supplement shall have been obtained.
(e) Insurance. Insurance complying with the provisions of Section 9.1
of the Lease shall be in full force and effect.
(f) Certificates of Acceptance. Lessee shall have executed and
delivered a Certificate of Acceptance with regard to each System to be delivered
as of such date under the Lease.
SECTION 3.4. Conditions to First Advance Date for Construction and
Related Costs of Equipment. The obligation of each Participant to perform its
obligations on the first Advance Date for construction and related costs for
Equipment shall be subject to the delivery by Lessee to Administrative Agent of
the following opinions of local counsel, which opinions must be to the
satisfaction of, or receive a waiver in writing by, Information Agent (at the
direction of all of the Participants) on or prior to such first Advance Date:
(a) Opinion of Brown & Bain, Arizona counsel to Lessee;
(b) Opinion of Thelen, Marrin, Johnson & Bridges, California
counsel to Lessee;
(c) Opinion of Campbell & Campbell, Nevada counsel to Lessee;
(d) Opinions of Ater Wynne Hewitt Dodson & Skerritt, Oregon
and Washington counsel to Lessee; and
(e) Opinion of Suitter, Axland & Hanson, Utah counsel to
Lessee.
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Participation Agreement
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Representations and Warranties of Lessee. As of the date
hereof and each Advance Date (except as otherwise expressly provided), Lessee
makes the representations and warranties set forth in this Section 4.1 to each
of the other parties hereto.
(a) Due Organization, etc. Lessee is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to conduct its business as presently
conducted and proposed to be conducted, to own or hold under lease its
properties, to execute, deliver and perform its obligations under each of the
Operative Documents to which it is or is to be a party and each other agreement,
instrument and document to be executed and delivered by it on or before the
Document Closing Date and each Advance Date in connection with or as
contemplated by each such Operative Document, and it is duly qualified as a
foreign corporation authorized to do business and is in good standing in every
jurisdiction in which its failure to be so qualified would have a Material
Adverse Effect. Lessee has no Subsidiaries.
(b) Authorization; No Conflict; No Approvals, Etc. The execution and
delivery by Lessee of each of the Operative Documents to which it is a party and
the performance by Lessee of its obligations under such Operative Documents have
been duly authorized by all necessary corporate action (including any necessary
stockholder action) on its part, and do not and will not: (i) contravene any
Applicable Laws currently in effect applicable to or binding on it or the
Equipment; (ii) violate any provision of its charter or bylaws; (iii) result in
a breach of or constitute a default under (with or without the giving of notice
or lapse of time or both) any indenture, mortgage, deed of trust, lease, loan or
credit agreement, or any other agreement or instrument to which Lessee is a
party or by which Lessee or its properties may be bound or affected, which
breach or default would have, individually or in the aggregate, a Material
Adverse Effect; (iv) result in, or require, the creation or imposition of any
Lien of any nature upon or with respect to any of the properties now owned or
hereafter acquired by Lessee (other than the security interests created pursuant
to the Operative Documents); or (v) require any Governmental Approval by any
Governmental Authority, except for the filings and recordings with respect to
the rights of Certificate Trustee and the Participants intended to be created by
the Operative Documents; and Lessee is not in violation of its charter or
bylaws.
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Participation Agreement
(c) Enforceability. Each Operative Document to which Lessee is a party
constitutes the legal, valid and binding obligation of Lessee, enforceable
against Lessee in accordance with the terms thereof, except as such
enforceability may be limited by applicable bankruptcy, insolvency or similar
laws affecting creditors' rights generally and by general equitable principles.
(d) Litigation. There is no action, suit or proceeding, or any
governmental investigation or any arbitration, in each case pending or, to the
knowledge of Lessee, threatened against Lessee or any material property of
Lessee before any Governmental Authority (i) which challenges the validity of
the Operative Documents to which Lessee is a party or any action taken or to be
taken pursuant to the Operative Documents to which Lessee is a party, or (ii)
which may have a Material Adverse Effect.
(e) Title to and Nature of Equipment, etc. Lessee is not a party to any
agreement to sell any interest in any System, Equipment or part thereof, whether
under construction pursuant to the Construction Agency Agreement or subject to
the Lease, and upon completion of the transactions and deliveries of documents
contemplated by the Operative Documents at each Delivery Date, Lessor will
acquire good and marketable title to the Systems and related Equipment to be
delivered as of such date, free and clear of all Liens, except Permitted Liens.
(f) No Lease Default, Loss, etc. As of each Advance Date: no Lease
Default, Lease Event of Default, Construction Agency Event of Default, Event of
Loss or material Condemnation or Casualty has occurred and is continuing; there
is no action pending or, to the best knowledge of Lessee, threatened by a
Governmental Authority to initiate a Condemnation; no condition exists that
constitutes, or with the giving of notice or lapse of time or both would
constitute, an event of default by it under any material indenture, mortgage,
chattel mortgage, deed of trust, lease, conditional sales contract, loan or
credit arrangement or other material agreement or instrument to which it is a
party or by which it or any of its properties may be bound which individually or
in the aggregate with all such events of default could have a Material Adverse
Effect.
(g) Compliance With Law. With respect to the Equipment, (i) Lessee has
at all times complied and is in compliance with and will comply with all
Applicable Laws, including all Environmental Laws, except for any violations
which would not have, individually or in the aggregate, a Material Adverse
Effect on Lessee or any Systems or Equipment; and (ii) the Equipment and all
Systems into which Equipment is incorporated, and the use thereof by Lessee,
complies in all material respects with all Applicable Laws
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Participation Agreement
(including all applicable Environmental Laws and public utility laws and
regulations, including any laws that regulate the activities of, or issuance of
securities by, a regulated public utility) and Insurance Requirements.
(h) Investment Company Act. Lessee is not an "investment company" or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
(i) Public Utility Holding Company. Lessee is not subject to regulation
as a "holding company," an "affiliate" of a "holding company," or a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
(j) Licenses, Registrations and Permits. All material licenses,
approvals, authorizations, consents, permits (including building, demolition and
environmental permits, licenses, approvals, authorizations and consents),
easements and rights-of-way, including proof and dedication, required for (i)
the use, treatment, storage, transport, disposal or disposition of any Hazardous
Material with respect to any Equipment during the construction or installation
of such Equipment, (ii) construction or installation of any Equipment or Systems
in accordance with the Construction Agency Agreement and (iii) the use and
operation of the Equipment or Systems have been obtained from the appropriate
Governmental Authorities having jurisdiction or from private parties, as the
case may be.
(k) Use and Operation of Locations Where Equipment is Located. All
material agreements, easements and other rights, public or private, which are
necessary to permit the lawful use and operation of Systems, including all
related Equipment, as Lessee intends to use the same under the Lease and which
are necessary to permit the lawful intended use and operation of all presently
intended utilities, driveways, roads and other means of egress and ingress to
and from the same have been obtained and are in full force and effect (or will
be obtained and be in full force and effect on or prior to the completion of
construction or installation thereof), and Lessee has no actual knowledge of any
pending modification or cancellation of any of the same; and all approvals and
consents material to the use and operation of the Systems, including all related
Equipment, will, on or prior to the execution and delivery of a Certificate of
Acceptance with respect thereto, have been issued and will be in full force and
effect, or shall be obtained prior to the time they are required by Applicable
Laws, and all utilities required for the operation thereof, as
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Participation Agreement
Lessee intends to use such Systems and the related Equipment under the Lease,
will be available as of such date.
(l) Securities Act. Neither Lessee nor anyone authorized to act on its
behalf has, directly or indirectly, in violation of Section 5 of the Securities
Act or any state securities laws, offered or sold any interest in the Notes, the
Certificates, the Systems and related Equipment, the Lease or any of the
Operative Documents or in any security or lease the offering of which, for
purposes of the Securities Act or any state securities laws, would be deemed to
be part of the same offering as the offering of the aforementioned interests or
leases, or solicited any offer to acquire any of the aforementioned interests or
leases.
(m) Federal Reserve Regulations. Neither Lessee, whether as Lessee or
as Construction Agent, nor any Affiliate of Lessee will, directly or indirectly,
use any of the proceeds of the sale of the Notes or issuance of the Certificates
for the purpose of purchasing or carrying any "margin security" or "margin
stock" within the meaning of Regulation G, T, U or X of the Board of Governors
of the Federal Reserve System, respectively, or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry a
margin security or margin stock or for any other purpose which might cause any
of the transactions contemplated by this Agreement or any other Operative
Document to constitute a "purpose credit" within the meaning of Regulation G, T,
U or X of the Board of Governors of the Federal Reserve System, or for the
purpose of purchasing or carrying any security, and neither Lessee, whether as
Lessee or as Construction Agent, nor any Affiliate of Lessee has taken or will
otherwise take or permit any action by Lessee, whether as Lessee or as
Construction Agent, or any of its Affiliates in connection with any of the
transactions contemplated by any of the Operative Documents which would involve
a violation of Regulation G, T, U, or X, or any other regulation of the Board of
Governors of the Federal Reserve System.
(n) No Other Filings. Upon the execution and delivery of a Certificate
of Acceptance, no filings or recordings (other than filings or recordings that
shall have been arranged to be made promptly thereafter) are necessary to
validly and effectively convey to Administrative Agent such interests in the
Collateral as contemplated by the Operative Documents, free and clear of all
Liens, other than Permitted Liens.
(o) Disclosure. The information disclosed in writing by Lessee (as
Lessee or as Construction Agent) or Guarantor (or any Person authorized or
employed by any such Person as agent or otherwise) to the Participants in
connection with the negotiation
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Participation Agreement
of the Operative Documents and the transactions contemplated thereby, when taken
as a whole with all other disclosures to such parties, do not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein or therein, in light of the circumstances under which they
were made, misleading. There is no particular fact relating to Lessee (as Lessee
or as Construction Agent), Guarantor, any System or any of the Equipment
(including related construction or installation) of which Lessee (as Lessee or
as Construction Agent), Guarantor or any of its Subsidiaries has knowledge that
has not been disclosed by Lessee, Guarantor or any of its Subsidiaries (or by
any Person authorized or employed by Lessee, Guarantor or any of its
Subsidiaries as agent or otherwise) in writing to the Participants that, as far
as Lessee, Guarantor or any of its Subsidiaries can reasonably foresee, is
reasonably likely to have a Material Adverse Effect.
(p) Subjection to Government Regulation. Except in the case of the
ownership of, or the holding of an interest in, a System pursuant to the
exercise of remedies under the Lease, none of Certificate Trustee, either Agent
or any Participant will become subject to ongoing regulation of its operations
by a Governmental Authority solely by reason of entering into the Operative
Documents or the consummation of the transactions contemplated thereby.
(q) Support Rights. The Support Rights are free and clear of all Liens
other than Permitted Liens. The Support Rights relative to each System will
constitute all material rights (other than permits and licenses granted by
Governmental Authorities or obtained by contract or otherwise from private
Persons that are by their respective terms or by Applicable Law
non-transferrable) necessary when each such System is delivered under the Lease
for any Person (other than the Lessee) to operate each such System as a revenue
producing unit in Commercial Operation.
(r) Ownership of Stock. As of the Document Closing Date, Guarantor has
sole beneficial ownership, directly or indirectly, of 100% of the issued and
outstanding capital stock of Lessee. As of the Document Closing Date, there are
no outstanding subscriptions, options, warrants, calls, rights (including
preemptive rights) or other arrangements or commitments of any nature relating
to any capital stock of Lessee.
SECTION 4.2. Representations and Warranties of each Certificate
Purchaser and each Lender. Each Certificate Purchaser and each Lender represents
and warrants severally and only as to itself to each of the other parties hereto
as follows:
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Participation Agreement
(a) Due Organization, etc. It is duly organized and validly
existing under the laws of the jurisdiction of its organization and has
full corporate power and authority to enter into and perform its
obligations as Certificate Purchaser or Lender (as the case may be)
under each Operative Document to which it is or is to be a party and
each other agreement, instrument and document to be executed and
delivered by it on or before each Advance Date in connection with or as
contemplated by each such Operative Document to which it is or is to be
a party.
(b) Authorization; No Conflict. The execution and delivery by
it of, the consummation by it of the transactions provided for in, and
the compliance by it with all the provisions of, each Operative
Document to which it is or is to be a party as Certificate Purchaser or
Lender (as the case may be) have been duly authorized by all necessary
corporate action on its part; and neither the execution and delivery
thereof, nor the consummation of the transactions contemplated thereby,
nor compliance by it as Certificate Purchaser or Lender (as the case
may be) with any of the terms and provisions thereof (i) requires any
approval of its stockholders or approval or consent of any trustee or
holders of any of its indebtedness or obligations, (ii) contravenes or
will contravene any Applicable Law currently in effect applicable to or
binding on it (except no representation or warranty is made as to any
Applicable Law to which it or the Equipment, directly or indirectly,
may be subject because of the lines of business or other activities of
Lessee) or (iii) results in any breach of, or constitutes any default
under, any indenture, mortgage, chattel mortgage, deed of trust, lease,
conditional sales contract, loan or credit arrangement, corporate
charter, by-laws or other agreement or instrument to which it is a
party or by which it or its properties may be bound or affected.
(c) ERISA. It is acquiring its interest in the Note(s) or
Certificate(s) (as the case may be) with assets that are either (i) not
assets of any Employee Benefit Plan (or its related trust) which is
subject to Title I of ERISA or Section 4975 of the Code, or (ii) assets
of any Employee Benefit Plan (or its related trust) which is subject to
Title I of ERISA or Section 4975 of the Code, but there is available an
exemption from the prohibited transaction rules under Section 406(a) of
ERISA and Section 4975 of the Code and such exemption is immediately
applicable to each transaction contemplated by the Operative Documents
to the extent that any other party to such
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Participation Agreement
transaction is a "party in interest" as defined in Section 3(14) of
ERISA with respect to such plan assets.
(d) Investment in Notes and Certificates. It is acquiring the
Notes and/or Certificates for its own account for investment and not
with a view to any distribution (as such term is used in Section 2(11)
of the Securities Act) thereof, and if in the future it should decide
to dispose of its interest in the Notes and/or Certificates, it
understands that it may do so only in compliance with the Securities
Act and the rules and regulations of the SEC thereunder and any
applicable state securities laws. Neither it nor anyone authorized to
act on its behalf has taken or will take any action which would subject
the issuance or sale of any Note or Certificate, the Trust Estate
(including all Systems and Equipment constituting a part thereof), the
Collateral or the Lease to the registration requirements of Section 5
of the Securities Act. No representation or warranty contained in this
Section 4.2(d) shall include or cover any action or inaction of Lessee
or any Affiliate thereof, whether or not purportedly on behalf of any
Certificate Purchaser, any Lender, Certificate Trustee or any of their
Affiliates. Subject to the foregoing, it is understood among the
parties that the disposition of each Participant's property shall be at
all times within its control.
SECTION 4.3. Representations and Warranties of Bank. Effective as of
the date of execution hereof and as of the initial Advance Date, Shawmut Bank
Connecticut, National Association, in its individual capacity ("Bank"),
represents and warrants to each of the other parties hereto as follows:
(a) Chief Executive Office. Bank's "chief executive office"
and "principal place of business," as such terms are used in Section
9-103(3) of the UCC, and the place where the documents, accounts and
records relating to the Overall Transaction are kept is located at 777
Main Street, MSN 238, Hartford, Connecticut 06115, attention: Corporate
Trust Administration.
(b) Due Organization, etc. Bank is a national banking
association duly organized and validly existing in good standing under
the laws of the United States and has full corporate power and
authority to execute, deliver and perform its obligations (i) in its
individual capacity under the Trust Agreement and, to the extent it is
a party hereto in its individual capacity, this Agreement, and (ii)
acting as Certificate Trustee under the Trust Agreement, under this
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Participation Agreement
Agreement and each other Operative Document to which it is or will be a
party as Certificate Trustee.
(c) Due Authorization; Enforceability. The Operative Documents
to which Bank is or will be a party have been or will be (to the extent
it is to be a party thereto in its individual capacity), duly
authorized, executed and delivered by or on behalf of Bank (in its
individual capacity) and are, or upon execution and delivery will be,
legal, valid and binding obligations of Bank (in its individual
capacity), enforceable against it in accordance with their respective
terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, or similar laws affecting creditors' rights
generally and by general equitable principles.
(d) No Conflict. The execution and delivery by (i) Bank, in
its individual capacity, of the Trust Agreement and, to the extent it
is a party hereto in its individual capacity, this Agreement, and (ii)
Bank, in its capacity as Certificate Trustee, of each Operative
Document to which Certificate Trustee is or will be a party, are not
and will not be, and the performance by Bank, in its individual
capacity or as Certificate Trustee, as the case may be, of its
obligations under each are not and will not be inconsistent with the
articles of association or by-laws of Bank, do not and will not
contravene any Applicable Laws of the United States of America or the
State of Connecticut relating to the banking or trust powers of Bank,
and do not and will not result in a breach of or constitute a default
under (with or without the giving of notice or lapse of time or both)
any indenture, mortgage, deed of trust, lease, loan or credit agreement
or any other agreement or instrument to which Bank is a party or by
which it or its properties may be bound or affected.
(e) No Approvals, etc. Neither the execution and delivery by
Certificate Trustee in its individual capacity or as Certificate
Trustee, as the case may be, of any of the Operative Documents to which
it is a party requires any Governmental Approval by any Governmental
Authority under any Applicable Laws of the United States of America or
the State of Connecticut relating to the banking or trust powers of the
Bank.
(f) Litigation. There is no action, proceeding or
investigation pending or threatened against Bank (in its individual
capacity or as Certificate Trustee) which questions the validity of the
Operative Documents or which is reasonably
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Participation Agreement
likely to result, either in any case or in the aggregate, in any
material adverse change in the ability of Bank (in its individual
capacity or as Certificate Trustee) to perform its obligations (in
either capacity) under the Operative Documents to which it is a party.
(g) Lessor Liens. The Equipment and each System are free
and clear of all Lessor Liens attributable to Bank (in its individual
capacity).
(h) Securities Act. Neither Bank (in its individual capacity
or as Certificate Trustee) nor anyone authorized to act on its behalf
has, directly or indirectly, in violation of Section 5 of the
Securities Act or any state securities laws, offered or sold any
interest in the Notes, the Certificates, the Equipment or the Lease, or
in any security or lease the offering of which, for purposes of the
Securities Act or any state securities laws, would be deemed to be part
of the same offering as the offering of the aforementioned securities
or leases, or solicited any offer to acquire any of the aforementioned
securities or leases; provided, however, that neither Bank nor
Certificate Trustee makes any representation or warranty with respect
to the transactions contemplated by the Operative Documents.
SECTION 4.4. Representations and Warranties of Administrative Agent.
Shawmut Bank Connecticut, National Association, in its individual capacity,
hereby represents and warrants to the other Participants as set forth in this
Section 4.4, with respect to its duties and obligations as Administrative Agent.
(a) Due Organization, etc. Administrative Agent is a national banking
association duly organized and validly existing in good standing under the laws
of the United States and has the corporate power and authority to execute,
deliver and perform its obligations under the Operative Documents to which it is
a party.
(b) Due Authorization; Enforceability. The Operative Documents to which
Administrative Agent is or will be a party have been or will be, on the date
required to be delivered hereby, duly authorized, executed and delivered by
Administrative Agent, and are, or, upon execution and delivery will be, legal,
valid and binding obligations of Administrative Agent, enforceable against it in
accordance with their respective terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, or similar laws affecting
creditors' rights generally and by general equitable principles.
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Participation Agreement
(c) No Conflict. Neither the execution and delivery by Administrative
Agent of the Operative Documents to which it is or will be a party, either in
its individual capacity or as Administrative Agent, or both, nor performance of
its obligations thereunder in either such capacity, results in a breach of, or
constitutes a default under (with or without the giving of notice or lapse of
time or both), or violates the terms, conditions or provisions of: (i) the
articles of association or by-laws of Administrative Agent; (ii) any agreement,
to which Administrative Agent, either in its individual capacity, as
Administrative Agent, or both, is now a party or by which it or its property,
either in its individual capacity, as Administrative Agent, or both, is bound or
affected, where such breach, default or violation would be reasonably likely to
materially and adversely affect the ability of Administrative Agent, either in
its individual capacity or as Administrative Agent or both, to perform its
obligations under any Operative Document to which it is or will be a party,
either in its individual capacity or as Administrative Agent, or both; or (iii)
any Applicable Laws of the United States of America or the State of Connecticut
relating to the banking or trust powers of the Administrative Agent, where such
conflict, breach, default or violation would be reasonably likely to materially
and adversely affect the ability of Administrative Agent, either in its
individual capacity, as Administrative Agent or both, to perform its obligations
under any Operative Document to which it is or will be a party.
(d) No Approvals, etc. No Governmental Approval by any Governmental
Authority under any Applicable Laws of the United States of America or the State
of Connecticut relating to the banking or trust powers of the Administrative
Agent is or will be required in connection with the execution and delivery by
Administrative Agent of the Operative Documents to which it is party or the
performance by Administrative Agent of its obligations under such Operative
Documents.
(e) Litigation. There is no action, proceeding or investigation pending
or threatened against Administrative Agent (in its individual capacity or as
Administrative Agent) which questions the validity of the Operative Documents or
which is reasonably likely to result, either in any case or in the aggregate, in
any material adverse change in the ability of Administrative Agent (in its
individual capacity or as Administrative Agent) to perform its obligations (in
either capacity) under the Operative Documents to which it is a party.
SECTION 4.5. Representations and Warranties of Information
Agent. BA Leasing & Capital Corporation, in its individual
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Participation Agreement
capacity, hereby represents and warrants to the Participants as set forth in
this Section 4.5, with respect to its duties and obligations as Information
Agent.
(a) Due Organization, etc. Information Agent is duly organized and
validly existing in good standing under the laws of the State of California and
has the corporate power and authority to enter into and perform its obligations
under the Operative Documents.
(b) Due Authorization; Enforceability. The Operative Documents to which
Information Agent is or will be a party have been or will be, on the date
required to be delivered hereby, duly authorized, executed and delivered by
Information Agent, and this Participation Agreement is, and such other Operative
Documents are, or, when so executed and delivered by Information Agent will be,
valid, legal and binding agreements of Information Agent, enforceable against
Information Agent in accordance with their respective terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, or similar laws
affecting creditors' rights generally and by general equitable principles.
(c) No Conflict. Neither the execution and delivery by Information
Agent of the Operative Documents to which it is or will be a party, either in
its individual capacity or as Information Agent, or both, nor performance of its
obligations thereunder in either such capacity, results in a breach of, or
constitutes a default under (with or without the giving of notice or lapse of
time or both), or violates the terms, conditions or provisions of: (i) the
articles of association or by-laws of Information Agent; (ii) any agreement, to
which Information Agent, either in its individual capacity, as Information
Agent, or both, is now a party or by which it or its property, either in its
individual capacity, as Information Agent, or both, is bound or affected, where
such breach, default or violation would be reasonably likely to materially and
adversely affect the ability of Information Agent, either in its individual
capacity or as Information Agent or both, to perform its obligations under any
Operative Document to which it is or will be a party, either in its individual
capacity or as Information Agent, or both; or (iii) any Applicable Laws of the
United States of America or the State of California where such conflict, breach,
default or violation would be reasonably likely to materially and adversely
affect the ability of Information Agent, either in its individual capacity, as
Information Agent or both, to perform its obligations under any Operative
Document to which it is or will be a party.
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(d) Litigation There is no action, proceeding or investigation pending
or, to the best knowledge of Information Agent, threatened against it which
would be reasonably likely to adversely affect Information Agent's ability to
perform its obligations under the Operative Documents to which it is party.
(e) No Approvals, etc. No Governmental Approval by any Governmental
Authority under any Applicable Laws of the United States of America or the State
of California is or will be required in connection with the execution and
delivery by Information Agent of the Operative Documents to which it is party or
the performance by Information Agent of its obligations under such Operative
Documents.
SECTION 4.6. Representations and Warranties of Guarantor.
Guarantor hereby represents and warrants to each Participant that:
(a) Organization; Powers; Governmental Approvals. (i) each of
Guarantor and each Principal Subsidiary (A) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (B) has all requisite power and
authority to own its property and assets and to carry on its business
as presently conducted, and (C) is qualified to do business and in good
standing in every jurisdiction where such qualification is required,
except where the failure to so qualify would not have a Material
Adverse Effect on the condition, financial condition or otherwise,
results of operations, business, assets, operations, or prospects of
Guarantor and its Subsidiaries taken as a whole. Guarantor's execution,
delivery and performance of this Agreement and the Guaranty are within
its corporate powers, have been duly authorized by all necessary action
and do not violate or create a default under law, its constituent
documents, or any contractual provision binding upon it. This Agreement
and the Guaranty constitute the legal, valid and binding obligations of
Guarantor, enforceable against it in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium and other laws affecting the
rights of creditors generally and general principles of equity. To the
best of Guarantor's knowledge, there is no defense, counterclaim,
setoff, deduction, diminution, abatement, recoupment, suspension,
deferment or reduction to any of its obligations under the Guaranty.
(ii) All Governmental Approvals have been duly obtained, are
in full force and effect and permit Guarantor to perform
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Participation Agreement
its obligations under this Agreement and the Guaranty, and are not the
subject of any pending or overtly threatened appeal, stay or other
challenge.
(b) Financial Statements. Guarantor has furnished to each
Participant, for itself and its Principal Subsidiaries, their most
recent filings with the SEC on Forms 10-K and 10-Q. Such Forms 10-K and
10-Q do not contain any untrue statement of a material fact or omit to
state a material fact necessary to make any statement therein, in light
of the circumstances under which it was made, not misleading. Each of
the financial statements in such Forms 10-K and 10-Q has been, and each
of the financial statements to be furnished pursuant to Section 6.6(b)
will be, prepared in accordance with GAAP, except as therein noted, and
fairly presents or will fairly present in all material respects the
consolidated financial position of Guarantor or Principal Subsidiary,
as the case may be, as of the date thereof and the consolidated results
of the operations of Guarantor or Principal Subsidiary, as the case may
be, for the period then ended.
(c) No Material Adverse Change. Since the date of Guarantor's
most recent financial statements contained in its Annual Report on Form
10-K for the fiscal year ended December 31, 1994 furnished to the
Participants pursuant to Section 4.6(b), there has been no material
adverse change in, and there has occurred no event or condition which
is likely to result in a material adverse change in, the condition,
financial or otherwise, results of operations, business, assets or
operations of Guarantor and its Subsidiaries taken as a whole.
(d) Title to Properties; Possession Under Leases.
(i) To the best of Guarantor's knowledge, Guarantor has good
and marketable title to, or valid leasehold interests in, all its
material properties and assets, except for minor defects in title that
do not interfere with its ability to conduct its business as currently
conducted or to utilize such properties and assets for their intended
purposes. All such material properties and assets are free and clear of
Liens, other than Liens expressly permitted by Section 6.7(a).
(ii) Guarantor has complied with all obligations under all
material leases to which it is a party, and all such leases are in full
force and effect, except where such failure to comply or maintain such
leases in full force and effect would not have a Material Adverse
Effect. Guarantor enjoys
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Participation Agreement
peaceful and undisturbed possession under all such material leases
except where such failure would not have a Material Adverse Effect.
(e) No Principal Subsidiaries. As of the Document
Closing Date, Guarantor has no Principal Subsidiaries.
(f) Litigation; Compliance with Laws. (i) There is no action,
suit, or proceeding, or any governmental investigation or any
arbitration, in each case pending or, to the knowledge of Guarantor,
threatened against Guarantor or any of its Subsidiaries or any material
property of any thereof before any Governmental Authority which (A)
challenges the validity of this Agreement or the Guaranty or, (B)
except as disclosed in Guarantor's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, may have a Material Adverse
Effect.
(ii) Neither Guarantor nor any of its Subsidiaries is in
violation of any law, rule, or regulation, or in default with respect
to any judgment, writ, injunction or decree of any Governmental
Authority, where such violation or default could reasonably be
anticipated to result in a Material Adverse Effect.
(g) Agreements. (i) Neither Guarantor nor any of its
Subsidiaries is a party to any agreement or instrument or subject to
any corporate restriction that has resulted, or could reasonably be
anticipated to result, in a Material Adverse Effect.
(ii) Neither Guarantor nor any of its Subsidiaries is in
default in any manner under any provision of any indenture or other
agreement or instrument evidencing Indebtedness, or any other material
agreement or instrument to which it is a party or by which it or any of
its properties or assets are or may be bound, where such default could
reasonably be anticipated to result in a Material Adverse Effect.
(h) Investment Company Act; Public Utility Holding Company
Act. Neither Guarantor nor any of its Subsidiaries is (i) an
"investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940, as amended, or (ii) a "holding company"
as defined in, or subject to regulation under, the Public Utility
Holding Company Act of 1935, as amended.
(i) Tax Returns. Each of Guarantor and its Subsidiaries
has filed or caused to be filed all Federal, state and local
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Participation Agreement
tax returns required to have been filed by it and has paid or caused to
be paid all taxes shown to be due and payable on such returns or on any
assessments received by it, except taxes that are subject to a
Permitted Contest.
(j) No Material Misstatements. No statement, information,
report, financial statement, exhibit, or schedule furnished by or on
behalf of Guarantor to Administrative Agent, or any other Participant
in connection with the syndication or negotiation of this Agreement or
the Guaranty or included herein or therein or delivered pursuant hereto
or thereto contained, contains, or will contain any material
misstatement of fact or intentionally omitted, omits, or will omit to
state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were, are, or will be
made, not misleading.
(k) Employee Benefit Plans. (i) Each Employee Benefit Plan is
in compliance with ERISA, except for such noncompliance that has not
resulted, and could not reasonably be anticipated to result, in a
Material Adverse Effect.
(ii) No Employee Benefit Plan has an accumulated or waived
funding deficiency within the meaning of Section 412 or Section 418B of
the Code, except for any such deficiency that has not resulted, and
could not reasonably be anticipated to result, in a Material Adverse
Effect.
(iii) No proceedings have been instituted to terminate any
Employee Benefit Plan, except for such proceedings where the
termination of a Employee Benefit Plan has not resulted, and could not
reasonably be anticipated to result, in a Material Adverse Effect.
(iv) Neither Guarantor nor any of its Subsidiaries or ERISA
Affiliates has incurred any liability to or on account of an Employee
Benefit Plan under ERISA (other than obligations to make contributions
in accordance with such Employee Benefit Plan), and no condition exists
which presents a material risk to Guarantor or any of its Subsidiaries
of incurring such a liability, except for such liabilities that have
not resulted, and could not reasonably be anticipated to result, in a
Material Adverse Effect.
(l) Insurance. Guarantor maintains insurance with financially
sound and reputable insurers, or self-insurance, with respect to its
properties and business against loss or damage of the kind customarily
insured against by reputable
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Participation Agreement
companies in the same or similar business and of such types and in such
amounts (with such deductible amounts) as are customary for such
companies under similar circumstances.
(m) Public Utility. Guarantor is a public utility as
defined in Subchapter II of the Federal Power Act, 16 USCA
ss.824(e).
ARTICLE V
COVENANTS OF LESSEE
SECTION 5.1. Further Assurances. Lessee, at its own cost and expense,
will cause to be promptly and duly taken, executed, acknowledged and delivered
all such further acts, documents and assurances as any Participant, Certificate
Trustee or any Agent reasonably may request from time to time in order to carry
out more effectively the intent and purposes of this Agreement and the other
Operative Documents and the Overall Transaction.
SECTION 5.2. Consolidation, Merger, Sale, etc.
(a) Lessee shall not consolidate with any Person, merge with or into
any Person or convey, transfer or lease to any Person all or substantially all
of its assets in any single transaction (or series of related transactions)
unless immediately after giving effect to such transaction, each of the
conditions set forth in clauses (i) through (vi) below shall have been satisfied
or, in the case of clause (vi) below, waived by each Participant, which waiver
shall not be unreasonably withheld or delayed:
(i) the Person formed by such consolidation with or into which
Lessee shall be merged or the Person which shall acquire by conveyance,
transfer or lease all or substantially all of the assets of Lessee (the
"Surviving Company") shall be a corporation, partnership, association
or other business entity that is organized under the laws of the United
States of America, a state thereof or the District of Columbia;
(ii) (A) the Surviving Company shall execute and deliver to
each of the parties hereto an agreement, in form and substance
reasonably satisfactory to the Participants, Certificate Trustee and
Information Agent, containing the assumption by the Surviving Company
of the due and punctual payment, performance and observation of each
obligation, covenant and agreement of Lessee under this Agreement and
each other Operative Document to which, immediately prior to such
transaction, Lessee was a party; and (B) Guarantor shall execute and
deliver to each of the parties hereto a
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Participation Agreement
reaffirmation, in form and substance satisfactory to the Participants
and Information Agent, that each and all of the obligations of
Guarantor under this Agreement and the Guaranty remain, and will
remain, in full force and effect, notwithstanding the transaction or
transactions giving rise to the requirement that such reaffirmation be
delivered hereunder;
(iii) no Lease Default, Lease Event of Default or Construction
Agency Event of Default shall have occurred or would occur as a result
thereof and be continuing, and no Event of Loss shall have occurred or
would occur as a result thereof;
(iv) the title of Certificate Trustee to the Equipment and
Systems and Certificate Trustee's rights under this Agreement and the
other Operative Documents and the first and prior Lien of the Security
Agreement on the Collateral shall not be adversely affected;
(v) Lessee shall have delivered to the Participants,
Certificate Trustee and Administrative Agent an Officer's Certificate
and an opinion of counsel reasonably satisfactory to each such Person
stating that such transaction complies with this Section 5.2, that all
conditions to the consummation of such transaction have been fulfilled
and that all Governmental Approvals required in connection with such
transaction have been obtained, given or made; and
(vi) the Indirect Beneficial Ownership Interest of Guarantor
in each of the Leased Assets and Owned Assets included in each
Qualified MAN or FCL shall be equal to or greater than forty-nine
percent (49%) after such merger, consolidation or transfer; provided,
however, that, subsequent to an initial public offering by Lessee that
reduces the Indirect Beneficial Ownership Interest of Guarantor to
below forty-nine percent (49%), no such consolidation, merger,
conveyance, transfer or lease shall reduce the Indirect Beneficial
Ownership Interest of Guarantor, calculated On a Fully Diluted Basis,
below the Indirect Beneficial Ownership Interest of Guarantor,
calculated On a Fully Diluted Basis, maintained immediately after such
initial public offering.
Upon the consummation of such transaction, the Surviving Company, shall
succeed to, and be substituted for, and may exercise every right and power of,
Lessee immediately prior to such transaction under this Agreement and each other
Operative Document to which Lessee was a party immediately prior to such
transaction,
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Participation Agreement
with the same effect as if the Surviving Company had been named herein and
therein. Notwithstanding the foregoing provisions of this Section 5.2(a), no
conveyance, transfer or lease of all or any portion of the assets of Lessee
shall, except as provided in Section 10.2 of the Lease, release either of Lessee
or Guarantor from its respective payment or other obligations under this
Agreement, the Guaranty or any other Operative Document without the prior
written consent of Certificate Trustee, Information Agent and each Participant.
(b) Lessee shall not transfer, assign or sublease any Leased Assets
except in accordance with Section 5.2(a) and Article X of the Lease. Lessee may
not assign, transfer possession of or lease, in whole or in part, any of its
right, title or interest in or to the Owned Assets relating to a Qualified MAN
or FCL to any Person at any time, and any such assignment, transfer of
possession or lease shall be void, unless: (i) after giving effect to any such
assignment, transfer of possession or lease (including all prior transactions of
any of the foregoing types) the Indirect Beneficial Ownership Interest of
Guarantor in all of the Leased Assets and in all of the Owned Assets,
respectively, included in such Qualified MAN or FCL would be equal to or greater
than forty-nine percent (49%); provided, however, that, subsequent to an initial
public offering by Lessee that reduces the Indirect Beneficial Ownership
Interest of Guarantor to below forty-nine percent (49%), no such assignment,
transfer or lease shall reduce the Indirect Beneficial Ownership Interest of
Guarantor, calculated On a Fully Diluted Basis, below the Indirect Beneficial
Ownership Interest of Guarantor, calculated On a Fully Diluted Basis, maintained
immediately after such initial public offering, or (ii) such assignment,
transfer of possession or lease is to a Subsidiary of Guarantor, in which event
such Subsidiary shall be bound by and subject to the provisions set forth in
this Section 5.2(b), or (iii) such assignment, transfer of possession or lease
is consented to by each Participant, which consent shall not be unreasonably
withheld or delayed, or (iv) such assignment, transfer of possession or lease
complies with Section 5.2(a).
(c) Each Interested Subsidiary will be bound by, and entitled to the
benefits of, Sections 5.2(a) and (b) as if it were named in each such Section in
lieu of Lessee. Any Subsidiary, upon becoming an Interested Subsidiary, shall,
as a condition precedent to the transfer or lease of Owned Assets or Leased
Assets to it, deliver to Certificate Trustee a duly authorized and executed
certificate declaring that it agrees to be bound by, and is entitled to the
benefits of, this Article V.
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Participation Agreement
SECTION 5.3. Corporate Existence, etc. Subject to Section 5.2, Lessee
shall at all times maintain its existence as a corporation in good standing
under the laws of the State of Delaware and shall preserve and keep in full
force and effect its franchises material to its business.
SECTION 5.4. Liens. Lessee shall not incur or suffer to
exist any Lien on any of the Equipment other than Permitted Liens.
SECTION 5.5. Compliance Certificates.
(a) Lease Defaults. Lessee shall furnish, following the Document
Closing Date and until the termination of the Lease, to Certificate Trustee,
Administrative Agent and each Participant a certificate of Lessee signed by a
Responsible Officer of Lessee promptly after Lessee obtains knowledge that there
exists a Lease Default, Lease Event of Default or Construction Agency Event of
Default, which such certificate shall describe such Lease Default in reasonable
detail, with a statement of Lessee's action with respect thereto taken or
proposed to be taken.
(b) Annual Certificates. Within one hundred ten (110) days after the
close of each fiscal year of Lessee, Lessee shall deliver to Certificate
Trustee, Administrative Agent, and each Participant a certificate of Lessee
signed by a Responsible Officer of Lessee to the effect that the signer is
familiar with or has reviewed the relevant terms of this Agreement, the Lease
and each other Operative Document to which Lessee is a party and has made, or
caused to be made under his or her supervision, a review of the transactions
contemplated hereby and thereby and the condition of each System and all
Equipment during the preceding fiscal year, and that such review has not
disclosed the existence during such fiscal year of any condition or event which
constitutes a Lease Default, a Lease Event of Default, a Construction Agency
Event of Default, an Event of Loss, a Condemnation or Casualty, nor does the
signer have knowledge, after due inquiry, of the existence as at the date of
such certificate, of any condition or event which constitutes a Lease Default, a
Lease Event of Default, a Construction Agency Event of Default or an Event of
Loss, Condemnation or Casualty or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what action
Lessee has taken or is taking or proposes to take with respect thereto.
SECTION 5.6. Change of Name or Address. Lessee shall provide
Certificate Trustee, Administrative Agent, and each Participant thirty (30)
days' prior written notice of any change in name, identity or corporate
structure or the address of its chief executive office and principal place of
business or the office
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Participation Agreement
where it keeps its records concerning its accounts and the Equipment.
SECTION 5.7. Investigation by Authorities. Promptly upon Lessee's
receipt of written notice of the intent by a Governmental Authority to (a) take
an action which would constitute a Condemnation or an Event of Taking, (b)
investigate any location whereon or wherein any System or Equipment is located
for a material violation of any Applicable Law on or at such location, including
any Environmental Law, (c) investigate any such location (other than routine
fire, life-safety and similar inspections) for any violation of Applicable Laws
under which criminal liability may be imposed, or (d) revoke, change, modify or
reconsider Lessee's status as a "competitive telecommunications provider" in the
State of Oregon, Lessee shall deliver to Certificate Trustee, Administrative
Agent and each Participant a copy of such notice.
SECTION 5.8. Information Regarding Systems; Other Information. Lessee
shall maintain accurate books and records, and shall promptly upon request by
either Agent, Certificate Trustee or any Participant, supply information
regarding the identity, cost, location and condition of each System, all related
Systems and all related Equipment, including all related construction,
installation and, if applicable, Transactions Costs allocable thereto. Lessee
shall also deliver to Administrative Agent, with sufficient copies for
Administrative Agent to distribute to Certificate Trustee and each Participant,
with reasonable promptness, unless disclosure thereof is prohibited by
Applicable Laws and subject to appropriate confidentiality undertakings with
respect thereto, such other data and information (financial or otherwise) which
is either maintained in the ordinary course of Lessee's business or can be
obtained or derived without undue burden to Lessee as to the business of Lessee
or as to any System or Equipment as from time to time may be reasonably
requested by either Agent or the Required Entities.
SECTION 5.9. Securities. Lessee shall not, nor shall it permit anyone
authorized to act on its behalf to, take any action which would subject the
issuance or sale of the Notes, the Certificates, any Equipment or the Lease, or
result in any security or lease the offering of which, for purposes of the
Securities Act or any state securities laws, would be deemed to be part of the
same offering as the offering of the aforementioned interests or leases, to the
registration requirements of Section 5 of the Securities Act or any state
securities laws.
SECTION 5.10. Interest Rates. With respect to each
determination of an interest rate pursuant to the Loan Agreement
and any other amounts determined by reference thereto, including
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Participation Agreement
amounts payable pursuant to the Lease, Lessee agrees to be bound by Section 2.7
of the Loan Agreement.
SECTION 5.11. Tax Reporting. Consistent with the intention of the
parties hereto stated in Section 2.8, Lessee shall report the transactions
provided for in the Operative Documents as constituting a loan for Federal and
state income tax purposes.
SECTION 5.12. Searches. Within thirty (30) days after the earlier to
occur of (a) the date on which the aggregate Commitments shall have been
exhausted and (b) the Commitment Termination Date, Lessee shall deliver to
Administrative Agent and Information Agent a report prepared by a search company
reasonably acceptable to Information Agent, of judgment liens, lis pendens, tax
liens and UCC filings with respect to Lessee and all Systems then leased
pursuant to Lease Supplements, which are filed of record with the applicable
State and local filing offices in the jurisdiction or jurisdictions in which
such Systems are located and the State in which Lessee has its principal place
of business, if only one, or its chief executive office, if it has more than one
place of business; provided, that if the Systems to be leased comprise all or
part of an FCL, then Lessee may represent and warrant to Administrative Agent
for the benefit of the Participants the absence of any of the foregoing in lieu
of providing such report.
ARTICLE VI
OTHER COVENANTS AND AGREEMENTS
SECTION 6.1. Cooperation with Lessee. Certificate Trustee,
Administrative Agent and each Participant shall, to the extent reasonably
requested by Lessee (but without assuming additional liability on account
thereof), at Lessee's expense, cooperate to allow Lessee to (a) perform its
covenants contained in Section 5.1, including at any time and from time to time,
upon the reasonable request of Lessee, to promptly and duly execute and deliver
any and all such further instruments, documents and financing statements (and
continuation statements related thereto) as Lessee may request in order to
perform such covenants, and (b) further Lessee's requirements as lessee of the
Systems and related Equipment.
SECTION 6.2. Covenants of Certificate Trustee and the
Certificate Purchasers.
(a) Discharge of Liens. Each of the Certificate Purchasers covenants as
to itself, and not jointly with any other Certificate Purchaser, that it will
not create or permit to exist at any time, and will, at its own cost and
expense, promptly take such action as
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Participation Agreement
may be necessary duly to discharge, or to cause to be discharged, all Lessor
Liens attributable to it, and will cause restitution to be made to the Trust
Estate in the amount of any diminution of the value thereof as a result of its
failure to comply with its obligations under this Section 6.2(a). Certificate
Trustee will not create or permit to exist at any time, and will promptly take
such action as may be necessary duly to discharge, or to cause to be discharged,
all Lessor Liens attributable to it and will cause restitution to be made to the
Trust Estate in the amount of any diminution of the value thereof as a result of
its failure to comply with its obligations under this Section 6.2(a). Bank will
not create or permit to exist at any time, and will, at its own cost and
expense, promptly take such action as may be necessary duly to discharge, or to
cause to be discharged, all Lessor Liens attributable to it and will cause
restitution to be made to the Trust Estate in the amount of any diminution of
the value thereof as a result of its failure to comply with its obligations
under this Section 6.2(a). Notwithstanding the foregoing, none of the
Certificate Purchasers, Certificate Trustee or Bank, as the case may be, shall
be required to so discharge any such Lessor Lien while the same is being
contested in good faith by appropriate proceedings diligently prosecuted so long
as such proceedings shall not involve any meaningful danger of the impairment of
the Lien of the Security Agreement or of the sale, forfeiture or loss of, and
shall not interfere with the use or disposition of, any part of the Equipment,
the Lease or the Trust Estate or title thereto or any interest therein or the
payment of Rent; provided, however, that each Certificate Purchaser, Certificate
Trustee and Bank shall discharge any such Lessor Lien attributable to it,
whether or not subject to contest as provided above, upon the purchase of any
Equipment by Lessee pursuant to the Lease.
(b) Trust Agreement. Without prejudice to any right under the Trust
Agreement of Certificate Trustee to resign, or the Participants' right under the
Trust Agreement to remove Certificate Trustee, each of the Participants and
Certificate Trustee hereby agrees with Lessee, the Lenders and the Agents (i)
not to terminate or revoke the trust created by the Trust Agreement except as
permitted by Article VI of the Trust Agreement prior to the later of the Lease
Termination Date or the payment in full of the obligations under the Notes and
the Certificates, (ii) not to amend, supplement, terminate or revoke or
otherwise modify any provision of the Trust Agreement prior to the Lease
Termination Date in such a manner as to materially and adversely affect the
rights of any such party, (iii) except as otherwise expressly authorized under
the Operative Documents, not to withdraw from the Trust Estate any funds other
than amounts payable to it by Certificate Trustee as distributions of Base Rent
and Supplemental
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Participation Agreement
Rent without the prior written consent of each such party, and (iv) to comply
with all of the terms of the Trust Agreement applicable to it the nonperformance
of which would adversely affect such party.
(c) Successor Certificate Trustee. Certificate Trustee or any successor
may resign or be removed by the Certificate Purchasers as Certificate Trustee, a
successor Certificate Trustee may be appointed, and a corporation may become
Certificate Trustee under the Trust Agreement, only in accordance with the
provisions of Article IV of the Trust Agreement. Notwithstanding anything to the
contrary contained in this Agreement or the Trust Agreement, so long as no Lease
Event of Default shall be continuing, the appointment of a successor Certificate
Trustee shall be subject to the consent of Lessee (such consent not to be
unreasonably withheld or delayed).
(d) Indebtedness; Other Business. Certificate Trustee on behalf of the
Trust shall not contract for, create, incur or assume any indebtedness, or enter
into any business or other activity, other than pursuant to or under the
Operative Documents and, for the benefit of Lessee, the Agents and the Lenders,
agrees to be bound by Section 1.2(b) of the Trust Agreement.
(e) Change of Principal Place of Business. Certificate Trustee shall
give prompt notice to the Certificate Purchasers, Lessee and Administrative
Agent if Certificate Trustee's principal place of business or chief executive
office, or the office where the records concerning the accounts or contract
rights relating to the Equipment or the Overall Transaction are kept, shall
cease to be located at 777 Main Street, MSN 238, Hartford, CT, 06115, Attn:
Corporate Trust Administration or if it shall change its name, identity or
corporate structure.
(f) Depreciation. Prior to the applicable Lease Supplement Termination
Date, neither Certificate Trustee nor any Participant shall claim any federal or
state tax attributes or benefits (including depreciation) relating to any System
or Equipment unless required to do so by an appropriate taxing authority or
after a clearly applicable change in Applicable Laws or as a protective response
to a proposed adjustment by an Governmental Authority; provided, however, that
if an appropriate taxing authority shall require Certificate Trustee or any
Certificate Purchaser to claim any such federal or state tax attributes or
benefits, or if any such Person shall make any such claim as a protective
response as aforesaid, such Person shall promptly notify Lessee thereof and
shall permit Lessee to contest such requirement in a manner similar
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Participation Agreement
to the contest rights provided in, and subject to any applicable limitation to a
contest contained in, Section 7.2(b).
(g) Certificate Purchaser Amount. The Certificate Purchasers shall at
all times prior to the Commitment Termination Date maintain an aggregate
Certificate Purchaser Amount in the Trust equal to not less than three percent
(3%) of the sum of (i) the original principal amount of the Notes issued by
Certificate Trustee from time to time and (ii) the Certificate Purchaser Amounts
invested from time to time; provided, however, that this Section 6.2(g) shall
not be construed to increase or otherwise affect any Participant's Commitment.
SECTION 6.3. Restrictions on and Effect of Transfer. So long as no
Lease Event of Default or Loan Event of Default shall have occurred and be
continuing, no Participant shall assign, convey or otherwise transfer all or any
portion of its right, title or interest in, to or under any of the Operative
Documents, or any Note or Certificate, except that (x) any Participant may
pledge its interest in the ordinary course of its business without the consent
of Lessee; provided, that such pledge provides that no transfer upon a
foreclosure pursuant to such a pledge may occur unless the other provisions of
this Section are complied with, (y) any Participant may transfer all or any
portion of its interest to any other existing Participant or an Affiliate of
such Participant and, upon compliance with any applicable provisions of Section
6.4(a), may sell, assign or otherwise transfer a participation in its interest
in any of the foregoing; provided, that no Loan Participant shall become, by
means of such transfer, a Participant under the Operative Documents, and Lessee
shall be entitled to continue to deal for all purposes under the Operative
Documents exclusively with the Participant who has transferred such
participation, and (z) any Participant may transfer any or all of such right,
title and interest upon the satisfaction of each of the following conditions:
(a) Required Notice and Effective Date. Any Participant
desiring to effect a transfer of its interest shall give written notice
of each such proposed transfer to Lessee and Administrative Agent at
least five (5) days prior to such proposed transfer, setting forth the
name of such proposed transferee, the percentage of interest to be
retained by such Participant, if any, and the date on which such
transfer is proposed to become effective. All reasonable out-of-pocket
costs incurred by Administrative Agent in connection with any such
disposition by a Participant under this Section 6.3 shall be borne by
such Participant. In the event of a transfer under this Section 6.3,
any expenses incurred by the
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transferee in connection with its review of the Operative Documents and
its investigation of the transactions contemplated thereby shall be
borne by such transferee or the relevant Participant, as they may
determine, but shall not be considered costs and expenses which Lessee
is obligated to pay or reimburse under Section 9.9.
(b) Assumption of Obligations. Any transferee pursuant to this
Section 6.3 shall have executed and delivered to Administrative Agent a
letter in substantially the form of the Investor's Letter attached
hereto as Exhibit J, and thereupon the obligations of the transferring
Participant under the Operative Documents shall be proportionately
released and reduced to the extent of such transfer. Upon any such
transfer as above provided, (i) the transferring Participant shall
still be entitled to the benefit of Article VII, and (ii) the
transferee shall be deemed to be bound by all obligations (whether or
not yet accrued) under, and to have become a party to, all Operative
Documents to which its transferor was a party, shall be deemed the
pertinent "Lender" or "Certificate Purchaser" (as the case may be) for
all purposes of the Operative Documents and shall be deemed to have
made that portion of the payments pursuant to this Agreement previously
made or deemed to have been made by the transferor represented by the
interest being conveyed; and each reference herein and in the other
Operative Documents to the pertinent "Lender" or "Certificate
Purchaser" (as the case may be) shall thereafter be deemed a reference
to the transferee, to the extent of such transfer, for all purposes.
Upon any such transfer, Administrative Agent shall deliver to each
Participant, Certificate Trustee and Lessee new Schedules I, II, and
III to this Participation Agreement, as applicable, revised to reflect
the relevant information for such new Participant and the Commitment of
such new Participant (and the revised Commitment of the transferor
Participant if it shall not have transferred its entire interest).
(c) Employee Benefit Plans. No Participant may make any such
assignment, conveyance or transfer to or in connection with any
arrangement or understanding in any way involving any Employee Benefit
Plan (or its related trust), as defined in Section 3(3) of ERISA, or
with the assets of any such plan (or its related trust), as defined in
Section 4975(e)(1) of the Code (other than a governmental plan, as
defined in Section 3(32) of ERISA), with respect to which Lessee or
such Participant or any of their Affiliates is a party in interest
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Participation Agreement
within the meaning of ERISA or a "disqualified person" within
the meaning of the Code.
(d) Representations and Warranties. Notwithstanding anything
to the contrary set forth above, no Participant may assign, convey or
transfer its interest to any Person unless such Person shall have
delivered to Administrative Agent and Lessee a certificate confirming
the accuracy of the representations and warranties set forth in Section
4.2 with respect to such Person (other than as such representation or
warranty relates to the execution and delivery of Operative Documents).
(e) Financial Condition of Transferee. No transfer by a
Participant shall be effective against the other parties to this
Agreement unless the transferee is (A) a bank or other financial
institution with a combined capital and surplus of at least
$100,000,000, or (B) any subsidiary of such a bank or financial
institution; provided, that such bank or financial institution
furnishes a guaranty with respect to the transferee's obligations as a
Lender or Certificate Purchaser (as the case may be), or (C) any other
entity; provided, that the transferee's obligations as a Lender or
Certificate Purchaser (as the case may be) are guaranteed by the
transferor Participant.
(f) Amounts. (i) Any transfer of Certificates shall be in an
invested amount which is equal to or greater than $150,000 and an
integral multiple of $10,000.
(ii) Any transfer of Notes shall be in a principal amount
which is equal to or greater than $5,000,000 and an integral multiple
of $500,000.
(iii) In any event, a Participant may transfer a Note or
Certificate that is smaller than the amounts specified in clauses (i)
and (ii) if such disposition is with respect to its entire interest.
(g) Effect. From and after any transfer of its Notes or
Certificates, the transferring Lender or Certificate Purchaser shall be
released, to the extent assumed by the transferee, from its liability
and obligations hereunder and under the other Operative Documents
relating to the Equipment to which such transferor is a party in
respect of obligations to be performed on or after the date of such
transfer. Upon any transfer by a Participant as above provided, any
such transferee shall be deemed a "Lender" or "Certificate
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Participation Agreement
Purchaser" (as the case may be) for all purposes of such documents and
each reference herein to a Lender or Certificate Purchaser shall
thereafter be deemed a reference to such transferee for all purposes,
except as the context may otherwise require. Notwithstanding any
transfer as provided in this Section 6.3, the transferor shall be
entitled to all benefits accrued and all rights vested prior to such
transfer, including rights to indemnification under this Agreement or
any other Operative Document.
(h) Transfers. Notwithstanding anything contained herein to
the contrary, without the prior written consent of Lessee, which
consent shall not be unreasonably withheld or delayed, no Participant
may transfer all or any portion of its right, title or interest in, to
or under any of the Operative Documents (including any Note or
Certificate), except as set forth in clauses (x) and (y) of the
introductory language of this Section 6.3; provided, that this clause
(h) shall not apply so long as a Lease Event of Default or Loan Event
of Default shall have occurred and be continuing.
SECTION 6.4. Covenants and Agreements of Participants.
(a) Participations. Each Lender and each Certificate Purchaser
covenants and agrees that it will not grant participations in its Notes and/or
Certificates to any Person unless such Person (a "Loan Participant") (i) is a
bank or other financial institution, (ii) has capital and surplus of at least
$100,000,000 and (iii) represents and warrants, in writing, to such Participant
for the benefit of the Participants and Lessee that no part of the funds used by
it to acquire an interest in the Notes and/or Certificates constitutes assets of
any Employee Benefit Plan or its related trust. Any such Person shall require
any transferee of its interest in the Notes and/or Certificates to make the
representations and warranties set forth in the preceding sentence, in writing,
to such Person for its benefit and the benefit of the Participants and Lessee.
In the event of any such sale by a Participant of a participating interest to a
Loan Participant, such Participant's obligations under this Agreement and under
the other Operative Documents shall remain unchanged, such Participant shall
remain solely responsible for the performance thereof, such Participant shall
remain the holder of its Note and/or Certificate for all purposes under this
Agreement and under the other Operative Documents, Certificate Trustee,
Administrative Agent and, except as set forth in Section 6.4(b), Lessee shall
continue to deal solely and directly with such Participant in connection with
such Participant's rights and obligations under this Agreement and under the
other Operative Documents, and such Participant shall retain
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Participation Agreement
the sole right to enforce the obligations of the Lessee under the Operative
Documents and to approve any amendment, modification or waiver of any provision
of any Operative Document (other than amendments, modifications, or waivers
decreasing any fees payable hereunder or under any other Operative Document, or
the amount of principal or Yield of or the rate at which interest or Yield is
payable on the Loans or Certificates, extending any scheduled principal payment
date or date fixed for the payment of interest on the Loans or Certificates, or
changing or extending the Commitments).
(b) Transferee Indemnities. Each Loan Participant shall be entitled to
the benefits of Sections 2.11 and 2.12 of the Loan Agreement with respect to its
participation in the Certificates, Notes and Loans outstanding from time to
time; provided, that no Loan Participant in respect of its participation shall
be entitled to receive any greater amount pursuant to such Sections than the
transferor Lender would have been entitled to receive in respect of the amount
of the participation in the Notes and/or Certificates transferred by such
transferor Lender to such Loan Participant had no such transfer of a
participation occurred.
SECTION 6.5. Required Transfers. If at any time any Lender shall have
delivered a certificate or notice pursuant to Section 2.12(d) of the Loan
Agreement, the Certificate Purchasers hereby grant to Lessee the right to
require Certificate Trustee by written notice to take any of the actions
described in Section 2.12(f) of the Loan Agreement.
SECTION 6.6. Affirmative Covenants of Guarantor. Guarantor covenants
and agrees that, so long as any portion of the Obligations shall remain unpaid
or unperformed or any Participant shall have any outstanding Commitment,
Guarantor will, unless, with respect to any matters other than those covered by
Section 6.6(a)(ii)(B), the Required Entities shall otherwise consent in writing:
(a) Existence; Businesses and Properties. (i) Preserve and
maintain, cause each of its Principal Subsidiaries to preserve and
maintain, and cause each other Subsidiary to preserve and maintain
(where the failure by any such other Subsidiary to so preserve and
maintain would likely result in a Material Adverse Effect) its
corporate existence, rights and franchises; provided, however, that the
corporate existence of any Principal Subsidiary may be terminated if
such termination is not disadvantageous to Administrative Agent or any
Participant;
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Participation Agreement
(ii) (A) continue to own all of the outstanding
shares of common stock of each Principal Subsidiary and (B)
except as otherwise provided in Sections 5.2(a) and (b) or
Section 6.7(b)(ii), maintain its Indirect Beneficial Ownership
Interest in all of the Leased Assets and in all of the Owned
Assets, respectively, of each Qualified MAN and FCL at levels
equal to or greater than forty-nine percent (49%);
(iii) comply, and cause each of its Subsidiaries to
comply, in all material respects, with all Applicable Laws;
(iv) pay, and cause each of its Subsidiaries to pay,
before any such amounts become delinquent, (1) all taxes,
assessments and governmental charges imposed upon it or upon
its property, and (2) all claims (including without
limitation, claims for labor, materials, supplies, or
services) which might, if unpaid, become a Lien upon its
property, unless, in each case, the validity or amount thereof
is being disputed in a Permitted Contest;
(v) keep, and cause each of its Subsidiaries to keep,
proper books of record and account, containing complete and
accurate entries of all financial and business transactions of
Guarantor and such Subsidiary; and
(vi) maintain or cause to be maintained insurance
with financially sound and reputable insurers, or
self-insurance, with respect to its properties and business
and the properties and business of its Subsidiaries against
loss or damage of the kinds customarily insured against by
reputable companies in the same or similar businesses, such
insurance to be of such types and in such amounts (with such
deductible amounts) as is customary for such companies under
similar circumstances;
provided, however, that the foregoing shall not limit the right of
Guarantor or any of its Subsidiaries to engage in any transaction not
otherwise prohibited by clauses (b), (c) and (d) of Section 6.7.
(b) Financial Statements, Reports, etc. Furnish to
Administrative Agent and each Participant:
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Participation Agreement
(i) as soon as available and in any event within 110
days after the end of each fiscal year, consolidated balance
sheets and the related statements of income and cash flows of
Guarantor and its Subsidiaries (Guarantor and its Subsidiaries
being collectively referred to as the "Companies") as of the
close of such fiscal year (which requirement shall be deemed
satisfied by the delivery of Guarantor's Annual Report on Form
10-K (or any successor form) for such year), all audited by
KPMG Peat Marwick or other independent public accountants of
recognized national standing and accompanied by an opinion of
such accountants to the effect that such consolidated
financial statements fairly present in all material respects
the financial condition and results of operations of the
Companies on a consolidated basis in accordance with GAAP;
(ii) within sixty-five (65) days after the end of
each of the first three fiscal quarters of each fiscal year,
consolidated balance sheets and related statements of income
and cash flows of the Companies as of the close of such fiscal
quarter and the then elapsed portion of the fiscal year (which
requirement shall be deemed satisfied by the delivery of
Guarantor's Quarterly Report on Form 10-Q (or any successor
form) for such quarter), each certified by an officer as
fairly presenting the financial condition and results of
operations of the Companies on a consolidated basis in
accordance with GAAP, subject to normal year-end audit
adjustments;
(iii) promptly upon the mailing or filing thereof,
copies of all financial statements, reports and proxy
statements mailed to Guarantor's public shareholders, and
copies of all registration statements (other than those on
Form S-8) and Form 8-K's (to the extent that such Form 8-K's
disclose actual or potential adverse developments with respect
to Guarantor or any of its Subsidiaries that constitute, or
could reasonably be anticipated to constitute, a Material
Adverse Effect) filed with the SEC (or any successor thereto)
or any national securities exchange;
(iv) prompt notice of any reduction in the credit
rating given to Guarantor by Standard & Poor's Ratings Group,
Moody's Investors Service, Inc. or any successor to either of
the foregoing; and, if either or both of the foregoing rating
agencies shall not rate any long-term senior indebtedness of
Guarantor, a nationally recognized
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Participation Agreement
securities rating agency or agencies selected by
Guarantor and approved by the Required Entities;
(v) promptly after (A) the occurrence thereof, notice
of any ERISA Termination Event or "prohibited transaction", as
such term is defined in Section 4975 of the Code, with respect
to any Employee Benefit Plan that results, or could reasonably
be anticipated to result, in a Material Adverse Effect, which
notice shall specify the nature thereof and Guarantor's
proposed response thereto, and (B) actual knowledge thereof,
copies of any notice of PBGC's intention to terminate or to
have a trustee appointed to administer any Employee Benefit
Plan; and
(vi) promptly, from time to time, such other
information regarding its operations, business affairs and
financial condition, or compliance with the terms of this
Agreement or the Guaranty as the Administrative Agent or any
Participant may reasonably request.
(c) Litigation and Other Notices. Furnish to Administrative
Agent and each Participant prompt written notice of the following:
(i) any Construction Agency Default, Lease Default,
Lease Event of Default, Loan Default or Loan Event of
Default of which Guarantor becomes aware;
(ii) the filing or commencement of, or any threat or
notice of intention of any person to file or commence, any
action, suit or proceeding, whether at law or equity or by or
before any Governmental Authority, against Guarantor or any of
its Subsidiaries which is reasonably likely to be adversely
determined and which, if adversely determined, could
reasonably be anticipated to result in a Material Adverse
Effect; and
(iii) any development with respect to Guarantor or
any of its Subsidiaries that has resulted in, or could
reasonably be anticipated to result in, a Material Adverse
Effect.
(d) Maintaining Records. Maintain all financial records in
accordance with GAAP and, upon reasonable notice, permit any
Participant to visit and inspect the financial records of Guarantor at
reasonable times and as often as requested and to make extracts from
and copies of such financial records, and permit any representatives
designated by any Participant to
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Participation Agreement
discuss the affairs, finances and condition of Guarantor with the
appropriate officers thereof and, with Guarantor's consent (which shall
not be unreasonably withheld or delayed), the independent accountants
therefor; provided, however, that if Guarantor shall so require, a
single representative shall be appointed by the Required Entities to
exercise the rights granted under this Section 6.6(d).
SECTION 6.7. Negative Covenants of Guarantor. Guarantor covenants and
agrees that, so long as any portion of the Obligations shall remain unpaid or
unperformed or any Participant shall have any outstanding Commitment, Guarantor
will not, without the prior unanimous written consent of the Lenders and
Certificate Purchasers, which consent shall not be unreasonably withheld or
delayed, with regard to matters covered by Section 6.7(b)(ii), 6.7(c)(ii) or
6.7(d)(ii) and without the prior written consent of the Required Entities with
regard to other matters:
(a) Liens. Create, incur, assume, or suffer to exist, or
permit any of the Principal Subsidiaries to create, incur, assume, or
suffer to exist, any Lien on any of its property now owned or hereafter
acquired to secure any Indebtedness of Guarantor or any such Principal
Subsidiary, other than (i) Liens incurred or deposits made in the
ordinary course of business to secure surety and appeal bonds, leases,
return-ofmoney bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money); (ii) Liens created
under or in connection with the First Mortgage Bond Indentures or any
other indentures governing the issuance of mortgage bonds by Guarantor;
(iii) pledges or deposits to secure the utility obligations of
Guarantor incurred in the ordinary course of business; (iv) Liens upon
or in property now owned or hereafter acquired to secure Indebtedness
incurred solely for the purpose of financing the acquisition,
construction or improvement of any property; provided, that such
Indebtedness shall not exceed the fair market value of the property
being acquired, constructed or improved; (v) Liens on the assets of any
Principal Subsidiary to secure the repayment of project financing for
such Principal Subsidiary; (vi) Liens on the assets of any Person
merged or consolidated with or into (in accordance with Section 6.7(d))
Guarantor or any Principal Subsidiary that were in effect at the time
of such merger or consolidation; and (vii) Liens securing Indebtedness
of Guarantor or of any Principal Subsidiary to the U.S. Rural
Electrification Administration (or any successor agency) or to the U.S.
Rural Telephone Bank (or any successor agency); provided, however, that
Guarantor or any Principal Subsidiary may create, incur, assume or
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Participation Agreement
suffer to exist other Liens (in addition to Liens excepted by the
foregoing clauses (i) through (vii)) on its assets so long as the
assets subject to such Liens do not represent in the aggregate more
than thirty percent (30%) of Guarantor's Consolidated Tangible Assets;
provided, further, however, that any Principal Subsidiary that is also
an Interested Subsidiary shall be subject to Section 6.1 of the Lease
to the extent of Leased Assets.
(b) Ownership of Subsidiaries. (i) Sell, assign, pledge, or
otherwise transfer or dispose of any shares of common stock, voting
stock, or stock convertible into voting or common stock of any
Principal Subsidiary, except to another Subsidiary; or (ii) permit any
Subsidiary owning shares of capital stock of any Interested Subsidiary
to sell, assign, pledge, or otherwise transfer or dispose of any shares
of capital stock of any such Interested Subsidiary or permit any
Interested Subsidiary to issue, sell, assign, pledge or otherwise
dispose of any of its shares of capital stock, unless any such sale,
assignment, pledge, transfer or disposition would not, after giving
effect thereto (including treating any such pledge as an outright sale)
and to all prior transactions, reduce Guarantor's Indirect Beneficial
Ownership Interest in all of the Leased Assets and in all of the Owned
Assets, respectively, in any Qualified MAN or FCL to less than
forty-nine percent (49%), except that the restrictions of this Section
6.7(b)(ii) shall not apply to a transaction that shall constitute the
initial public offering of capital stock of Lessee; provided, however,
that, subsequent to an initial public offering by Lessee that reduces
the Indirect Beneficial Ownership Interest of Guarantor to below
forty-nine percent (49%), no such sale, assignment, pledge, transfer or
disposition shall reduce the Indirect Beneficial Ownership Interest of
Guarantor, calculated On a Fully Diluted Basis, below the Indirect
Beneficial Ownership Interest of Guarantor, calculated On a Fully
Diluted Basis, maintained immediately after such initial public
offering; provided, further, that, notwithstanding the foregoing
proviso, subsequent to an initial public offering, Lessee may issue
from time to time, pursuant to an employee stock option plan, shares of
capital stock not to exceed, at any time, in the aggregate fifteen
percent (15%) of the outstanding shares of capital stock of Lessee at
such time. If any Subsidiary owning shares of capital stock of any
Interested Subsidiary or any Interested Subsidiary would otherwise
qualify as a Principal Subsidiary under Section 6.7(b)(i), this Section
6.7(b)(ii) and not Section 6.7(b)(i) shall apply.
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Participation Agreement
(c) Asset Sales. (i) Permit any Principal Subsidiary to sell,
assign, or otherwise dispose of assets (whether in one transaction or a
series of transactions), if, after giving effect to such transaction,
such Principal Subsidiary will have disposed of, in the aggregate,
assets representing more than 25% of such Principal Subsidiary's
aggregate Consolidated Tangible Assets as of the date upon which such
Principal Subsidiary first became a Principal Subsidiary; provided,
that any Principal Subsidiary may transfer assets representing up to
100% of such Principal Subsidiary's Consolidated Tangible Assets to any
other Subsidiary or to Guarantor; or (ii) permit Lessee or any other
Subsidiary of Guarantor to sell, assign, lease, sublease or otherwise
transfer any (A) Leased Assets (including Lessee's leasehold interests
with respect thereto) relating to a Qualified MAN or FCL except as
permitted by and in accordance with the provisions of Article X of the
Lease or Sections 5.2(a) and (c), or (B) Owned Assets relating to a
Qualified MAN or FCL except as permitted by and in accordance with the
provisions of Sections 5.2(a), (b) and (c). If Lessee or any other
Subsidiary of Guarantor would otherwise qualify as a Principal
Subsidiary under Section 6.7(c)(i), this Section 6.7(c)(ii) and not
Section 6.7(c)(i) shall apply to the extent of the Leased and Owned
Assets.
(d) Mergers, etc. (i) Merge or consolidate with, or sell,
assign, lease, or otherwise dispose of (whether in one transaction or a
series of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to any Person, or permit any Principal
Subsidiary to do so, except that any Subsidiary may merge into or,
subject to Section 6.7(c), transfer assets to Guarantor or any other
Subsidiary, and Guarantor may merge with any Person; provided, that,
immediately thereafter and after giving effect thereto, (A) no event
shall occur or be continuing which constitutes a Lease Default or a
Lease Event of Default, (B) such transaction, after giving effect
thereto and to all prior transactions, would not reduce Guarantor's
Indirect Beneficial Ownership Interest in the Leased Assets or in the
Owned Assets, respectively, included in any Qualified MAN or FCL to
less than forty-nine percent (49%); provided, however, that, subsequent
to an initial public offering by Lessee that reduces the Indirect
Beneficial Ownership Interest of Guarantor to below forty-nine percent
(49%), no such merger, consolidation or sale, assignment, lease or
disposition of assets shall reduce the Indirect Beneficial Ownership
Interest of Guarantor, calculated On a Fully Diluted Basis, below the
Indirect Beneficial Ownership Interest of Guarantor, calculated On a
Fully Diluted Basis, maintained immediately
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Participation Agreement
after such initial public offering and, in the case of any such merger
to which Guarantor is a party, either (1) Guarantor is the surviving
corporation, or (2) the surviving entity (if not Guarantor) has a
Consolidated Net Worth immediately subsequent to such merger at least
equal to the Consolidated Net Worth of Guarantor immediately prior to
such merger and expressly assumes the obligations of Guarantor under
the Operative Documents; provided, further, however, that,
notwithstanding the foregoing, each of Guarantor and any of the
Principal Subsidiaries may sell assets (other than Leased Assets and
Owned Assets) in the ordinary course of its business. Leased Assets and
Owned Assets comprising all or a portion of a Qualified MAN or FCL may
only be transferred, assigned or subleased in accordance with the
provisions of the Lease, Section 5.2(a) and (b) and Section 6.7(c) to
the extent applicable.
(ii) Permit any Interested Subsidiary to merge or consolidate
with, or to sell, assign, lease, or otherwise dispose of (whether in
one transaction or a series of transactions) all or substantially all
of its assets (whether now owned or hereafter acquired) to any Person,
except that any Interested Subsidiary may merge into or consolidate
with or transfer all or substantially all of its assets to Guarantor or
any other Subsidiary or transfer all or substantially all of its assets
to any other Person; provided, that, immediately thereafter and after
giving effect thereto, in each case, each of the requirements set forth
in Section 5.2(a) shall be satisfied or waived (to the same extent as
if that Section applied to such Interested Subsidiary). If an
Interested Subsidiary would also qualify as a Principal Subsidiary
under Section 6.7(d)(i), this Section 6.7(d)(ii) and not Section
6.7(d)(i) shall apply.
(e) Restrictions on Dividends. Enter into or permit any
Principal Subsidiary to enter into, any contract or agreement (other
than with a Governmental Authority having jurisdiction over Guarantor
or such Principal Subsidiary) restricting the ability of such Principal
Subsidiary to pay dividends or make distributions to Guarantor in any
manner that would impair the ability of Guarantor to meet its present
and future obligations hereunder. The Secretary of Guarantor or another
officer of Guarantor satisfactory to Administrative Agent, shall, prior
to entry into any contract or agreement that could restrict the ability
of any Principal Subsidiary to pay dividends or make distributions to
Guarantor, deliver to the Participants a certificate certifying (i) to
the absence of any Lease Default or Lease Event of Default after giving
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Participation Agreement
effect to the entry by such Principal Subsidiary into such contract or
agreement, and (ii) that such contract or agreement will not impair the
ability of Guarantor to meet its present and future obligations
hereunder or under the Guaranty.
(f) Transactions with Affiliates. Sell or transfer any
property or assets to, or purchase or acquire any property or assets
from, or otherwise engage in any other transactions with, any of its
Affiliates, except that as long as no Lease Default or Lease Event of
Default shall have occurred and be continuing, Guarantor or any of its
Subsidiaries may engage in any of the foregoing transactions in the
ordinary course of business at prices and on terms and conditions not
less favorable to Guarantor or such Subsidiary that could be obtained
on an arm's-length basis from unrelated third parties or as otherwise
may be required by any Governmental Authority; provided, that nothing
in this Section 6.7(f) shall be construed to restrict or prohibit any
transaction which is expressly permitted by the provisions of any of
the Operative Documents; and provided, further, that any transaction
prohibited or restricted by the provisions of any of the Operative
Documents shall not be permitted solely because it complies with the
provisions of this Section 6.7(f).
(g) Minimum Consolidated Net Worth. Permit its
Consolidated Net Worth at any time to be less than
$450,000,000.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1. General Indemnification. Lessee agrees, whether or not any
of the transactions contemplated hereby shall be consummated, to assume
liability for, and to indemnify, protect, defend, save and keep harmless each
Indemnitee (on an after-tax basis in accordance with Section 7.5) from and
against any and all Claims that may be imposed on, incurred by or asserted
against such Indemnitee (whether because of action, omission or negligence by
such Indemnitee or otherwise), whether or not such Indemnitee shall also be
indemnified as to any such Claim by any other Person and whether or not such
Claim arises or accrues prior to the initial Advance Date or after the Lease
Termination Date, in any way relating to or arising out of (a) any of the
Operative Documents or any of the transactions contemplated thereby or any
investigation, litigation or proceeding in connection therewith, and any
amendment, modification or waiver in respect thereof; (b) any
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Participation Agreement
System, Equipment or any part thereof or interest therein; or (c) the
acquisition, mortgaging, design, construction, preparation, installation,
inspection, delivery, non-delivery, acceptance, rejection, purchase, ownership,
possession, rental, lease, sublease, repossession, maintenance, repair,
alteration, modification, addition or substitution, storage, transfer or title,
redelivery, use, financing, refinancing, operation, condition, sale (including
any sale pursuant to Section 4.3 of the Lease or any sale pursuant to Article
XVI of the Lease), return or other disposition of all or any part of any
interest in any System or Equipment or the imposition of any Lien (or incurrence
of any liability to refund or pay over any amount as a result of any Lien)
thereon, including: (i) claims or penalties arising from any violation of law,
including Applicable Laws or in tort (whether arising under principles of strict
liability or otherwise), (ii) loss of or damage to the environment (including
investigation costs, clean-up costs, response costs, remediation and removal
costs, costs of corrective action, costs of financial assurance, and all other
damages, costs, fees and expenses, fines and penalties, including natural
resource damages), or death or injury to any Person, and all expenses associated
with the protection of wildlife, aquatic species, vegetation, flora and fauna,
and any mitigative action required by or under Environmental Laws, (iii) latent
or other defects, whether or not discoverable by Lessee or any Indemnitee, (iv)
any Claims resulting from the existence or Release of any Hazardous Materials
from or with respect to any System or Equipment and (v) any Claim for patent,
trademark, trade name or copyright infringement; (d) the offer, issuance, sale
or delivery of the Notes or the Certificates; (e) the breach or alleged breach
by Lessee of any representation or warranty made by it or deemed made by it in
any Operative Document; (f) the transactions contemplated hereby or by any other
Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B
of Title I of ERISA and any prohibited transaction described in Section 4975(c)
of the Code; or (g) any other agreement entered into or assumed by Lessee in
connection with any System or Equipment (including, in each case, matters based
on or arising from the negligence of any Indemnitee).
Lessee shall not be required to indemnify under this Section 7.1 for (1) as to
an Indemnitee, any Claim to the extent resulting from the willful misconduct or
gross negligence of such Indemnitee or to the extent resulting from a material
breach of representations, warranties or covenants of such Indemnitee, (2) any
Claims in respect of Taxes (such Claims to be subject to Section 7.2), other
than a payment necessary to make payments under this Section 7.1 on an after-tax
basis, (3) as to an Indemnitee, any Claim resulting from Lessor Liens which such
Indemnitee is responsible for
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discharging under the Operative Documents, and (4) as to an Indemnitee, any
Claim resulting from such Indemnitee's failure to distribute funds properly.
SECTION 7.2. General Tax Indemnity.
(a) Tax Indemnity. Lessee shall pay, defend and, on written demand,
indemnify, protect, defend, save and keep each Indemnitee harmless (on an
after-tax basis in accordance with Section 7.5) from and against, any and all
Taxes, howsoever imposed, on or with respect to any Indemnitee, any System or
Equipment or any portion thereof, any Operative Document or Lessee or any
sublessee or user of any System or Equipment, by any Governmental Authority in
connection with or in any way relating to (i) the acquisition, mortgaging,
design, construction, preparation, installation, inspection, delivery,
non-delivery, acceptance, rejection, purchase, ownership, possession, rental,
lease, sublease, repossession, maintenance, repair, alteration, modification,
addition or substitution, storage, transfer of title, redelivery, use,
financing, refinancing, operation, condition, sale, return or other application
or disposition of all or any part of any System or Equipment or the imposition
of any Lien (or incurrence of any liability to refund or pay over any amount as
a result of any Lien) thereon, (ii) Base Rent or Supplemental Rent or the
receipts or earnings arising from or received with respect to the Equipment or
any part thereof, or any interest therein or any applications or dispositions
thereof, (iii) any other amount paid or payable pursuant to the Notes, the
Certificates or any other Operative Documents, the property or the income or
other proceeds with respect to the property held in the Trust Estate, (iv) any
System or Equipment or any part thereof or any interest therein, (v) all or any
of the Operative Documents, any other documents contemplated thereby and any
amendments and supplements thereto, and (vi) otherwise with respect to or in
connection with the transactions contemplated by the Operative Documents;
provided, however, that the indemnification obligation of this Section 7.2(a)
shall not apply to (A) Taxes which are based upon or measured by the
Indemnitee's net income, or which relieve Indemnitee from, any actual Tax based
upon or measured by Indemnitee's net income; (B) Taxes characterized under local
law as franchise, net worth, or shareholder's capital (excluding, however, any
value-added, sales, use, rental license, property or similar Taxes); (C) Taxes
based upon the voluntary transfer, assignment or disposition by Administrative
Agent, Lessor or any Participant of any interest in any System or Equipment
(other than a transfer pursuant to the exercise of remedies under the Operative
Documents, transfers pursuant to the exercise of the Sale Option or Purchase
Option, a transfer to Lessee or otherwise pursuant to the Lease); and (D)
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Taxes based upon the voluntary transfer, assignment or disposition by
Participant of any Note or Certificate or any interest therein, except such
transfers occurring during a Lease Event of Default or Loan Event of Default.
Notwithstanding the proviso of the preceding sentence, Lessee shall pay or
reimburse, and indemnify protect, defend, save and keep harmless (on an
after-tax basis in accordance with Section 7.5), any Indemnitee which is not
incorporated under the laws of the United States, or a state thereof, and which
has complied with Section 7.3 and delivered copies of tax forms referred to in
Section 7.3 to Lessee, Certificate Trustee and Administrative Agent, from any
deduction or withholding of any United States Federal, state or local income
tax. All indemnities contained in this Section 7.2(a) are expressly made for the
benefit of, and shall be enforceable by, each Indemnitee.
(b) Contests. Lessee shall pay on or before the time or times
prescribed by law any Taxes (except any Taxes excluded by the proviso to Section
7.2(a)); provided, however, that Lessee shall be under no obligation to pay any
such Tax so long as the payment of such Tax is not delinquent or is being
contested by a Permitted Contest and Lessee shall have otherwise complied with
this Section 7.2(b). If any claim or claims is or are made against any
Indemnitee solely for any Tax which is subject to indemnification as provided in
Section 7.2(a), Indemnitee shall as soon as practicable, but in no event more
than thirty (30) days after receipt of formal written notice of the Tax or
proposed Tax, notify Lessee and if, in the reasonable opinion of Lessee and (in
the case of any Tax which may reasonably be expected to exceed $100,000 in the
aggregate) tax counsel acceptable to the Indemnitee, there exists a basis to
contest such Tax which satisfies the requirements of ABA Formal Opinion 85-352
(and if the provisos of the definition of "Permitted Contest" continue to be
satisfied and so long as no Lease Event of Default exists), Lessee at its
expense may, to the extent permitted by Applicable Laws, contest such Tax, and
subsequently may appeal any adverse determination, in the appropriate
administrative and legal forums; provided, that in all other circumstances, upon
notice from Lessee to such Indemnitee that there exists a basis to contest any
such Tax which satisfies the requirements of ABA Formal Opinion 85-352 (as
supported by an opinion of tax counsel to Lessee acceptable to the Indemnitee),
the Indemnitee, at Lessee's expense, shall contest any such Tax. Lessee shall
pay all expenses incurred by the Indemnitee in contesting any such Tax
(including all reasonable attorneys' and accountants' fees, including the
reasonable allocated costs of internal counsel), upon demand by the Indemnitee.
Lessee shall have the right to participate in the conduct of any proceedings
controlled by the Indemnitee to the extent that such participation
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by such Person does not interfere with the Indemnitee's control of such contest,
and Lessee shall in all events be kept informed, to the extent practicable, of
material developments relative to such proceedings. To the extent that more than
one Indemnitee is making a demand for indemnification under Section 7.2(a) based
upon the imposition of the same Tax and such Indemnitees' interests do not raise
actual or potential conflicts of interest, Lessee shall reimburse such
Indemnitees for only the reasonable attorney's fees of one counsel to such
Indemnitees; provided that if during any contest of such Claim any Indemnitee's
interest may conflict with the interest of the other Indemnitee, each such
Indemnitee shall be entitled to reimbursement from Lessee on demand of its
reasonable attorneys' fees in connection with such contest. The Indemnitee shall
have the right to participate in the conduct of any proceedings controlled by
Lessee, and the Indemnitee shall in all events be kept informed, to the extent
practicable, of material developments relative to such proceedings. The
Indemnitees agree that a contested claim for which Lessee would be required to
make a reimbursement payment hereunder will not be settled or compromised
without Lessee's prior written consent (which consent shall neither be
unreasonably delayed nor withheld), unless the provisos of the definition of
"Permitted Contest" would not continue to be satisfied. Indemnitee shall
endeavor to settle or compromise any such contested claim in accordance with
written instructions received from Lessees; provided that: (x) Lessee on or
before the date the Indemnitee executes a settlement or compromise pays the
contested Tax to the extent agreed upon or makes an indemnification payment to
the Indemnitee in an amount acceptable to the Indemnitee; and (y) the settlement
or compromise does not, in the reasonable opinion of the Indemnitee, materially
adversely affect the right of such Indemnitee to receive Rent or the Lease
Balance or any other payment pursuant to the Operative Documents, or involve a
material risk of sale, forfeiture or loss of any Equipment or any interest
therein or any matter described in the provisos to the definition of "Permitted
Contest". The failure of an Indemnitee to timely contest a claim against it for
any Tax which is subject to indemnification under Section 7.2(a) and for which
it has an obligation to Lessee to contest under this Section 7.2(b) in the
manner required by Applicable Laws where Lessee has timely requested that such
Indemnitee contest such claim shall relieve Lessee of its obligations to such
Indemnitee under Section 7.2(a) with respect to such claim to the extent such
failure results in the loss of an effective contest. If Applicable Laws require
the payment of a contested Tax as a condition to, or regardless of, its being
contested, and Lessee chooses to contest such Tax or to direct the Indemnitee to
contest such Tax in accordance with this Section, then Lessee shall provide the
Indemnitee with the funds to pay such Tax, such provision of funds
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to be deemed a non-interest bearing loan by Lessee to the Indemnitee to be
repaid by any recovery of such Tax from such contest and any remaining unpaid
amount not recovered to offset Lessee's obligation to indemnify the Indemnitee
for such Tax. Lessee shall indemnify the Indemnitee on a grossed-up basis in
accordance with Section 7.5 for and against any adverse consequences of any such
interest-free loan. In the event that the Indemnitee receives a refund (or like
adjustment) in respect of any Tax for which the Indemnitee has been reimbursed
by Lessee, the Indemnitee shall within ten (10) days remit the amount of such
refund (or like adjustment) to Lessee, net of all costs and expenses incurred by
such Indemnitee; provided, however, that the Indemnitee shall not be required to
remit any amount pursuant to this sentence in excess of the amounts previously
paid by Lessee to, or on behalf of, such Indemnitee with respect to such Tax
pursuant to this Article VII.
(c) Payments. Lessee shall pay any Tax indemnifiable under Section
7.2(a) directly when due to the applicable taxing authority if direct payment is
practicable and permitted. If direct payment to the applicable taxing authority
is not permitted or is otherwise not made, any amount payable to an Indemnitee
pursuant to Section 7.2(a) shall be paid within thirty (30) days after receipt
of a written demand therefor from such Indemnitee accompanied by a written
statement describing in reasonable detail the amount so payable, but not more
than ten (10) days before the date that the relevant Taxes are due. Any payments
made pursuant to Section 7.2(a) directly to the Indemnitee entitled thereto or
Lessee, as the case may be, shall be made in immediately available funds at such
bank or to such account as specified by the payee in written directions to the
payor, or, if no such direction shall have been given, by check of the payor
payable to the order of the payee by certified mail, postage prepaid at its
address as set forth in this Participation Agreement. Upon the request of any
Indemnitee with respect to a Tax that Lessee is required to pay, Lessee shall
furnish to such Indemnitee the original or a certified copy of a receipt for
Lessee's payment of such Tax or such other evidence of payment as is reasonably
acceptable to such Indemnitee.
(d) Reports. If any report, return or statement is required to be filed
with respect to any Taxes that are subject to indemnification under Section
7.2(a), Lessee shall, if Lessee is permitted by Applicable Laws, timely prepare
and file such report, return or statement; provided, however, that, if Lessee is
not permitted by Applicable Laws to file any such report, return or statement,
Lessee will promptly so notify the appropriate Indemnitee, in which case the
Indemnitee, at Lessee's expense, will file any such report after preparation
thereof by Lessee. Lessee
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Participation Agreement
will deliver any such report, return or statement, together with immediately
available funds for payment of any Tax due, to such Indemnitee, at least five
(5) days in advance of the date such report, return, statement or Tax is due.
SECTION 7.3. Withholding Tax Exemption. On or prior to the first date
on which any payment is due under any Note or Certificate for the account of any
Participant not incorporated under the laws of the United States or a state
thereof, such Participant will have delivered to each of Lessee, Certificate
Trustee and Administrative Agent two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, certifying in either case that such
Participant is entitled to receive payments of interest and/or Yield and a
return of the principal amount of the Loans and/or the Certificate Purchaser
Amount, including Capitalized Interest and Capitalized Yield, as applicable,
under the Operative Documents without deduction or withholding of any United
States Federal income taxes. Each Participant which so delivers a Form 1001 or
4224 further undertakes to deliver to each of Lessee, Certificate Trustee and
Administrative Agent two additional copies of such form (or a successor form) on
or before the date that such form expires (currently, three successive calendar
years for Form 1001 and one calendar year for Form 4224) or becomes obsolete or
after the occurrence of any event requiring a change in the most recent forms so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by Lessee, Certificate Trustee or Administrative
Agent, in each case certifying that such Participant is entitled to receive
payments under the Operative Documents without deduction or withholding of any
United States Federal income taxes, unless an event (including any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Participant from duly completing and delivering any
such form with respect to it and such Participant advises Lessee, Certificate
Trustee and Administrative Agent that it is not capable of receiving payments
without any withholding of United States Federal income tax.
SECTION 7.4. Excessive Use Indemnity. In the event that at the end of
any Lease Supplement Term: (a) Lessee elects the Sale Option; and (b) after
paying to Lessor any amounts due under Section 4.5 of the Lease, including the
Proceeds and the Recourse Deficiency Amount or the Applicable Percentage Amount,
Lessor does not have sufficient funds to reduce such Lease Supplement Balance to
zero, then Lessee shall promptly pay over to Lessor the shortfall unless Lessee
delivers a report from an independent
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appraiser in form and substance satisfactory to the Required Entities which
establishes that the decline in value in the applicable System or Systems
subject to such Lease Supplement was not due to the excessive use of any such
Systems, failure to maintain any such Systems, modifications or restorations
which reduce the value of any such Systems, any adverse change in the
environmental condition of any such Systems, or any defect or exception to title
to any such System or Systems and any related Equipment.
SECTION 7.5. Gross Up. If an Indemnitee shall not be entitled to a
corresponding and equal deduction with respect to any payment or Tax which
Lessee is required to pay or reimburse under any other provision, except Section
7.4, of this Article VII (each such payment or reimbursement under this Article
VII, an "original payment") and which original payment constitutes income to
such Indemnitee, then Lessee shall pay to such Indemnitee on demand the amount
of such original payment on a grossed-up basis such that, after subtracting all
Taxes imposed on such Indemnitee with respect to such original payment by Lessee
(including any Taxes otherwise excluded by the provisions of Section 7.2(a) and
assuming for this purpose that such Indemnitee was subject to taxation at the
highest Federal marginal rates applicable to widely held corporations for the
year in which such income is taxable and at an assumed state and local income
tax rate of 9.0%), such payments shall be equal to the original payment to be
received or paid (net of any credits, deductions or other tax benefits then
actually recognized that arise from the payment by such Indemnitee of any
amount, including taxes, for which the payment to be received is made).
ARTICLE VIII
THE AGENTS
SECTION 8.1. Appointment of Administrative Agent and
Information Agent; Powers and Authorization to Take Certain Actions.
(a) Each Lender and Certificate Purchaser irrevocably appoints and
authorizes Shawmut Bank Connecticut, National Association, to act as
Administrative Agent hereunder and under the other Operative Documents, with
such powers as are specifically delegated to Administrative Agent by the terms
hereof, together with such other powers as are reasonably incidental thereto.
Each Lender and Certificate Purchaser also irrevocably appoints and authorizes
BA Leasing & Capital Corporation to act as Information Agent hereunder and under
the other Operative Documents, with such powers as are specifically delegated to
Information Agent by the
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terms hereof, together with such other powers as are reasonably incidental
thereto. Each Agent accepts the agency hereby created applicable to it and
agrees to perform its obligations in accordance with this Participation
Agreement and the other Operative Documents to which it is a party. No Agent
shall have any duties or responsibilities except those expressly set forth in
the Operative Documents. Neither Agent shall be responsible to any Lender or
Certificate Purchaser (or to any other Person) (i) for any recitals, statements,
representations or warranties of any party contained in the Lease, this
Participation Agreement, or in any certificate or other document referred to or
provided for in, or received by any of them under, the Operative Documents,
other than the representations and warranties made by Administrative Agent in
Section 4.4 and by Information Agent in Section 4.5, respectively, (ii) for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
the Collateral or the title thereto or of the Lease or any other document
referred to or provided for therein, or (iii) for any failure by Lessee,
Guarantor, any Lender, any Certificate Purchaser or any other third party (other
than Administrative Agent or Information Agent, as the case may be) to perform
any of its obligations under any Operative Document. Agents may employ agents,
trustees or attorneys-in-fact, may vest any of them with any property, title,
right or power deemed necessary for the purposes of such appointment and shall
not be responsible for the negligence or misconduct of any of them selected by
it with reasonable care. Neither any Agent nor any of its directors, officers,
employees or agents shall be liable or responsible for any action taken or
omitted to be taken by it or them hereunder, or in connection herewith, except
for its or their own gross negligence or willful misconduct.
(b) Neither Agent shall have any duty or obligation to manage, control,
use, operate, store, lease, sell, dispose of or otherwise deal with any System
or Equipment or the Lease, or to otherwise take or refrain from taking any
action under, or in connection with, this Agreement, the Lease or any related
document to which such Agent is a party, except as expressly provided by the
terms hereof or thereof, and no implied duties of any kind shall be read into
any Operative Document against any Agent. The permissive right of any Agent to
take actions enumerated in this Agreement and the Lease shall never be construed
as a duty, unless such Agent is instructed or directed to exercise, perform or
enforce one or more rights by the Required Entities (provided, that such Agent
has received indemnification reasonably satisfactory to it). Subject to clause
(c) below, no provision of the Operative Documents shall require any Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its obligations under the Operative Documents, or in the
exercise of
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any of its rights or powers thereunder. It is understood and
agreed that the duties of each Agent are ministerial in nature.
(c) Except as specifically provided herein, each Agent is acting
hereunder solely as agent and, except as specifically provided herein, is not
responsible to any party hereto in its individual capacity, except with respect
to any claim arising from such Agent's gross negligence or willful misconduct or
any breach of a representation or covenant made in its individual capacity.
(d) Any Agent may accept deposits from, lend money to and otherwise
deal with Lessee or any of its Affiliates with the same rights as it would have
if it were not a named Agent hereunder.
SECTION 8.2. Reliance. Each Agent may rely upon, and shall not be bound
or obligated to make any investigation into the facts or matters stated in, any
certificate, notice or other communication (including any communication by
telephone, telecopy, telex, telegram or cable) reasonably believed by it to be
genuine and correct and to have been made, signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by such Agent with due care
(including any expert selected by such Agent to aid such Agent in any
calculations required in connection with its duties under the Operative
Documents).
SECTION 8.3. Action Upon Instructions Generally. Subject to Sections
8.4 and 8.6, upon written instructions of the Required Entities, each Agent
shall, on behalf of the Lenders and the Certificate Purchasers, give such notice
or direction, exercise such right, remedy or power hereunder or in respect of
any Equipment, and give such consent or enter into such amendment to any
document to which it is a party as such Agent as may be specified in such
instructions (except that no Agent shall exercise any right, remedy or power
hereunder or in respect of any System if such right, remedy or power has been
expressly delegated to the other Agent in the Participation Agreement or another
Operative Document). No Agent shall have an obligation to investigate or
determine whether there has been a Lease Default. No Agent shall be deemed to
have notice or knowledge of a Lease Default unless a Responsible Officer of such
Agent is notified in writing of such Lease Default; provided, that
Administrative Agent shall be deemed to have been notified in writing of any
failure of Lessee to pay Rent in the amounts and at the times set forth in
Article III of the Lease. If Administrative Agent receives notice of a Lease
Event of Default, Administrative Agent shall give prompt notice thereof, at
Lessee's expense, to each Lender, each Certificate Purchaser and the Information
Agent. Subject to
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Sections 8.4 and 8.6 and Article IX, Administrative Agent shall take action or
refrain from taking action with respect to such Event of Default as directed by
the Required Entities; provided, that, unless and until Administrative Agent
receives such directions, Administrative Agent must refrain from taking any
action with respect to such Lease Event of Default. Prior to the date the Lease
Balance or any portion thereof shall have become due and payable by acceleration
pursuant to Section 16.1 of the Lease, the Required Entities may deliver written
instructions to Administrative Agent to waive, and Administrative Agent shall
waive pursuant thereto, any Lease Event of Default and its consequences;
provided, that, in the absence of written instructions from all Lenders,
Administrative Agent shall not waive any (a) Lease Event of Default described in
clause (a) of Article XV of the Lease or (b) covenant or provision which, under
Section 9.5, cannot be modified or amended without the consent of all Lenders
and Certificate Purchasers. As to any matters not expressly provided for by this
Agreement, each Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions signed by the
Required Entities, and such instructions of the Required Entities and any action
taken or failure to act pursuant thereto shall be binding on each Lender and
Certificate Purchaser.
SECTION 8.4. Indemnification. Each Lender and each Certificate
Purchaser shall reimburse and hold each Agent harmless, ratably in accordance
with its pro rata share of the total investments in the Overall Transaction at
the time the indemnification is required to be given, (but only to the extent
that any such indemnified amounts have not in fact been paid to such Agent by,
or on behalf of, Lessee in accordance with Article VII) from any and all claims,
losses, damages, obligations, penalties, liabilities, demands, suits, judgments,
or causes of action, and all legal proceedings, and any reasonable costs or
expenses in connection therewith, including allocated charges, costs and
expenses of internal counsel of such Agent and all other reasonable attorneys'
fees and expenses incurred by such Agent, in any way relating to or arising in
any manner out of (a) any Operative Document, the enforcement hereof or thereof
or the consummation of the transactions contemplated hereby or thereby, or (b)
instructions from the Required Entities (including the costs and expenses that
Lessee is obligated to and does not pay hereunder, but excluding normal
administrative costs and expenses incident to the performance by such Agent of
its agency duties hereunder other than materially increased administrative costs
and expenses incurred as a result of a Lease Event of Default); provided, that
no Lender or Certificate Purchaser shall be liable for any of the foregoing to
the extent they arise from (i) the
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gross negligence or willful misconduct of such Agent, (ii) in the case of such
Agent's handling of funds, the failure to act with the same care as such Agent
uses in handling its own funds, or (iii) any taxes, fees or other charges
payable by such Agent based on or measured by any fees, commissions or
compensation received by it for acting as an Agent in connection with the
transactions contemplated by the Operative Documents.
SECTION 8.5. Independent Credit Investigation. Each Lender and each
Certificate Purchaser by entering into this Agreement agrees that it has,
independently and without reliance on any Agent or any other Lender or
Certificate Purchaser, respectively, and based on such documents and information
as it has deemed appropriate, made its own credit analysis of Lessee and its own
decision to enter into this Agreement and all related documents to which it is a
party and that it will, independently and without reliance upon any Agent or any
other Lender or Certificate Purchaser, respectively, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking action under this Agreement and any related
documents to which it is a party. No Agent shall be required to keep itself
informed as to the performance or observance by Lessee of any other document
referred to (directly or indirectly) or provided for herein or to inspect the
properties or books of Lessee. Except for notices or statements which an Agent
is expressly required to give under this Agreement and for notices, reports and
other documents and information expressly required to be furnished to such Agent
alone hereunder or under any other Operative Document, such Agent shall not have
any duty or responsibility to provide any Lender or Certificate Purchaser with
copies of notices or with any credit or other information concerning the
affairs, financial condition or business of Lessee (or any of its affiliates)
that may come into the possession of such Agent or any of its Affiliates.
SECTION 8.6. Refusal to Act. Except for notices and actions expressly
required of an Agent hereunder, such Agent shall in all cases be fully justified
in failing or refusing to act unless (a) it is indemnified to its reasonable
satisfaction by the Lenders and the Certificate Purchasers against any and all
liability and reasonable expense which may be incurred by it by reason of taking
or continuing to take any such action (provided that such indemnity shall not be
required to extend to liability or expense arising from such Agent's gross
negligence or willful misconduct, it being understood that no action taken by
such Agent in accordance with the instructions of the Required Entities shall be
deemed to constitute gross negligence or willful misconduct on its part) and (b)
it is reasonably satisfied that such action is not contrary to
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any Operative Document or to any Applicable Law and (c) it has received written
instructions that comply with the express terms and conditions of this
Participation Agreement or another Operative Document.
SECTION 8.7. Resignation or Removal of an Agent; Appointment of
Successor. An Agent may resign at any time by giving ninety (90) days' notice
thereof to Lessee and to each Lender, Certificate Purchaser and the other Agent,
or may be removed at any time by written notice from the Required Entities. Upon
any such resignation or removal, the Required Entities at the time of the
resignation or removal shall have the right to appoint a successor Agent which
shall be a financial institution having capital and surplus of not less than
$100,000,000. The Required Entities shall seek Lessee's consent to such
successor Agent selected by the Required Entities, but if Lessee has not
consented within ten (10) days after notice of such selection has been delivered
to Lessee, the selection made by the Required Entities shall be effective. If,
within thirty (30) calendar days after the retiring Agent's giving of notice of
resignation or receipt of a written notice of removal, a successor Agent is not
so appointed and does not accept such appointment, then the retiring or removed
Agent may appoint a successor Agent and transfer to such successor Agent all
rights and obligations of the retiring Agent. Such successor Agent shall be a
financial institution having combined capital and surplus of not less than
$100,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring or
removed Agent and the retiring or removed Agent shall be discharged from duties
and obligations as Agent thereafter arising hereunder and under any related
document. If the retiring Agent does not appoint a successor, any Lender or
Certificate Purchaser shall be entitled to apply to a court of competent
jurisdiction for such appointment, and such court may thereupon appoint a
successor to act until such time, if any, as a successor shall have been
appointed as above provided.
SECTION 8.8. Separate Agent. The Required Entities may, and if they
fail to do so at any time when they are so required, any Agent may, for the
purpose of meeting any legal requirements of any jurisdiction in which any
Equipment or Collateral may be located, appoint one or more individuals or
corporations either to act as co-agent jointly with such Agent or to act as
separate agent of all or any part of the Equipment or Collateral or the Lease,
and vest in such individuals or corporations, in such capacity, such title to
the Equipment or Collateral or the Lease or any part thereof, and such rights or
duties as such Agent may consider necessary or
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desirable. No Agent shall be required to qualify to do business in any
jurisdiction where it is not now so qualified. An Agent shall execute,
acknowledge and deliver all such instruments as may be required by any such
co-agent or separate agent more fully confirming such title, rights or duties to
such co-agent or separate agent. Upon the acceptance in writing of such
appointment by any such co-agent or separate agent, it, she or he shall be
vested with such interest in the Equipment or Collateral and the Lease or any
part thereof, and with such rights and duties, not inconsistent with the
provisions of the Operative Documents, as shall be specified in the instrument
of appointment, jointly with such Agent (except insofar as local law makes it
necessary for any such co-agent or separate agent to act alone), subject to all
terms of the Operative Documents. Any co-agent or separate agent, to the fullest
extent permitted by legal requirements of the relevant jurisdiction, at any
time, by an instrument in writing, shall constitute such Agent its
attorney-in-fact and agent, with full power and authority to do all acts and
things and to exercise all discretion on its behalf and in its name. If any
co-agent or separate agent shall die, become incapable of acting, resign or be
removed, the interest in the Equipment or Collateral and the Lease and all
rights and duties of such co-agent or separate agent shall, so far as permitted
by law, vest in and be exercised by such Agent, without the appointment of a
successor to such co-agent or separate agent.
SECTION 8.9. Termination of Agencies. The agencies created hereby shall
terminate upon the final disposition by the Administrative Agent of all
Collateral at any time subject hereto and the final distribution by the
Administrative Agent of all monies or other property or proceeds received
pursuant to the Lease in accordance with its terms; provided, that at such time
Lessee shall have complied fully with all the terms hereof.
SECTION 8.10. Compensation of Agents. Lessee shall not be obligated to
pay any fees or expenses of any Agent in connection with the performance of its
obligations hereunder, except as provided in Section 9.9.
SECTION 8.11. Limitations. It is expressly understood and agreed by and
among the parties hereto that, except as otherwise provided herein or in the
other Operative Documents: (a) this Participation Agreement and the other
Operative Documents to which either Agent is a party are executed by such Agent,
not in its individual capacity (except with respect to the representations of
such Agent in Sections 4.4 and 4.5, respectively), but solely as an Agent under
the Operative Documents in the exercise of the power and authority conferred and
vested in it as such Agent; (b) each
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Participation Agreement
and all of the undertakings and agreements herein made on the part of each Agent
are each and every one of them made and intended not as personal undertakings
and agreements by such Agent, or for the purpose or with the intention of
binding such Agent personally, but are made and intended for the purpose of
binding only the Collateral and Lessee unless expressly provided otherwise; (c)
actions to be taken by the Administrative Agent pursuant to its obligations
under the Operative Documents may, in certain circumstances, be taken by the
Administrative Agent only upon specific authority of the Lenders and the
Certificate Purchasers; (d) actions to be taken by the Information Agent
pursuant to its obligations under the Operative Documents may only be taken by
the Information Agent upon specific instructions, written or oral, from the
Required Entities; (e) nothing contained in the Operative Documents shall be
construed as creating any liability on such Agent, individually or personally,
or any incorporator or any past, present or future subscriber to the capital
stock of, or stockholder, officer or director, employee or agent of, such Agent
to perform any covenants either express or implied contained herein, all such
liability, if any, being expressly waived by the other parties hereto and by any
Person claiming by, through or under them; and (f) so far as each Agent,
individually or personally, is concerned, the other parties hereto and any
Person claiming by, through or under them shall look solely to the Collateral
and Lessee (and Guarantor, if appropriate) for the performance of any obligation
under any of the instruments referred to herein; provided, however, that nothing
in this Section 8.11 shall be construed to limit in scope or substance the
general corporate liability of an Agent in respect of its gross negligence or
willful misconduct or those representations, warranties and covenants of such
Agent in its individual capacity set forth herein or in any of the other
agreements contemplated hereby.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Survival of Agreements. The representations, warranties,
covenants, indemnities and agreements of the parties provided for in the
Operative Documents, and the parties' obligations under any and all thereof,
shall survive the execution and delivery and the termination or expiration of
this Agreement and any of the Operative Documents, the transfer of the interest
in the Systems and related Equipment to or by Certificate Trustee as provided
herein or in any other Operative Documents, any disposition of any interest of
Certificate Trustee in the Systems and related Equipment, the purchase and sale
of the Notes and Certificates, payment therefor and any disposition thereof, and
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Participation Agreement
shall be and continue in effect notwithstanding any investigation made by any
party hereto or to any of the other Operative Documents and the fact that any
such party may waive compliance with any of the other terms, provisions or
conditions of any of the Operative Documents.
SECTION 9.2. No Broker, etc. Except for Lessee's dealing with BA
Leasing & Capital Corporation, each of the parties hereto represents to the
others that it has not retained or employed any broker, finder or financial
advisor to act on its behalf in connection with this Agreement, nor has it
authorized any broker, finder or financial adviser retained or employed by any
other Person so to act, nor has it incurred any fees or commissions to which
Certificate Trustee or any Certificate Purchaser might be subjected by virtue of
their entering into the transactions contemplated by this Agreement. BA Leasing
& Capital Corporation's sole compensation for acting hereunder other than as a
Certificate Purchaser and Lender is the receipt of the amounts, including
reimbursement of expenses, provided for in the Operative Documents and the
Arrangement Fee. Any party who is in breach of this representation shall
indemnify and hold the other parties harmless from and against any liability
arising out of such breach of this representation.
SECTION 9.3. Notices. Unless otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective parties
hereto shall be made in writing and shall be deemed to have been given (a) in
the case of notice by letter, the earlier of when delivered to the addressee by
hand or courier if delivered on a Business Day and, if not delivered on a
Business Day, the first Business Day thereafter; or on the third Business Day
after depositing the same in the United States mails, registered or certified
mail, postage prepaid, return receipt requested, addressed as provided on
Schedule III hereto, and (b) in the case of notice by facsimile, when receipt is
confirmed if delivered on a Business Day and, if not delivered on a Business
Day, the first Business Day thereafter, addressed as provided on Schedule III
hereto, or to such other address as any of the parties hereto may designate by
written notice.
SECTION 9.4. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same agreement.
SECTION 9.5. Amendments. Neither this Agreement nor any of
the other Operative Documents nor any of the terms hereof or
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Participation Agreement
thereof may be terminated, amended, supplemented, waived or modified orally, but
only by an instrument in writing signed by the party against which the
enforcement of the termination, amendment, supplement, waiver or modification
shall be sought; and no such termination, amendment, supplement, waiver or
modification shall be effective unless a signed copy thereof shall have been
delivered to Certificate Trustee, Lessee, Administrative Agent and the
Participants. Certificate Trustee and Lessee shall not be permitted to amend,
modify or supplement the Lease without the written consent of the Required
Entities; provided, that without the prior written consent of each Participant,
Certificate Trustee shall not:
(a) modify any of the provisions of this Section 9.5, change
the definition of "Required Entities" or modify or waive any provision
of any Operative Document requiring action by any of the foregoing, or
release any Collateral (except as otherwise specifically provided in
any Operative Document);
(b) reduce the amount or change the time of payment of any
amount of principal owing or payable under any Certificate or interest
or Yield owing or payable on any Certificate, or modify any of the
provisions of Article III of the Trust Agreement;
(c) modify, amend, waive or supplement any of the provisions
of the Guaranty, the Support Agreement or Articles IV, X (except for
Section 10.1(b)), XV, XVI and XVIII of the Lease;
(d) reduce, modify, amend or waive any indemnities in
favor of any Participant;
(e) reduce the amount or change the time of payment of
Rent or the Lease Balance;
(f) consent to any assignment of the Lease releasing Lessee
from its obligations to pay Rent or the Lease Balance or changing the
absolute and unconditional character of such obligations;
(g) permit the creation of any Lien on the Trust Estate or any
part thereof except as contemplated by the Operative Documents, or
deprive any Participant of the benefit of the security interest and
lien secured by the Trust Estate; or
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Participation Agreement
(h) modify any provisions of any Operative Document that
expressly require the unanimous written consent of the Participants.
SECTION 9.6. Headings, etc. The Table of Contents and headings of the
various Articles and Sections of this Agreement are for convenience of reference
only and shall not modify, define, expand or limit any of the terms or
provisions hereof.
SECTION 9.7. Parties in Interest. Except as expressly provided herein,
none of the provisions of this Agreement is intended for the benefit of any
Person except the parties hereto, their successors and permitted assigns.
SECTION 9.8. GOVERNING LAW. THIS AGREEMENT HAS BEEN DELIVERED IN, AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF
SUCH STATE.
SECTION 9.9. Payment of Transaction Costs and Other Costs.
(a) Transaction Costs. If the transactions contemplated by this
Agreement are consummated, as and when any portion of Transaction Costs becomes
due and payable, Lessee shall promptly (and in any event prior to the next
Advance Date) pay such costs directly or furnish Certificate Trustee funds
sufficient to pay the same (and in either case such amounts may be advanced
pursuant to Section 2.2), and Certificate Trustee shall promptly make payment of
such portion to the Person or Persons entitled to payment upon presentation to
Certificate Trustee of bills or invoices for the amount of such payment. If such
transactions are not so consummated, Lessee promptly shall pay the Transaction
Costs.
(b) Continuing Expenses. The continuing fees, expenses and
disbursements (including reasonable counsel fees) of Certificate Trustee, as
lessor under the Lease and as trustee under the Trust Agreement with respect to
the administration of the Trust Estate, and the expenses of Administrative Agent
as administrative agent under this Agreement and of Information Agent as
information agent under this Agreement, shall be paid by Lessee as Supplemental
Rent, it being understood that ordinary costs of Administrative Agent and
Certificate Trustee for required payments and distributions under the Operative
Documents are not covered by this Section 9.9(b).
(c) Amendments, Supplements and Appraisal. Without limitation of the
foregoing, Lessee agrees to pay to the Certificate Purchasers, Certificate
Trustee, Administrative Agent, Information Agent and the Lenders all costs and
expenses (including
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Participation Agreement
reasonable legal fees and expenses) incurred by any of them in connection with:
(i) the considering, evaluating, investigating, negotiating and entering into or
giving or withholding of any amendments or supplements or waivers or consents
with respect to any Operative Document; (ii) any Event of Loss or termination of
the Lease or any other Operative Document; (iii) the negotiation and
documentation of any restructuring or "workout," whether or not consummated, of
any Operative Document; (iv) the enforcement of the rights or remedies under the
Operative Documents; (v) any transfer by Administrative Agent or a Participant
of any interest in the Operative Documents during the continuance of a Lease
Event of Default; and (vi) any Advance Date or Delivery Date.
SECTION 9.10. Severability. Any provision of this Agreement 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.
SECTION 9.11. Unconstructed Systems. During the Construction Period,
Construction Agent shall have the option to purchase any System then under
construction and not then subject to the Lease upon providing not less than
ninety (90) days' advance written notice to Administrative Agent, for an amount
equal to the sum of (a) all costs advanced with respect to such System, plus (b)
any Additional Costs payable by Lessee pursuant to Sections 2.11 and 2.12 of the
Loan Agreement, plus (c) an amount equal to the total amount payable under
clause (a) multiplied by fifty (50) basis points.
SECTION 9.12. Limited Liability of Certificate Trustee. The parties
hereto agree that Bank shall have no personal liability whatsoever to Lessee,
the Certificate Purchasers, the Lenders, Administrative Agent or any of their
respective successors and assigns for any Claim based on or in respect of this
Agreement or any of the other Operative Documents or arising in any way from the
transactions contemplated hereby or thereby; provided, however, that Bank shall
be liable in its individual capacity: (a) for its own willful misconduct or
gross negligence or negligence in the handling of funds, (b) to each Certificate
Purchaser for the breach of its obligations to the Certificate Purchasers in
respect of the Trust Agreement and the Trust Estate, (c) for liabilities that
may result from the incorrectness of any representation or warranty expressly
made by it in its individual capacity in Section 4.3 or from the failure of Bank
to perform the covenants and agreements set forth in Section 6.2(a), or (d) for
any Tax based on or
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Participation Agreement
measured by any fees, commission or compensation received by it for actions
contemplated by the Operative Documents. It is understood and agreed that,
except as provided in the preceding proviso: (i) Bank shall have no personal
liability under any of the Operative Documents as a result of acting pursuant to
and consistent with any of the Operative Documents; (ii) all obligations of Bank
to Lessee, the Certificate Purchasers, the Lenders, Administrative Agent or any
of their respective successors and assigns are solely nonrecourse obligations
(with liability payable solely out of the Trust Estate) except to the extent
that it has received payment from others; (iii) all such personal liability of
Bank is expressly waived and released as a condition of, and as consideration
for, the execution and delivery of the Operative Documents by Bank; and (iv)
this Agreement (except as provided in Section 4.3) is executed and delivered by
Bank solely in the exercise of the powers expressly conferred upon it as Lessor
under the Trust Agreement.
SECTION 9.13. Liabilities of the Participants. No Participant shall
have any obligation to any other Participant or to Lessee, Certificate Trustee,
Administrative Agent, Information Agent or Guarantor with respect to the
transactions contemplated by the Operative Documents except those obligations of
such Participant expressly set forth in the Operative Documents or except as set
forth in the instruments delivered in connection therewith, and no Participant
shall be liable for performance by any other party hereto of such other party's
obligations under the Operative Documents except as otherwise so set forth.
SECTION 9.14. Liabilities of Administrative Agent. Administrative Agent
shall have no duty, liability or obligation to any party to this Agreement with
respect to the transactions contemplated hereby except those duties,
liabilities, or obligations expressly set forth in this Agreement or the Loan
Agreement, and any such duty, liability or obligation of Administrative Agent
shall be as expressly limited by this Agreement or the Loan Agreement, as the
case may be.
SECTION 9.15. Limitations of Recourse. If (a) all or any part of the
Trust Estate becomes the property of, or Certificate Trustee or any Certificate
Purchaser becomes, a debtor subject to the reorganization provisions of the
Bankruptcy Code, (b) pursuant to such reorganization provisions, Certificate
Trustee (in its individual capacity) or any Certificate Purchaser is required,
by reason of Certificate Trustee (in its individual capacity or as Certificate
Trustee) or such Certificate Purchaser being held to have recourse liability to
the Lenders, directly or indirectly, to make payment on account of any amount
payable as principal or
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Participation Agreement
interest on the Notes and (c) any Lender actually receives any Excess Payment
(as hereinafter defined) which reflects any payment by Certificate Trustee (in
its individual capacity or as Certificate Trustee) or any Certificate Purchaser
on account of clause (ii) above, then such Lender shall promptly refund to
Certificate Trustee or such Certificate Purchaser (whichever shall have made
such payment) such Excess Payment; provided, however, that if a Lender shall
refund such Excess Payment, to the extent that such Lender's claim against the
Trust Estate may have been reduced upon the initial receipt of such Excess
Payment, such Lender's claim against the Trust Estate shall (subject to the
provisions of this Section 9.15) be reinstated by the amount of such refunded
Excess Payment. For purposes of this Section 9.15, "Excess Payment" means the
amount by which such payment exceeds the amount which would have been received
by the Lenders if neither Certificate Trustee (in its individual capacity) nor
any Certificate Purchaser had become subject to the recourse liability referred
to in clause (ii) above. Nothing contained in this Section 9.15 shall prevent
the Lenders from enforcing any personal recourse obligation (and retaining the
proceeds thereof) of Certificate Trustee (in its individual capacity) or any
Certificate Purchaser under this Agreement or the Trust Agreement (and any
exhibits or annexes thereto).
SECTION 9.16. Reproduction of Documents. This Agreement, all documents
constituting Schedules or Exhibits hereto, and all documents relating hereto
received by a party hereto, including, without limitation: (a) consents, waivers
and modifications that may hereafter be executed; (b) documents received by the
Participants, Administrative Agent or Certificate Trustee in connection with the
receipt and/or acquisition of the Equipment; and (c) financial statements,
certificates, and other information previously or hereafter furnished to
Administrative Agent, Certificate Trustee or any Participant may be reproduced
by the party receiving the same by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. Each of the parties
hereto agrees and stipulates that, to the extent permitted by law, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by such party in the
regular course of business) and that, to the extent permitted by law, any
enlargement, facsimile, or further reproduction of such reproduction shall
likewise be admissible in evidence.
SECTION 9.17. Consideration for Consents to Waivers and
Amendments. Lessee hereby agrees that it will not, and that it
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Participation Agreement
will not permit any of its Affiliates to, offer or give any consideration or
benefit of any kind whatsoever to any Participant in connection with, in
exchange for, or as an inducement to, such Participant's consent to any waiver
in respect of, any modification or amendment of, any supplement to, or any other
consent or approval under, any Operative Document unless such consideration or
benefit is offered ratably to all Participants; provided, however, that the
maintenance, initiation or modification of ordinary banking relationships or the
carrying out of services or transactions by a Participant or its Affiliates for
the Lessee or its Affiliates shall not be prohibited by this Section unless the
foregoing is in exchange for, or as an inducement to, a Participant's consent to
any waiver in respect of, any modification or amendment of, any supplement to,
or any other consent or approval under any Operative Document; and provided,
further, that a Participant or potential Participant or its Affiliate may also
act as Arranger, Agent or Certificate Trustee or proposed Arranger, Agent or
Certificate Trustee under the Overall Transaction and receive compensation
therefor which may be continued or modified with the Operative Documents without
violation of this Section 9.17.
SECTION 9.18. Role of Arranger and its Affiliates. Each party hereto
acknowledges hereby that it is aware of the fact that BA Leasing & Capital
Corporation has acted as an "arranger" with respect to the transactions
contemplated by the Operative Documents, and that it will act as Information
Agent and will be a Certificate Purchaser and a Lender. Each party releases BA
Leasing & Capital Corporation and its Affiliates from any liability arising as a
result of its acting in such multiple roles.
SECTION 9.19. Notices to Certificate Trustee under Loan Agreement.
Notwithstanding anything to contrary in the Loan Agreement, the Lenders,
Certificate Trustee and Lessee hereby agree that any notice or demand to be
delivered to or made on Certificate Trustee pursuant to Sections 2.11 and 2.12
of the Loan Agreement shall, so long as no Lease Event of Default shall have
occurred and be continuing, be delivered directly to or made on Lessee, with a
copy to Certificate Trustee, and Lessee shall be entitled to any rights or
obligations inuring to, and subject to any obligations imposed upon Certificate
Trustee in respect thereof.
SECTION 9.20. Submission to Jurisdiction; Waivers. (a) Each
party hereto irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Agreement or any other Operative Document,
or for recognition and enforcement of any
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Participation Agreement
judgment in respect thereof, to the non-exclusive general jurisdiction
of the Courts of the State of New York, the courts of the United States
of America for the Southern District of New York and appellate courts
from any thereof;
(ii) consents that any such action or proceedings may be
brought to such courts, and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such party at its address set forth on Schedule III or at
such other address of which the other parties hereto shall have been
notified pursuant to Section 9.3; and
(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction.
(b) EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THE OPERATIVE
DOCUMENTS AND FOR ANY COUNTERCLAIM THEREIN.
SECTION 9.21. FINAL AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE LEASE,
LOAN DOCUMENTS AND THE OTHER OPERATIVE DOCUMENTS REPRESENT THE ENTIRE FINAL
AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED
HEREIN AND CANNOT BE MODIFIED, SUPPLEMENTED, AMENDED, RESCINDED OR CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
SECTION 9.22. Consent to Assignment of Documents. Lessee and Guarantor
hereby consent to the assignment by Certificate Trustee to Administrative Agent
of each of the Assigned Agreements pursuant to the Security Agreement.
[signature pages follow]
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Participation Agreement
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
ELECTRIC LIGHTWAVE, INC., as Lessee
By:
Name: Robert J. DeSantis
Title: Chief Financial Officer
CITIZENS UTILITIES COMPANY, as Guarantor
By:
Name: Robert J. DeSantis
Title: Vice President and Treasurer
BA LEASING & CAPITAL CORPORATION not in its individual
except as expressly stated herein, but solely as
Information Agent,
By:
Name: Sara L. Fitch
Title: Vice President
<PAGE>
Participation Agreement
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION not in
its individual capacity except as expressly stated
herein, but solely as Certificate Trustee
By:
Name: Robert L. Reynolds
Title: Vice President
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION not in
its individual capacity except as expressly stated
herein, but solely as Administrative Agent
By:
Name: Robert L. Reynolds
Title: Vice President
<PAGE>
Participation Agreement
BA LEASING & CAPITAL CORPORATION,as Lender
By:
Name: Sara L. Fitch
Title: Vice President
BA LEASING & CAPITAL CORPORATION, as Certificate Purchaser
By:
Name: Sara L. Fitch
Title: Vice President
<PAGE>
Participation Agreement
THE DAI-ICHI KANGYO BANK LTD. NEW YORK BRANCH, as Lender
By:
Name: Shinya Wako
Title: Vice President
THE DAI-ICHI KANGYO BANK LTD. NEW YORK BRANCH,
as Certificate Purchaser
By:
Name: Shinya Wako
Title: Vice President
<PAGE>
Participation Agreement
THE FUJI BANK LIMITED, SAN FRANCISCO AGENCY, as Lender
By:
Name: Kazuo Kamio
Title: General Manager
<PAGE>
Participation Agreement
FBTC LEASING CORP., as Certificate Purchaser
By:
Name: _____________________________
Title:
<PAGE>
Participation Agreement
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH,
as Lender
By:
Name: ________________________
Title:
<PAGE>
Participation Agreement
SHAWMUT BANK, N.A., as Lender
By:
Name: Robert D. Lanigan
Title: Managing Director
SHAWMUT BANK, N.A., as Certificate Purchaser
By:
Name: Robert D. Lanigan
Title: Managing Director
<PAGE>
Participation Agreement
SUMITOMO BANK AND LEASING AND FINANCE, INC., as Lender
By:
Name: William N. Ginn
Title: President
SUMITOMO BANK AND LEASING AND FINANCE, INC.,
as Certificate Purchaser
By:
Name: William N. Ginn
Title: President
<PAGE>
Participation Agreement
<TABLE>
<CAPTION>
SCHEDULE I
Certificate Purchaser Commitments
<S> <C> <C>
Certificate Purchaser Commitment Percentage
- -------------------------------------------------------------------------
BA LEASING & CAPITAL $1,050,000.00 0.95454545
CORPORATION
DAI-ICHI KANGYO BANK LTD., $ 600,000.00 0.54545455
NEW YORK BRANCH
FBTC LEASING CORP. $ 300,000.00 0.27272727
SUMITOMO BANK LEASING $ 600,000.00 0.54545455
AND FINANCE, INC.
SHAWMUT BANK, N.A. $ 750,000.00 0.68181818
TOTAL $3,300,000.00 3.00000000%
</TABLE>
<PAGE>
Participation Agreement
<TABLE>
<CAPTION>
SCHEDULE II
Lender Commitments
<S> <C> <C>
Lender Commitment Percentage
- ----------------------------------------------------------------------------
BA LEASING & CAPITAL $ 18,950,000.00 17.22727272
CORPORATION
DAI-ICHI KANGYO BANK LTD., $ 19,400,000.00 17.63636364
NEW YORK BRANCH
THE FUJI BANK LIMITED, SAN $ 9,700,000.00 8.81818182
FRANCISCO AGENCY
THE LONG-TERM CREDIT BANK OF $ 15,000,000.00 13.63636364
JAPAN, LIMITED, NEW YORK
BRANCH
SUMITOMO BANK LEASING $ 19,400,000.00 17.63636364
AND FINANCE, INC.
SHAWMUT BANK, N.A. $ 24,250,000.00 22.04545454
TOTAL $106,700,000.00 97.00000000%
</TABLE>
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Participation Agreement
SCHEDULE III
Notice Information, Funding Offices and Wire Instructions
Lessee: Electric Lightwave, Inc.
8100 N.E. Parkway Drive, Suite 200
Vancouver, WA 98662
Telephone: (360) 896-3311
Facsimile: (360) 253-4425
Wire Instructions
Chemical Bank
New York, New York
ABA #021000128
Payee: Citizens Utilities Company
Acct #332-001846
Certificate Trustee: Shawmut Bank Connecticut, National
Association
777 Main Street, MSN 238
Hartford, CT 06115
Attention: Corporate Trust
Administration]
(Electric Lightwave, Inc.
Trust No. 1995-A)
Telephone: (203) 986-9090
Facsimile: (203) 986-7920
Wire Instructions
Address as above
ABA #011900445
Acct #
Administrative Agent: Shawmut Bank Connecticut, National
Association
777 Main Street, MSN 238
Hartford, CT 06115
Attention: Corporate Trust
Administration]
(Electric Lightwave, Inc.
Trust No. 1995-A)
Telephone: (203) 986-9090
Facsimile: (203) 986-7920
1
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Participation Agreement
Wire Instructions
Address as above
ABA #011900445
Certificate Purchasers:
BA Leasing & Capital Corporation
Four Embarcadero Center, Suite 1200
San Francisco, CA 94111
Attention: Contract Administration
Phone: (415) 765-7427
Facsimile: (415) 765-7373
Wire Instructions Bank of America NT & SA San
Francisco Main Branch San Francisco, CA ABA # 121
000 358 Account # 06568-57503
Payee: BA Leasing & Capital Corporation
Notify: Richard Walter
Phone: (415) 765-7476
Reference: Electric Lightwave, Inc.
The Dai-Ichi Kangyo Bank, Ltd., New York Branch
One World Trade Center, 48th Floor
New York, NY 10048
Attention: Lisa Saito
Phone: (212) 432-6653
Facsimile: (212) 488-8955
Wire Instructions
ABA #026004307
Attention: Loan Administration, AGM
Reference: Electric Lightwave, Inc.
Interest
FBTC Leasing Corp.
Two World Trade Center
New York, NY 10048
Attn: Leasing Dept.
Phone: (212) 898-2440
Wire Instructions
The Fuji Bank and Trust Company
2
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Participation Agreement
ABA # 02600-8905
Account # 900269
Shawmut Bank, N.A.
One Federal Street, Office 0308
Boston, MA 02211
Attention: Commercial Loan Ops. Spec.
Asset Unit
Phone: (617) 292-3715
Facsimile: (617) 292-2619
Wire Instructions
ABA #011000206
Acct #05-0124-6693
reference: Electric Lightwave, Inc.
Trust No. 1995-A
Sumitomo Bank Leasing and Finance, Inc.
277 Park Avenue
New York, NY 10172
Attention: Chief Credit Officer
Phone: (212) 224-5200
Facsimile: (212) 224-5222
Wire Instructions
Morgan Guaranty Trust Company of New York
ABA #021000238
Credit to: The Sumitomo Bank Ltd.,New York Branch
Acct #631-28-256
Further credit to: Sumitomo Bank
Leasing and Finance, Inc.
Acct #283572
Lenders:
BA Leasing & Capital Corporation
Four Embarcadero Center, Suite 1200
San Francisco, CA 94111
Attention: Contract Administration
Phone: (415) 765-7427
Facsimile: (415) 765-7373
Wire Instructions
Bank of America NT & SA
San Francisco Main Branch
San Francisco, CA
3
<PAGE>
Participation Agreement
ABA # 121 000 358
Account # 06568-57503
Payee: BA Leasing & Capital Corporation
Notify: Richard Walter
Phone: (415) 765-7476
Reference: Electric Lightwave, Inc.
The Dai-Ichi Kangyo Bank, Ltd., New York
Branch
One World Trade Center, 48th Floor
New York, NY 10048
Attention: Lisa Saito
Phone: (212) 432-6653
Facsimile: (212) 488-8955
Wire Instructions
ABA #026004307
Attention: Loan Administration, AGM
Reference: Electric Lightwave, Inc.
Interest
The Fuji Bank Limited, San Francisco
Agency
601 California Street
San Francisco, CA 94108
Wire Instructions
Bank of America (San Francisco)
ABA # 121-000-358
Account # 62901-08242
Attn: Manager, Marketing Dept.
The Long-Term Credit Bank of Japan,
Limited, New York Branch
165 Broadway
New York, NY 10006
Attention Gregory Hong
Phone: (212) 335-4534
Facsimile: (212) 608-2371
Wire Instructions
Chemical Bank, New York
New York Plaza
New York, NY 10004
ABA # 0210-0012-8
Account # 544-7-75066
Attention: Robert Pacifici
4
<PAGE>
Participation Agreement
Shawmut Bank, N.A.
One Federal Street, Office 0308
Boston, MA 02211
Attention: Commercial Loan Ops. Spec.
Asset Unit
Phone: (617) 292-3715
Facsimile: (617) 292-2619
Wire Instructions
ABA #011000206
Acct #05-0124-6693
reference: Electric Lightwave, Inc.
Trust No. 1995-A
Sumitomo Bank Leasing and Finance, Inc.
277 Park Avenue
New York, NY 10172
Attention: Chief Credit Officer
(212) 224-5200
(212) 224-5222
Wire Instructions
Morgan Guaranty Trust Company of New York
ABA #021000238
Credit to: The Sumitomo Bank Ltd.,
New York Branch
Acct #631-28-256
Further credit to:Sumitomo Bank Leasing and Finance, Inc.
Acct #283572
5
<PAGE>
Participation Agreement
SCHEDULE IV
Types of Equipment
bridge -- A device for interconnecting two or more local area networks that have
the same operating and interface protocols.
cable -- A number of electrical or optical conductors assembled in a compact
form and bound together with a strong, flexible, waterproof sheath.
coaxial cable (co-ax or coax) -- A widely used type of cable that consists of a
central metal conductor surrounded by an insulating material that is in turn
wrapped by a second conductor, the whole encased in an insulating sheath.
fiber optic cable -- Cable based on thin filaments of glass or other transparent
materials used as the medium for transmitting coded light pulses that represent
data, image and sound.
cross connect device -- 1) Electronics which allow a connection between line
termination blocks on the two sides of a distribution frame or between
individual line terminations on the same side of the frame. 2) A piece of
manual, electromechanical or electronic apparatus designed to make and rearrange
the cross connections among the lines that terminate on a distribution frame.
multiplexer -- A device which allows an electronic or optical process that
combines a large number of lower-speed transmission lines into one high-speed
line by splitting the total available bandwidth of the high-speed line into
narrower bands (frequency division), or by allotting a common channel to several
different transmitting devices, one at a time in sequence (time division).
repeater -- 1) A device which automatically retransmits received
signals on an outbound circuit, generally in an amplified or
reshaped form. 2) A device which restores signals distorted
because of attenuation.
router -- A device for interconnecting local area networks that have dissimilar
operating protocols but which share a common network interconnection protocol.
switch -- A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information.
<PAGE>
APPENDIX 1
to
Participation Agreement
-----------------------
(Electric Lightwave, Inc. Trust No. 1995-A)
In the Participation Agreement and each other Operative Document, unless
the context otherwise requires:
(a) any term defined below by reference to another instrument or document
shall continue to have the meaning ascribed thereto whether or not such other
instrument or document remains in effect;
(b) words importing the singular include the plural and vice versa;
(c) words importing a gender include any gender;
(d) a reference in an Operative Document to a part, clause, section, article,
exhibit or schedule is a reference to a part, clause, section and article of,
and exhibit and schedule to, such Operative Document;
(e) a reference to any statute, regulation, proclamation, ordinance or law
includes all statutes, regulations, proclamations, ordinances or laws amending,
supplementing, supplanting, varying, consolidating or replacing the same, and a
reference to a statute includes all regulations, proclamations and ordinances
issued or otherwise applicable under that statute;
(f) a reference to a document includes any amendment or supplement to, or
replacement or novation of, that document;
(g) a reference to a Person includes that Person's successors and permitted
assigns, including, with regard to Lessee, any Surviving Company; and
(i) references to "including" means including without limiting the generality
of any description preceding such term and for the purposes hereof the rule of
ejusdem generis shall not be applicable to limit a general statement followed by
- ------- -------
or referable
<PAGE>
Appendix 1 to
Participation Agreement
to an enumeration of specific matters to matters similar to those specifically
mentioned.
Further, each of the parties to the Operative Documents and their counsel have
reviewed and revised the Operative Documents, or requested revisions thereto,
and the usual rule of construction that any ambiguities are to be resolved
against the drafting party shall be inapplicable in construing and interpreting
the Operative Documents.
"Access Rights" has the meaning set forth in Section 2.1 of the Support
------------- -----------
Agreement.
"Actual Knowledge" means, as to any matter with respect to any Person, the
----------------
actual knowledge of such matter possessed by an officer of such Person and shall
include receipt of a notice of such matter by any such Person.
"Additional Costs" means the amounts payable pursuant to Sections 2.11 and
---------------- -------------
2.12 of the Loan Agreement and Section 2.3(d) of the Trust Agreement and the
- ----
other amounts due and payable by the Borrower under any Loan Document other than
principal and interest on the Notes.
"Administrative Agent" means Shawmut Bank Connecticut, National Association, a
--------------------
national banking association, not in its individual capacity but solely as
administrative agent under the Operative Documents.
"Advance" means, as the context may require, each advance of a Loan by a
-------
Lender, each advance of an allocable portion of a Certificate Purchaser Amount
by a Certificate Purchaser, and each advance by Certificate Trustee to finance
the acquisition and construction of Systems, the payment of Transaction Costs or
the payment of the Arrangement Fee.
"Advance Date(s)" means each of the actual dates on which an Advance occurs.
---------------
A-2
<PAGE>
Appendix 1 to
Participation Agreement
"Advance Request" has the meaning set forth in Section 2.5(a) of the
--------------- --------------
Participation Agreement.
"Affiliate" of any Person means any other Person directly or indirectly
---------
controlling, controlled by or under common control with, such Person. For
purposes of this definition, the term "control" (including the correlative
-------
meanings of the terms "controlling," "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 or
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise; provided (but without limiting the foregoing), that no
--------
pledge of voting securities of any Person without the current right to exercise
voting rights with respect thereto shall by itself be deemed to confer control
over such Person upon the pledgee.
"Affiliated Qualified Use Agreement" has the meaning set forth in Section
---------------------------------- -------
10.1(b) of the Lease.
- -------
"Agent" and "Agents" have the meanings set forth in the preamble to the
----- ------
Participation Agreement.
"Agreed Return" has the meaning set forth in clause (a) of Article 4 of the
------------- ---------- ---------
Support Agreement.
"Allocated Share" means, with respect to any Lease Supplement, a fraction
---------------
(expressed as a percentage) the numerator of which is the aggregate Lessor's
Cost of the Systems subject to the Lease Supplement in question and the
denominator of which is the Lease Balance, it being understood that the sum of
the Allocated Shares with respect to all Lease Supplements shall always equal
100%.
"Alterations" has the meaning set forth in Section 7.2 of the Lease.
----------- -----------
A-3
<PAGE>
Appendix 1 to
Participation Agreement
"Alternate Base Rate" means, for any Interest Period, an interest rate per
-------------------
annum equal to the higher of (A) the rate of interest in effect for such day as
publicly announced by Bank of America, National Trust and Savings Association in
San Francisco, California from time to time as its reference rate for
calculating interest on certain loans, which need not be the lowest interest
rate charged by Bank of America, National Trust and Savings Association and (B)
the Federal Funds Effective Rate most recently determined by Bank of America,
National Trust and Savings Association plus .50% (50 basis points). If either
----
of the aforesaid rates changes from time to time after the Document Closing
Date, the Alternate Base Rate shall be automatically increased or decreased.
Information Agent will give notice promptly to Administrative Agent of changes
in the Alternate Base Rate; provided, that Information Agent's failure to give
--------
such notice will not relieve Borrower and Lessee of their respective obligations
relating to such changes. For the purposes of this definition, "Federal Funds
-------------
Effective Rate" means, for any day, an interest rate per annum equal to the
- --------------
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of quotations for such day on such transactions
received by Bank of America, National Trust and Savings Association from three
Federal funds brokers of recognized standing selected by it.
"Alternate Base Rate Loan" means a Loan bearing interest by reference to the
------------------------
Alternate Base Rate.
"Applicable Index Rate" means, with respect to any Interest Period, the
---------------------
interest rate per annum (rounded upwards, if necessary, to the nearest 1/16 of
1%) determined by Bank of America, National Trust and Savings Association to be
the interest rate at which interest deposits in United States dollars are
offered by Bank of America, National Trust and Savings Association to first-
class banks in the London interbank market at
A-4
<PAGE>
Appendix 1 to
Participation Agreement
approximately 11:00 a.m. (London time) two (2) Business Days before the first
day of the applicable Interest Period for deposits of a duration equal to such
Interest Period in an amount substantially equal to BA Leasing & Capital
Corporation's portion of such LIBO Rate Loan.
"Applicable Laws" means all existing and future applicable laws, rules,
---------------
regulations (including Environmental Laws), statutes, treaties, codes,
ordinances, permits, certificates, orders and licenses of and interpretations
by, any Governmental Authority, and applicable judgments, decrees, injunctions,
writs, orders or like action of any court, arbitrator or other administrative,
judicial or quasi-judicial tribunal or agency of competent jurisdiction
(including those pertaining to health, safety or the environment and those
pertaining to the construction or operation of any Systems or Equipment).
"Applicable Margin" means 0.2425 of 1% (24.25 basis points); provided, that if
----------------- --------
Guarantor's "Long-Term Debt Rating" from either of Moody's Investors Service,
Inc. and Standard and Poor's Corporation is less than the Long-Term Debt Ratings
set forth below at the date Information Agent sets the LIBO Rate for the
immediately succeeding Interest Period, then the "Applicable Margin" for such
Interest Period shall be determined by reference to the Applicable Margin
indicated opposite the applicable Long-Term Debt Ratings set forth in the
following table; provided, further, however, that during any Holdover Period,
-------- -------
the Applicable Margin shall in each case be increased by 2.5% (250 basis
points). As used in this definition, the term "Long-Term Debt Ratings" means
the ratings assigned by Moody's Investors Service, Inc. and Standard and Poor's
Corporation for Guarantor's outstanding First Mortgage Bonds, or, if none are
outstanding, then the most senior unsecured, non-credit enhanced long-term debt
of Guarantor then outstanding, or if no such debt is outstanding, the general
long-term unsecured debt rating then assigned to Guarantor by Moody's and
Standard and Poor's;
A-5
<PAGE>
Appendix 1 to
Participation Agreement
Long-Term
Debt Rating
-----------
Applicable Margin
-----------------
below A2 and A but
at least Baa3 and BBB- 0.4425%
(44.25 basis points)
below Baa3 or BBB- 0.9925% (99.25
basis points)
"Applicable Percentage" means, for each Lease Supplement, as of the end of the
---------------------
Base Term or any Renewal Term thereof, eighty percent (80%).
"Applicable Percentage Amount" means, with respect to any Lease Supplement,
----------------------------
the product obtained by multiplying the Lessor's Cost of the Systems subject to
such Lease Supplement as of such date by the Applicable Percentage.
"Arrangement Fee" means the arrangement fee described payable to the Arranger,
---------------
and in the amount set forth, in the Fee Letter.
"Arranger" means BA Leasing & Capital Corporation.
--------
"Assigned Agreements" means each of the Participation Agreement, the Lease,
-------------------
the Lease Supplements, the Guaranty, the Construction Agency Agreement, the
Support Agreement, the Bills of Sale, the Purchase Order Assignment, the
Certificates of Acceptance and each other document assigned to Administrative
Agent as Collateral pursuant to the Security Agreement.
"Assumed Interest Rate" means, as of the date of any Advance by a Participant,
---------------------
the LIBO Rate that would have been applicable for purposes of calculating
interest and Yield in the event that the Advance Date to which such Advance
relates had occurred on such date.
A-6
<PAGE>
Appendix 1 to
Participation Agreement
"Authorized Officer" means any officer in the Corporate Trust Department of
------------------
Certificate Trustee who shall be duly authorized to execute the Operative
Documents.
"Bank" means Shawmut Bank Connecticut, National Association in its individual
----
capacity.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978.
---------------
"Base Rent" means an amount payable on each Payment Date during the Lease Term
---------
equal to the sum of (i) the aggregate amount of the Yield payable on such
Payment Date on the Certificates (which shall not include any portion of
Capitalized Yield) and (ii) the aggregate amount of interest payable on such
Payment Date on the Notes (which shall not include any portion of Capitalized
Interest).
"Base Term" has the meaning set forth in Section 2.3 of the Lease.
--------- -----------
"Beneficiary" means each of the Persons named in the definition of
-----------
"Indemnitee."
"Bill of Sale" means each bill of sale or certificate of transfer from Lessee
------------
to Certificate Trustee conveying a System or Systems, substantially in the form
of Exhibit N - 1 or N - 2 to the Participation Agreement.
------------- -----
"Borrower" means Certificate Trustee, not in its individual capacity but
--------
solely as trustee under the Trust Agreement, as the borrower under the Loan
Agreement.
"Business Day" means any day on which
------------
(a) Federal and state chartered banks in the city in which the Corporate
Trust Department is located and New York, New York are open for commercial
banking business; and
A-7
<PAGE>
Appendix 1 to
Participation Agreement
(b) solely with respect to determinations of Interest Periods and Payment
Dates, dealings in United States Dollars are carried on in the London
interbank market.
"Capitalized Interest" means all accrued interest on outstanding Notes fairly
--------------------
allocable to the Construction Period for a System, except to the extent that
such amount is not to be capitalized because sufficient unfunded Commitments are
not available therefor.
"Capitalized Yield" means all accrued Yield on outstanding Certificates fairly
-----------------
allocable to the Construction Period for a System, except to the extent that
such amount is not to be capitalized because sufficient unfunded Commitments are
not available therefor.
"Casualty" means an event of damage or casualty relating to any Systems or
--------
related Equipment subject to a Lease Supplement which does not constitute an
Event of Loss.
"Certificate of Acceptance" means each Certificate of Acceptance, fully
-------------------------
executed by Lessee, accepting a System or Systems under a Lease Supplement,
substantially in the form of Exhibit M to the Participation Agreement.
---------
"Certificate Purchaser" has the meaning set forth in the preamble to the Trust
---------------------
Agreement.
"Certificate Purchaser Amount" means, with respect to any Certificate
----------------------------
Purchaser as of any date of determination, the aggregate amount invested by such
Certificate Purchaser in the Trust for the purchase of Certificates pursuant to
Section 2.4 of the Participation Agreement plus the total Capitalized Yield with
- -----------
respect thereto, net of any repayments.
"Certificate Register" has the meaning set forth in Section 2.7(a) of the
-------------------- --------------
Trust Agreement.
A-8
<PAGE>
Appendix 1 to
Participation Agreement
"Certificate Trustee" means Shawmut Bank Connecticut, National Association, a
-------------------
national banking association, not in its individual capacity but solely as
trustee under the Trust Agreement, and any co-trustee appointed pursuant to the
terms of the Trust Agreement.
"Certificates" means those certain certificates issued to the Certificate
------------
Purchasers pursuant to the Trust Agreement, substantially in the form of Exhibit
-------
A thereto, and any and all Certificates issued in replacement or exchange
- -
therefor.
"Change in Control" means any of the following: (a) any person or group
-----------------
(within the meaning of Rule 13d-5 of the SEC as in effect on the date hereof)
shall acquire ownership directly or indirectly, beneficially or of record, of
shares representing more than 49% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Guarantor; or (b)
a majority of the seats (other than vacant seats) on the board of directors of
the Guarantor shall at any time become occupied by persons who were neither (i)
nominated by the management of the Guarantor, nor (ii) appointed by directors so
nominated; or (iii) any person or group shall otherwise directly or indirectly
acquire Control the Guarantor.
"Claims" means liabilities, obligations, damages, losses, demands, penalties,
------
fines, claims, actions, suits, judgments and settlements, and any costs, fees,
expenses and disbursements (including legal fees and expenses and costs of
investigation which, in the case of counsel or investigators retained by an
Indemnitee, shall be reasonable) of any kind and nature whatsoever related to
any of the foregoing.
"Code" means the Internal Revenue Code of 1986.
----
"Collateral" has the meaning set forth in Section 2.1 of the Security
---------- -----------
Agreement and shall not include any real estate interest.
A-9
<PAGE>
Appendix 1 to
Participation Agreement
"Commercial Operation" means, with respect to any System, the capability of
--------------------
such System to perform in continuous commercial operation at design capacity for
its entire expected economic useful life as measured at the time of
determination.
"Commitment" means, as to any Certificate Purchaser or any Lender, its
----------
obligation to make amounts available, or Loans, as the case may be, to
Certificate Trustee, in an aggregate amount not to exceed at any one time
outstanding the amount set forth opposite such Certificate Purchaser's name on
Schedule I to the Participation Agreement or such Lender's name on Schedule II
to the Participation Agreement, as such amounts may be decreased or increased in
accordance with Sections 2.10 and 2.11, respectively, of the Participation
-------------------------------------
Agreement.
"Commitment Fee" has the meaning set forth in Section 2.6 of the Participation
-------------- -----------
Agreement.
"Commitment Percentage" means, as to any Participant, at a particular time,
---------------------
the percentage of the aggregate Commitments in effect at such time represented
by such Participant's Commitment, as such percentage is initially shown on
Schedule I to the Participation Agreement, in the case of the Certificate
Purchasers, and Schedule II to the Participation Agreement, in the case of the
Lenders, and as such percentages may thereafter be changed upon the occurrence
of certain events pursuant to the Participation Agreement.
"Commitment Termination Date" means April 30, 1998.
---------------------------
"Companies" has the meaning set forth in Section 6.6(b)(i) of the
--------- -----------------
Participation Agreement.
"Completion Date" means, with respect to any System the construction of which
---------------
is to be financed under the Operative Documents, the date on which such System
would be deemed placed in service under GAAP if Lessee owned such System.
A-10
<PAGE>
Appendix 1 to
Participation Agreement
"Condemnation" means any condemnation, requisition, confiscation, seizure or
------------
other taking or sale of the use, operation or title to any Systems or related
Equipment or any part thereof in, by or on account of any actual or threatened
eminent domain proceeding or other action by any Governmental Authority or other
Person under the power of eminent domain or otherwise or any transfer in lieu of
or in anticipation thereof, which in any case does not constitute an Event of
Taking. A Condemnation shall be deemed to have "occurred" on the earliest of
the dates that use, occupancy or title is taken.
"Consolidated Net Worth" means, as at any date of determination, the
----------------------
consolidated stockholders' equity of Guarantor and its Consolidated
Subsidiaries, as determined on a consolidated basis in conformity with GAAP.
"Consolidated Subsidiary" means, as to any Person at any date, any Subsidiary
-----------------------
or other entity the accounts of which would, in conformity with GAAP, be
consolidated with those of such Person in such Person's consolidated financial
statements as of such date.
"Consolidated Tangible Assets" of any Person means the total assets of such
----------------------------
Person and its Consolidated Subsidiaries, less goodwill, patents, trademarks and
other assets classified as intangible assets in conformity with GAAP.
"Construction Agency Agreement" means the Construction Agency Agreement, dated
-----------------------------
concurrently with the Participation Agreement, between Certificate Trustee and
Lessee, substantially in the form of Exhibit B to the Participation Agreement.
---------
"Construction Agency Event of Default" has the meaning set forth in Section 5.1
------------------------------------ -----------
of the Construction Agency Agreement.
"Construction Agent" means Lessee, as construction agent under the Construction
------------------
Agency Agreement.
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<PAGE>
Appendix 1 to
Participation Agreement
"Construction Agreement Termination Date" has the meaning set forth in Section
--------------------------------------- -------
2.5 of the Construction Agency Agreement.
- ---
"Construction Commencement Date" has the meaning set forth in Section 2.3 of the
------------------------------ -----------
Construction Agency Agreement.
"Construction Documents" has the meaning set forth in Section 2.6 of the
---------------------- -----------
Construction Agency Agreement.
"Construction Period" means, with respect to any System, the period commencing
-------------------
on the Document Closing Date and ending on the earlier of (i) the Commitment
Termination Date, (ii) the Construction Agreement Termination Date or (iii) the
Completion Date for such System; provided that if an event of Force Majeure has
occurred, the Construction Period for all Systems then under construction and
suffering an event of Force Majeure shall be extended for a commercially
reasonable period not to exceed six (6) months.
"Continuation/Conversion Request" means a Continuation/Conversion Request
-------------------------------
substantially in the form of Exhibit D-2 to the Participation Agreement.
-----------
"Control" means the possession, directly or indirectly, of the power to direct
-------
or cause the direction of the management or policies of a person, whether
through the ownership of voting securities, by contract or otherwise, and
"Controlling" and "Controlled" shall have meanings correlative thereto.
"Corporate Trust Department" means the principal corporate trust office of
--------------------------
Shawmut Bank Connecticut, National Association, located at 777 Main Street, MSN
238, Hartford, Connecticut 06115, Attention: Corporate Trust Administration, or
at such other office at which the corporate trust business of such bank or its
successor shall be administered which such bank or its successor shall have
specified by notice in writing to Lessee, each Certificate Purchaser,
Administrative Agent and each Lender.
A-12
<PAGE>
Appendix 1 to
Participation Agreement
"CUCC" means CUCapital Corp., a Delaware corporation.
----
"Defaulted Amount" has the meaning set forth in Section 2.5(f) of the
---------------- --------------
Participation Agreement.
"Defaulting Participant" has the meaning set forth in Section 2.5(f) of the
---------------------- --------------
Participation Agreement.
"Delivery Date" means each date on which any System becomes subject to the
-------------
Lease.
"Design Objectives" has the meaning set forth in Section 2.2 of the
----------------- -----------
Construction Agency Agreement.
"Designated Location" means each of the metropolitan areas of Seattle,
-------------------
Washington, Portland, Oregon, Phoenix, Arizona, Salt Lake City, Utah,
Sacramento, California, San Diego, California and the corridor between Las
Vegas, Nevada and Phoenix, Arizona on which the Southwest FCL is located, and
any other location that may hereafter be approved by the holders of Notes and
Certificates comprising 66 2/3% or more of the aggregate of the principal
amounts and Certificate Purchaser Amounts of all Notes and Certificates then
outstanding.
"Document Closing Date" has the meaning set forth in Section 2.1 of the
--------------------- -----------
Participation Agreement.
"Employee Benefit Plan" means an employee benefit plan (within the meaning of
---------------------
Section 3(3) of ERISA, including any multiemployer plan (within the meaning of
Section 3(37) (A) of ERISA)), or any "plan" as defined in Section 4975(e)(1) of
the Code and as interpreted by the Internal Revenue Service and the Department
of Labor in rules, regulations, releases or bulletins in effect at the time of
any determination under the Operative Documents, in each case, of Guarantor or
any ERISA Affiliate. The assets of an Employee Benefit Plan shall be determined
using the foregoing criteria, including on the date hereof the Department of
Labor plan asset regulation (29 C.F.R. ' 2510.3-101).
A-13
<PAGE>
Appendix 1 to
Participation Agreement
"Environmental Laws" means the Resource Conservation and Recovery Act of 1976
------------------
(RCRA) 42 U.S.C. (S)(S) 6901-6987, as amended by the Hazardous and Solid Waste
Amendments of 1984, the Comprehensive Environmental Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act of
1986, 42 U.S.C. (S)(S) 9601-9657 (CERCLA), the Hazardous Materials
Transportation Act of 1975, 49 U.S.C. (S)(S) 1801-1812, the Toxic Substances
Control Act, 15 U.S.C. (S)(S) 2601-2671, the Clean Air Act, 42 U.S.C. (S)(S)
7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
(S)(S) 136 et seq. and all similar foreign, federal, state and local
environmental laws, ordinances, rules, orders, statutes, decrees, judgments,
injunctions, codes and regulations, and any other foreign, federal, state or
local laws, ordinances, rules, codes and regulations, and any other foreign,
federal, state or local laws, ordinances, rules, codes and regulations relating
to the environment, human health or natural resources or the regulation or
control of or imposing liability or standards of conduct concerning human
health, the environment, Hazardous Materials or the clean-up or other
remediation of any location wherein the Systems or Equipment are to be located,
or any part thereof.
"Equipment" has the meaning set forth in the Recitals to the Participation
---------
Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974.
------
"ERISA Affiliate" means each entity required to be aggregated with Guarantor
---------------
pursuant to the requirement of Section 414(b) or 414(c) of the Code.
"ERISA Termination Event" means (i) a "Reportable Event" described in Section
-----------------------
4043 of ERISA (other than a "Reportable Event" not subject to the provision for
30-day notice to the PBGC under such regulations), or (ii) the withdrawal of
Guarantor or any of its ERISA Affiliates from a Plan during a plan year in
A-14
<PAGE>
Appendix 1 to
Participation Agreement
which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA,
or (iii) the filing of a notice of intent to terminate a Plan or the treatment
of a Plan amendment as a termination under Section 4041 of ERISA, or (iv) the
institution of a proceeding to terminate a Plan by the PBGC or (v) any other
event or condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.
"Event of Loss" means (x) the actual or constructive total loss of thirty
-------------
percent (30%) or more of the aggregate fair market value of all of the Systems
subject to a Lease Supplement due to damage or casualty, in any case as
reasonably determined in good faith by a Responsible Officer of Guarantor, such
determination to be made promptly after the occurrence of such event and to be
evidenced by an Officer's Certificate of Guarantor, delivered to Certificate
Trustee, each Certificate Purchaser and Administrative Agent, or (y) damage or
casualty to any of the Systems subject to a Lease Supplement which results in an
insurance settlement on the basis of a loss of thirty percent (30%) or more of
the aggregate fair market value of such Systems.
"Event of Taking" means (A) taking of title to any System subject to a Lease
---------------
Supplement, (B) any condemnation (other than a requisition for temporary use) or
requisition for use of any System subject to a Lease Supplement for a period
scheduled to last beyond the end of the Lease Term, or (C) taking of title to
substantially all of the premises whereon or wherein Equipment in a System is
located or to be located, in each case resulting in the loss of use or
possession of substantially all of the Systems subject to a Lease Supplement, as
reasonably determined in good faith by a Responsible Officer of Guarantor, such
determination to be made promptly after the occurrence of such event and to be
evidenced by an Officer's Certificate executed by such Responsible Officer and
delivered to Certificate Trustee and Administrative Agent.
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<PAGE>
Appendix 1 to
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"Excluded Amounts" means:
----------------
(a) all indemnity payments and expenses to which Bank or any Certificate
Purchaser (or any Indemnitee) is entitled pursuant to the Operative Documents;
(b) any amounts payable under any Operative Documents to reimburse
Certificate Trustee or any Certificate Purchaser (including the reasonable
expenses of Certificate Trustee and any Certificate Purchaser incurred in
connection with any such payment) for performing any of the obligations of
Lessee under and as permitted by any Operative Document;
(c) any insurance proceeds (or corresponding amounts with respect to risks
that are self-insured by Lessee and the amounts of any policy deductibles) under
liability policies payable to Certificate Trustee in its individual capacity or
any Certificate Purchaser (or the respective successors, assigns, agents,
officers, directors or employees of Bank or of any Certificate Purchaser);
(d) any insurance proceeds under policies maintained by Certificate Trustee
or any Certificate Purchaser and not required to be maintained by Lessee under
the Lease;
(e) any amount payable to Certificate Trustee or any Certificate Purchaser
pursuant to Section 9.9 of the Participation Agreement;
-----------
(f) any amount payable as an Arrangement Fee; and
(g) any payments of interest on payments referred to in clauses (a) through
-----------
(f) above.
- ---
"Fair Market Sales Value" with respect to any System or any portion thereof
-----------------------
means, as of the date of determination, the gross sale proceeds, as determined
by an independent appraiser chosen by
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<PAGE>
Appendix 1 to
Participation Agreement
Lessor (at the direction of the Required Entities), that would be obtained in an
arm's-length transaction between an informed and willing buyer (other than a
buyer currently in possession) and an informed and willing seller, respectively,
under no compulsion to buy or sell, neither of which is related to Lessee, for
the purchase of such System. The Fair Market Sales Value shall be calculated as
the value for the use in place of the System, assuming that the System is in the
condition and repair required to be maintained by the terms of the Lease and is
accompanied by all applicable Support Rights (unless such Fair Market Sales
Value is being determined for purposes of Section 7.3 of the Lease, in which
-----------
case this assumption shall not be made).
"FCL" means a fiber optic cable link, which may be comprised of one or more
---
Systems, the function of which is to serve as a facility for the transmission of
voice, data, video or other communications between disparate geographic areas.
"Fee Letter" means that certain letter agreement dated December 21, 1994, and
----------
executed by Guarantor as of December 23, 1994, between Arranger and Guarantor.
"Final Maturity Date" means April 30, 2002.
-------------------
"Financing" has the meaning set forth in the Recitals to the Participation
---------
Agreement.
"First Mortgage Bond Indentures" means (i) the First Mortgage and Collateral
------------------------------
Trust Indenture, dated as of March 1, 1947, from the Guarantor to The Marine
Midland Trust Company of New York, as Trustee, and (ii) the Mortgage and Deed of
Trust Indenture, dated as of June 1, 1962, from the Guarantor to Manufacturers
Hanover Trust Company, as Trustee, as the same have been and may from time to
time be amended or supplemented and in effect.
"Force Majeure" means acts of God, fire, windstorm, flood, explosion, collapse
-------------
of structures, riot, war, inability to obtain or use necessary materials or
reasonable substitutes, or any other
A-17
<PAGE>
Appendix 1 to
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cause beyond the reasonable control of Lessee, other than lack of funds.
"GAAP" means generally accepted accounting principles in the United States as
----
in effect from time to time consistently applied; provided, that, for purposes
--------
of determining compliance with financial covenants, GAAP shall refer to
generally accepted accounting principles as of December 16, 1993.
"Governmental Approval" means any authorization, consent, approval, license,
---------------------
franchise, lease, ruling, tariff, rate, permit, certificate, order, exemption
of, or filing or registration with, any Governmental Authority, or required by
any Applicable Laws, and shall include all environmental permits and operating
permits and licenses that are required for the construction, use, zoning and
operation of the Systems and related Equipment included or to be included in any
Qualified MAN or FCL at a specified Designated Location.
"Governmental Authority" means any Federal, state, local or foreign court or
----------------------
governmental agency, authority, instrumentality or regulatory body.
"Guaranteed Residual Amount" has the meaning provided in Section 4.5(c) of the
-------------------------- --------------
Lease.
"Guaranty" means the unconditional Guaranty, dated concurrently herewith, by
--------
Guarantor of all payment and performance obligations of Lessee under the
Operative Documents, substantially in the form of Exhibit A to the Participation
---------
Agreement.
"Guarantor" means Citizens Utilities Company, a Delaware corporation.
---------
"Hazardous Material" means any substance, waste or material which is toxic,
------------------
explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous by listing characteristic or definition under
any Environmental Law,
A-18
<PAGE>
Appendix 1 to
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including petroleum, crude oil or any fraction thereof, petroleum derivatives,
by-products and other hydrocarbons and is or becomes regulated by any
Governmental Authority, including any agency, department, commission, board or
instrumentality of the United States, the States in which any System or related
Equipment are located or any political subdivision thereof and also including
asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs")
----
and radon gas.
"Holdover Period" means, with respect to any Lease Supplement, any period
---------------
after a Lease Supplement Termination Date until the reduction of the related
Lease Supplement Balance to zero and payment of all other amounts then due and
payable by Lessee under the Operative Documents.
"Holdover Rent" has the meaning set forth in Section 3.1 of the Lease.
------------- -----------
"Indebtedness" of any Person means, without duplication:
------------
(a) all obligations of such Person for borrowed money and all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments;
(b) all obligations, contingent or otherwise, relative to the face amount of
all letters of credit, whether or not drawn, and banker's acceptances issued for
the account of such Person;
(c) all obligations of such Person as lessee under leases which have been or
should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities;
(d) net liabilities of such Person under all Hedging Obligations;
(e) whether or not so included as liabilities in accordance with GAAP, (i)
all obligations of such Person to
A-19
<PAGE>
Appendix 1 to
Participation Agreement
pay the deferred purchase price of property or services (other than trade
accounts payable in the ordinary course of business), and (ii) indebtedness
(excluding prepaid interest thereon) secured by a Lien on property owned or
being purchased by such Person (including indebtedness arising under conditional
sales or other title retention agreements), whether or not such indebtedness
shall have been assumed by such Person or is limited in recourse; and
(f) all Contingent Liabilities of such Person in respect of any of the
foregoing.
For all purposes of this Agreement, the Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer. For the purposes of this definition:
(i) "Capitalized Lease Liabilities" means all monetary obligations of
-----------------------------
any Person under any leasing or similar arrangement which, in accordance
with GAAP, would be classified as capitalized leases, and, for purposes of
the Operative Documents, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.
(ii) "Contingent Liability" means any agreement, undertaking or
--------------------
arrangement by which any Person guarantees, endorses or otherwise becomes or
is contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss) the
indebtedness, obligation or any other liability of any other Person (other
than by endorsements of instruments in the course of collection), or
guarantees the payment of dividends or other distributions upon the shares
of any other Person. The amount of any Person's obligation under
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<PAGE>
Appendix 1 to
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any Contingent Liability shall (subject to any limitation set forth therein)
be deemed to be the outstanding principal amount (or maximum principal
amount, if larger) of the debt, obligation or other liability guaranteed
thereby.
(iii) "Hedging Obligations" means, with respect to any Person, all
-------------------
liabilities of such Person under interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and all other
agreements or arrangements designed to protect such Person against
fluctuations in interest rates or currency exchange rates.
"Indemnitee" means each Participant, the Certificate Trustee (in its
----------
individual capacity and as trustee), any additional, separate or co-trustee
appointed in accordance with the terms of the Trust Agreement, each Agent (each
in its individual capacity and as Agent) and the respective Affiliates,
successors, permitted assigns, permitted transferees, employees, officers,
directors, representatives and agents of each of the foregoing Persons;
provided, however, that in no event shall Lessee be an Indemnitee.
- -------- -------
"Indirect Beneficial Ownership Interest" means, from time to time, the
--------------------------------------
aggregate indirect beneficial ownership interest of Guarantor (a) in all of the
Leased Assets and (b) in all of the Owned Assets, each as included in a
Qualified MAN or FCL, which interest shall be determined by taking the sum of
the percentages, calculated for each Subsidiary owning a Qualified MAN or FCL,
that are the product of the "Equity Ownership Percentage" of Guarantor in that
Subsidiary and the "Asset Ownership Percentage" of that Subsidiary in such
Leased Assets or Owned Assets, as the case may be; provided, that for purposes
--------
of the foregoing calculations, Lessor's ownership of the Leased Assets as
contemplated by the Operative Documents shall be deemed to constitute ownership
thereof (i) by Lessee to the extent Lessee remains liable under the outstanding
Lease Supplement or (ii) by any permitted assignee under Section 10.2 of the
------------
Lease, in each case with respect to
A-21
<PAGE>
Appendix 1 to
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those Leased Assets subject to such Lease Supplement to which Lessee or such
assignee is a party; and provided, further, that if Guarantor shall become
-------- -------
the direct owner of any Qualified MAN or an FCL, Guarantor shall be treated as a
wholly owned Subsidiary of Guarantor for purposes of the foregoing calculations.
The "Equity Ownership Percentage" of Guarantor in a Subsidiary of Guarantor
---------------------------
is the fraction (expressed as a percentage), the numerator of which is the
number of equity shares having ordinary voting power (or, in the case of a
Subsidiary that is not a corporation, equivalent units of ownership interest) of
that Subsidiary which are owned by Guarantor, (i.e., taking into account, in the
case of indirect ownership through multiple Subsidiaries, the respective equity
ownership percentages, in each Subsidiary, of Guarantor and each other
Subsidiary), and the denominator of which is the total number of issued and
outstanding equity shares having ordinary voting power (or, in the case of a
Subsidiary that is not a corporation, equivalent units of ownership interest) of
that Subsidiary; and the "Asset Ownership Percentage" of a Subsidiary is the
--------------------------
fraction (expressed as a percentage) which (A) as applied to Leased Assets, has
a numerator equal to the aggregate of the Lessor's Cost of all of the Leased
Assets included in a Qualified MAN or FCL that are leased directly by that
Subsidiary, and has a denominator equal to the aggregate of the Lessor's Cost of
all of the Leased Assets included in the Qualified MAN or FCL, and (B) as
applied to Owned Assets, has a numerator equal to the aggregate cost (including
purchase costs and costs of construction and installation) of all of the Owned
Assets included in a Qualified MAN or FCL owned directly by that Subsidiary, and
has a denominator equal to the aggregate cost (including purchase costs and
costs of construction and installation) of all of the Owned Assets included in
the Qualified MAN or FCL.
"Information Agent" means BA Leasing & Capital Corporation, a California
-----------------
corporation, not in its individual capacity but solely as information agent
under the Operative Documents, or its successor.
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<PAGE>
Appendix 1 to
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"Inspecting Parties" has the meaning set forth in Section 13.1 of the Lease.
------------------ ------------
"Insolvency Event" means any event pursuant to which a Person or any of its
----------------
Subsidiaries shall
(a) become insolvent or generally fail to pay, or admit in writing its
inability or unwillingness to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a trustee,
receiver, sequestrator or other custodian for such Person or any of its
Subsidiaries or any property of any thereof, or make a general assignment for
the benefit of creditors;
(c) in the absence of such application, consent or acquiescence, permit or
suffer to exist the appointment of a trustee, receiver, sequestrator or other
custodian for such Person or any of its Subsidiaries or for a substantial part
of the property of any thereof, and such trustee, receiver, sequestrator or
other custodian shall not be discharged within sixty (60) days, provided that
such Person and each Subsidiary hereby expressly authorizes the Certificate
Trustee to appear in any court conducting any relevant proceeding during such
sixty (60) day period to preserve, protect and defend its rights under the
Loan Documents;
(d) permit or suffer to exist the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution, winding up or liquidation
proceeding, in respect of such Person or any of its Subsidiaries, and, if any
such case or proceeding is not commenced by the Borrower or such Subsidiary,
such case or proceeding shall be consented to or acquiesced in by such Person
or such Subsidiary or shall result in the entry of an order for relief or
shall remain for sixty (60) days undismissed, provided that such Person
A-23
<PAGE>
Appendix 1 to
Participation Agreement
and each Subsidiary hereby expressly authorizes Certificate Trustee to appear
in any court conducting any such case or proceeding during such sixty (60) day
period to preserve, protect and defend its rights under the Loan Documents; or
(e) take any action authorizing, or in furtherance of, any of the foregoing.
"Insurance Requirements" means all terms and conditions of any insurance
----------------------
policy either required by the Lease to be maintained by Lessee or required by
the Construction Agency Agreement to be maintained by Construction Agent, and
all requirements of the issuer of any such policy.
"Interest Period" means, (a) with respect to any LIBO Rate Loan, the period
---------------
commencing on (and including) the Advance Date or the date on which such LIBO
Rate Loan is continued or the date on which an Alternate Base Rate Loan is
converted into a LIBO Rate Loan and ending on (but excluding) the day which
numerically corresponds to such date one, two, three, six, or, if available,
nine or twelve months thereafter (or, if such month has no numerically
corresponding day, on the last Business Day of such month), and (b) with respect
to any Alternate Base Rate Loan, the period commencing on (and including) the
date the Alternate Base Rate Loan is made or continued and ending on the earlier
of the Final Maturity Date or the date on which such Alternate Base Rate Loan is
converted into a LIBO Rate Loan, in each case as Construction Agent may select
in its Advance Request or Continuation/Conversion Request, as the case may be;
provided, however, that:
- -------- -------
(i) if such Interest Period would otherwise end on a day which is not a
Business Day, such Interest Period shall end on the next following Business
Day (unless, in the case of a LIBO Rate Loan only, such next following
Business Day is the first Business Day of another calendar month, in which
case such Interest Period shall end on the Business Day next preceding such
numerically corresponding day);
A-24
<PAGE>
Appendix 1 to
Participation Agreement
(ii) no Interest Period during any Base Term may extend beyond the last day
of such Base Term and no Interest Period during any Renewal Term may extend
beyond the last day of such Renewal Term; and
(iii) Interest Periods shall not be permitted to be in effect at any one
time which have expiration dates occurring on more than six different dates.
"Interest Rate" means, with respect to each Interest Period, the applicable
-------------
interest rate payable from time to time on the Notes.
"Interested Subsidiary" means any Subsidiary having a direct interest in Owned
---------------------
Assets and/or Leased Assets in any Qualified MAN or FCL and, for the purposes of
Section 6.7(b)(ii) of the Participation Agreement only, Lessee.
- ------------------
"Lease" means the Lease (Electric Lightwave, Inc. Trust No. 1995-A), dated
-----
concurrently herewith between Certificate Trustee and Lessee, substantially in
the form of Exhibit C to the Participation Agreement.
---------
"Lease Balance" means, as of any date of determination, the sum of the
-------------
aggregate outstanding principal amounts of the Notes (including Capitalized
Interest) plus the aggregate Certificate Purchaser Amounts (including
----
Capitalized Yield).
"Lease Default" means any event, condition or failure which, with notice or
-------------
lapse of time or both, would become a Lease Event of Default.
"Lease Event of Default" means any event condition or failure designated as a
----------------------
"Lease Event of Default" in Article XV of the Lease.
----------
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<PAGE>
Appendix 1 to
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"Lease Supplement" means each Lease Supplement, in the form of Exhibit A to
---------------- ---------
the Lease, executed and delivered by Lessee to Lessor on the Document Closing
Date.
"Lease Supplement Balance" means the product of the Allocated Share of the
------------------------
applicable Lease Supplement and the Lease Balance.
"Lease Supplement Term" has the meaning set forth in Section 2.3 of the Lease.
--------------------- -----------
"Lease Supplement Termination Date" means the last day of the Base Term or the
---------------------------------
last exercised Renewal Term, if any, or any other date on which a Lease
Supplement is terminated, including pursuant to Articles IV or XVI of the Lease.
----------- ---
"Lease Term" has the meaning set forth in Section 2.3 of the Lease.
---------- -----------
"Lease Termination Date" means the last Lease Supplement Termination Date to
----------------------
occur.
"Leasehold Estate" means Lessee's interest in the Systems and Equipment
----------------
subject to the Lease.
"Leased Assets" means the Systems and Equipment (including related
-------------
construction and installation and the costs thereof) that are subject to a Lease
Supplement or that is designated by Construction Agent to become subject to a
Lease Supplement.
"Lenders" means the holders of the Notes.
-------
"Lessee" means Electric Lightwave, Inc., a Delaware corporation or any other
------
Person that becomes the Lessee under the Lease.
"Lessor" means Certificate Trustee.
------
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<PAGE>
Appendix 1 to
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"Lessor Liens" means Liens on or against any System or related Equipment, the
------------
Lease, the Trust Estate or any payment of Rent (a) which result from any act of,
or any Claim against, Bank, Certificate Trustee, in its individual capacity, any
Certificate Purchaser or any Agent, each in its individual capacity, in either
case unrelated to the transactions contemplated by the Operative Documents or
(b) which result from any tax owed by Bank or any Certificate Purchaser, except
any Tax for which Lessee is obligated to indemnify.
"Lessor's Cost" means, with respect to the Systems and related Equipment
-------------
subject to each Lease Supplement, the aggregate amount paid or advanced by
Lessor on each Advance Date for all Systems and related Equipment subject to
such Lease Supplement plus the Capitalized Interest and Capitalized Yield with
respect to the Notes and Certificates fairly allocable thereto, plus the portion
of Transaction Costs and the Arrangement Fee fairly allocable thereto.
"Letters" means (a) the Letter Agreement between Lessee and Certificate
-------
Trustee, dated the date of the Participation Agreement, regarding the Commitment
Fee, and (b) the Letter Agreement between Lessee and Certificate Trustee, dated
the date of the Participation Agreement, regarding the assignment of Rent.
"LIBO Rate" means, with respect to each LIBO Rate Loan for any Interest
---------
Period, the sum of (a) the Applicable Margin plus (b) the Applicable Index Rate.
Information Agent will give notice promptly to Administrative Agent upon
determining the applicable LIBO Rate; provided, that Information Agent's failure
--------
to give such notice will not relieve Borrower and Lessee of their respective
obligations relating to such change.
"LIBO Rate Loans" means Loans bearing interest by reference to a LIBO Rate.
---------------
"LIBOR Office" means initially, the funding office of each Participant
------------
designated as such in Schedule III to the
A-27
<PAGE>
Appendix 1 to
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Participation Agreement; and thereafter, such other office of such Participant,
if any, which shall be making or maintaining such Participant's investment in
Notes and/or Certificates.
"Lien" means any lien, mortgage, deed of trust, encumbrance, pledge, charge,
----
lease, easement, servitude, right of others or security interest of any kind,
including any thereof arising under any conditional sale or other title
retention agreement.
"Loan" has the meaning set forth in Section 2.1 of the Loan Agreement.
---- -----------
"Loan Agreement" means the Loan Agreement (Electric Lightwave, Inc. Trust No.
--------------
1995-A), dated as of the date of the Participation Agreement, among Borrower,
Administrative Agent and the Lenders, substantially in the form of Exhibit E to
---------
the Participation Agreement.
"Loan Default" means any event, condition or failure which, with notice or
------------
lapse of time or both, would become a Loan Event of Default.
"Loan Documents" means the Loan Agreement, the Notes, the Security Agreement
--------------
and all documents and instruments executed and delivered in connection with each
of the foregoing.
"Loan Event of Default" means any event, condition or failure designated as a
---------------------
"Loan Event of Default" in Section 6.1 of the Loan Agreement.
-----------
"Loan Participant" has the meaning set forth in Section 6.4(a) of the
---------------- --------------
Participation Agreement.
"MAN" has the meaning set forth in the Recitals to the Participation
---
Agreement.
"Material Adverse Effect" means a materially adverse effect on (i) the
-----------------------
business, assets, operations, condition (financial or
A-28
<PAGE>
Appendix 1 to
Participation Agreement
otherwise), or results of operations of Guarantor and its Subsidiaries taken as
a whole, (ii) the legality of the transactions contemplated by the Operative
Documents, (iii) the ability of Lessee or Guarantor to perform their respective
obligations under the Operative Documents or (iv) the validity or enforceability
of any of the Operative Documents or any rights or remedies under any thereof.
"Net Condemnation Proceeds" means all payments received from any Governmental
-------------------------
Authority or other Person relating to an Event of Taking after deducting the
costs incurred by Lessee, Certificate Trustee, Administrative Agent or any
Participant in respect of the receipt thereof.
"Non-Affiliated Qualified Use Agreement" has the meaning set forth in Section
-------------------------------------- -------
10.1(b) of the Lease.
- -------
"Non-Defaulting Participant" has the meaning set forth in Section 2.5(f) of
-------------------------- --------------
the Participation Agreement.
"Notes" means the notes issued by the Borrower under the Loan Agreement and
-----
denominated as such, substantially in the form of Exhibit A to the Loan
---------
Agreement, and any and all Notes issued in replacement or exchange therefor in
accordance with the provisions thereof.
"Obligations" has the meaning set forth in Section 1 of the Guaranty.
----------- ---------
"OCC" means the Office of the Comptroller of the Currency or any successor
---
thereto.
"Officer's Certificate" of a Person means a certificate signed by the Chairman
---------------------
of the Board of Directors, the President or any Executive Vice President or any
Senior Vice President, any other Vice President, the Treasurer or any Assistant
Treasurer or the Controller or any Assistant Controller of such Person.
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<PAGE>
Appendix 1 to
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"On a Fully Diluted Basis" means after giving effect to the exercise of all
outstanding options or other rights to subscribe for or purchase capital stock
of Lessee, the conversion or exchange of all securities convertible into or
exchangeable for capital stock of Lessee and the consummation of all contracts
for the issuance of capital stock of Lessee by Lessee.
"Operative Documents" means the Participation Agreement, the Bills of Sale,
-------------------
the Letters, the Lease, the Certificates of Acceptance, the Guaranty, the Lease
Supplements, the Construction Agency Agreement, the Purchase Order Assignment,
the Certificates, the Loan Agreement, the Notes, the Security Agreement, the
Support Agreement, the Trust Agreement, and all documents and instruments
executed and delivered in connection with each of the foregoing.
"Overall Transaction" means all the transactions and activities referred to in
-------------------
or contemplated by the Operative Documents.
"Overdue Rate" means the lesser of (a) the highest interest rate permitted by
------------
Applicable Laws or (b) an interest rate per annum equal to, in the case of the
Notes, the rate of interest otherwise payable with respect thereto plus 2% per
----
annum, and, in the case of the Certificates, the Yield plus 2% per annum.
----
"Owned Assets" means those components and other assets (including related
------------
construction and installation and the costs thereof) owned by Lessee or another
subsidiary of Guarantor that are included in a Qualified MAN or FCL and that do
not constitute Leased Assets.
"Owned System" means any System that Lessee or a Subsidiary of Guarantor owns
------------
beneficially and of record which is part of a Qualified MAN or FCL (it being
understood that any System subject to a Lease Supplement shall not be an "Owned
System").
"Participants" means the Certificate Purchasers and the Lenders, collectively.
------------
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<PAGE>
Appendix 1 to
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"Participation Agreement" means the Participation Agreement (Electric
-----------------------
Lightwave, Inc. Trust No. 1995-A), dated as of April 28, 1995, among Lessee,
Certificate Trustee, the Certificate Purchasers, the Lenders, Administrative
Agent, Information Agent and Guarantor.
"Payment Dates" means (a) the Final Maturity Date; (b) the date of any payment
-------------
or prepayment, in whole or in part, of principal outstanding on a Loan or the
return, in whole or in part, of the Certificate Purchaser Amount on a
Certificate; (c) with respect to Alternate Base Rate Loans, the last day of each
March, June, September and December or the date such Loan converts to a LIBO
Rate Loan, or, if any such day is not a Business Day, the next following
Business Day occurring after the Document Closing Date; and (d) with respect to
LIBO Rate Loans, the last day of each applicable Interest Period (and, if such
Interest Period shall exceed 90 days, on the 90th, 180th and 270th day of such
Interest Period if a Business Day, or the next succeeding Business Day after
such date).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding
----
to any or all of its functions under ERISA.
"Permitted Contest" means actions taken by a Person to contest in good faith,
-----------------
by appropriate proceedings initiated timely and diligently prosecuted, the
legality, validity or applicability to any System or related Equipment or any
location whereon or wherein any System or related Equipment is located or to be
located or any interest therein of any Person of: (a) any law, regulation, rule,
judgment, order, or other legal provision or judicial or administrative
requirements; (b) any term or condition of, or any revocation or amendment of,
or other proceeding relating to, any authorization or other consent, approval or
other action by any Governmental Authority; or (c) any Lien or Tax; provided
--------
that the initiation and prosecution of such contest would not: (i) result in, or
materially increase the risk of, the imposition of any criminal liability on any
Indemnitee;
A-31
<PAGE>
Appendix 1 to
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(ii) materially and adversely affect the security interests created by the
Operative Documents or the right, title or interest of Lessee in or to any of
location whereon or wherein a System or related Equipment is located or to be
located or the right of Lessor, Administrative Agent or any Participant to
receive payment of the principal of or interest on any Note, Certificate
Purchaser Amount of or Yield on any Certificate, Rent or the Lease Balance or
any interest therein; or (iii) materially and adversely affect the fair market
value, utility or remaining useful life of any System or any Equipment
comprising a part thereof, or any interest therein or the continued economic
operation thereof; and provided further that in any event adequate reserves in
-------- -------
accordance with GAAP are maintained against any adverse determination of such
contest.
"Permitted Investments" means (i) full faith and credit obligations of the
---------------------
United States of America, or fully guaranteed as to interest and principal by
the full faith and credit of the United States of America, maturing in not more
than one year from the date such investment is made, (ii) certificates of
deposit having a final maturity of not more than one year after the date of
issuance thereof of a Lender or of any other commercial bank incorporated under
the laws of the United States of America or any state thereof or the District of
Columbia, which bank is a member of the Federal Reserve System and has a
combined capital and surplus of not less than $500,000,000 and with a senior
unsecured debt credit rating of at least A by Moody's Investors Service, Inc.
and A by Standard & Poor's Corporation, (iii) commercial paper of the Lenders
having a remaining term until maturity of not more than 180 days from the date
such investment is made, (iv) commercial paper of companies, banks, trust
companies or national banking associations (in each case excluding Lessee and
its Affiliates) incorporated or doing business under the laws of the United
States or one of the States thereof, and (v) a money market fund registered
under the Investment Company Act of 1940, the portfolio of which is invested
entirely in United States governmental, and United States Agency, obligations in
each case having a remaining term until maturity of not more than 180 days
A-32
<PAGE>
Appendix 1 to
Participation Agreement
from the date such investment is made and rated at least P-1 by Moody's
Investors Service, Inc. or at least A-1 by Standard & Poor's Corporation.
"Permitted Liens" means (a) the respective rights and interests of Lessee, any
---------------
Person acting by, through or under Lessee pursuant to the terms of the Lease,
the Certificate Purchasers, Certificate Trustee, Qualified Users, Agents and the
Lenders, as provided in the Operative Documents; (b) Lessor Liens; (c) Liens for
Taxes either not yet due or being contested in good faith and by appropriate
proceedings diligently conducted, so long as (i) such proceedings shall not
involve any meaningful risk of a Lien being placed on the Systems or related
Equipment, and (ii) any reserve or other appropriate provision required by GAAP
shall have been made in respect of the Lien; (d) materialmen's, mechanics',
workers', repairmen's, employee's, landlord's or other statutory Liens arising
in the ordinary course of business for amounts either not yet due or being
contested in good faith and by appropriate proceedings so long as (i) no Lease
Event of Default shall have occurred and be continuing, (ii) such proceedings
shall not involve any meaningful risk in the circumstances of the sale,
forfeiture or loss of any part of the Trust Estate, title thereto or any
interest therein and shall not interfere with the use or disposition of any
System or related Equipment, or the Trust Estate, or the payment of Rent, and
(iii) any reserve or other appropriate provision required by GAAP shall have
been made in respect of the Lien; (e) Liens arising after an Advance Date out of
judgments or awards with respect to which at the time an appeal or proceeding
for review is being prosecuted in good faith and either have been bonded to the
satisfaction of Information Agent or the enforcement of such Lien has been
stayed pending such appeal or review; and (f) any Lien or Liens (excluding any
Lien described in clauses (a) through (e)) securing obligations in the aggregate
amount not to exceed, when added to the Liens described in clause (d) above,
----------
$5,000,000.
"Person" means an individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, limited
A-33
<PAGE>
Appendix 1 to
Participation Agreement
liability company, unincorporated organization or Governmental Authority.
"Plan" means any pension plan (including a multiemployer plan) subject to the
----
provisions of Title IV of ERISA or Section 412 of the Code which is maintained
for or to which contributions are made for employees of Lessee or any ERISA
Affiliate.
"Principal Subsidiary" means, as of any date, any Subsidiary of Guarantor
--------------------
whose Consolidated Tangible Assets comprise in excess of 40% of the Consolidated
Tangible Assets of Guarantor and its consolidated Subsidiaries.
"Prohibited Transaction" means a transaction that is prohibited under Code
----------------------
Section 4975 or ERISA Section 406 and not exempt under Code Section 4975 or
ERISA Section 408.
"Purchase Option" has the meaning set forth in Section 4.2 of the Lease.
--------------- -----------
"Purchase Option Exercise Amount" means, with respect to any Lease Supplement,
-------------------------------
as of any date of determination, the sum of (a) the applicable Lease Supplement
Balance with respect to such Lease Supplement, as of the date of purchase, plus
----
(b) all accrued but unpaid Rent, including any amount of Supplemental Rent owed
by Lessee under Section 3.2 of the Lease with respect to such Lease Supplement,
-----------
plus (c) all other sums then due and payable under the Operative Documents by
- ----
Lessee and any of its Affiliates (including, without limitation, any breakage
fees pursuant to Section 2.12 of the Loan Agreement, plus (d) a prepayment
------------ ----
charge in an amount equal to the product of (i) the amount of the applicable
Lease Supplement Balance with respect to such Lease Supplement, as of the date
of purchase, and (ii) 0.36 of 1% (thirty-six (36) basis points) in the first
month of the Base Term and declining ratably each succeeding month of the Base
Term so that the prepayment charge would be equal to zero at the end of the Base
Term.
A-34
<PAGE>
Appendix 1 to
Participation Agreement
"Purchase Order" has the meaning set forth in the recitals to the Purchase
--------------
Order Assignment.
"Purchase Order Assignment" means the Purchase Order Assignment, dated the
-------------------------
date of the Participation Agreement, between the Construction Agent and Lessor,
substantially in the form of Exhibit L to the Participation Agreement.
---------
"Qualified MAN or FCL" means, at any date of determination, any MAN or FCL
--------------------
which is composed, in whole or in part, of Leased Assets.
"Qualified Use Agreement" has the meaning set forth in Section 10.1(b) of the
----------------------- ---------------
Lease.
"Qualified User" has the meaning set forth in Section 10.1(b) of the Lease.
-------------- ---------------
"Recourse Deficiency Amount" means, with respect to the exercise of the Sale
--------------------------
Option with respect to any Lease Supplement, the difference between (i) the
applicable Purchase Option Exercise Amount at the end of any Renewal Term in
which such Sale Option was elected and (ii) the product of (A) 20.0% and (B) the
Fair Market Sales Value of the System, including the Equipment, subject to such
Lease Supplement as of the first day of the Renewal Term in which such Sale
Option was elected.
"Recourse Sale Proceeds" has the meaning set forth in Section 4.5(c) of the
---------------------- --------------
Lease.
"Regulated Activity" means the use, Release, generation, treatment, storage,
------------------
recycling, transportation or disposal of Hazardous Material to the extent such
activities are regulated by any Governmental Authority.
"Regulations" means the income tax regulations promulgated from time to time
-----------
under and pursuant to the Code.
A-35
<PAGE>
Appendix 1 to
Participation Agreement
"Release" means the release, deposit, disposal or leak of any Hazardous
-------
Material into or upon or under any land or water or air, or otherwise into the
environment, including by means of burial, disposal, discharge, emission,
injection, spillage, leakage, seepage, leaching, dumping, pumping, pouring,
escaping, emptying, placement and the like.
"Remaining Commitment" means, as to any Participant, the difference between
--------------------
such Participant's Commitment and the total amounts advanced by such
Participant, including all amounts of Capitalized Interest and Capitalized
Yield, as of the date of determination.
"Renewal Term" has the meaning set forth in Section 2.4 of the Lease.
------------ -----------
"Rent" means Base Rent, Holdover Rent and Supplemental Rent, collectively.
----
"Replacement Participant" has the meaning set forth in Section 2.11(a) of the
----------------------- ---------------
Participation Agreement.
"Required Certificate Purchasers" means, as of the date of the determination,
-------------------------------
Certificate Purchasers having unpaid Certificate Purchaser Amounts equal to more
than 50% of the aggregate unpaid Certificate Purchaser Amounts.
"Required Entities" means, as of the date of the determination, Lenders and
-----------------
Certificate Purchasers having aggregate investments in the Overall Transaction
(as measured by the outstanding principal amount of the Notes then outstanding
and the Certificate Purchaser Amounts then invested) equal to more than 50% of
the aggregate total of all such investments.
"Responsible Officer" means with respect to the Bank, Certificate Trustee or
-------------------
Administrative Agent, any officer in its Corporate Trust Department, and with
respect to any other Person, the Chairman or Vice Chairman of the Board of
Directors, the
A-36
<PAGE>
Appendix 1 to
Participation Agreement
Chairman or Vice Chairman of the Executive Committee of the Board of Directors,
the President, any Senior Vice President or Executive Vice President, any Vice
President, the Secretary or the Treasurer.
"Rights of Use" has the meaning set forth in Section 2.2 of the Support
------------- -----------
Agreement.
"Sale Deposit" has the meaning set forth in Section 4.5(a) of the Lease.
------------ --------------
"Sale Deposit Escrow Agreement" has the meaning set forth in Section 4.5(a) of
----------------------------- --------------
the Lease.
"Sale Option" has the meaning specified in Section 4.3 of the Lease.
----------- -----------
"Sale Option Purchaser" has the meaning set forth in Section 2.1 of the
--------------------- -----------
Support Agreement.
"SEC" means the United States Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933.
--------------
"Security Agreement" means the Security Agreement and Assignment of Lease,
------------------
dated the date of the Participation Agreement, between Borrower and
Administrative Agent, substantially in the form of Exhibit K to the
---------
Participation Agreement.
"Settlement Actions" has the meaning set forth in Section 6.2 of the Trust
------------------ -----------
Agreement.
"Southwest FCL" has the meaning set forth in the Recitals of to the
-------------
Participation Agreement.
A-37
<PAGE>
Appendix 1 to
Participation Agreement
"Stated Maturity" means, with respect to any Note or Certificate, the date
---------------
specified in such Note or Certificate as the fixed date on which the principal
of such Note or the Certificate Purchaser Amount of such Certificate shall be
due and payable.
"Subsidiary" means for any Person (herein referred to as the "parent"), any
----------
corporation, partnership, association or other business entity (a) of which
securities or other ownership interests representing more than 50% of the equity
or more than 50% of the ordinary voting power or more than 50% of the general
partnership interests are, at the time any determination is being made, owned,
controlled, or held, (b) which is, at the time any determination is made,
otherwise Controlled by the parent and/or one or more Subsidiaries of the
parent, or (c) for purposes of the definition of "Indirect Beneficial Ownership
Interest" of which securities or any other ownership interests are, at the time
any determination is being made, owned, controlled or held.
"Supplemental Funding" has the meaning set forth in Section 2.11(a) of the
-------------------- ---------------
Participation Agreement.
"Supplemental Rent" means any and all amounts, liabilities and obligations
-----------------
other than Base Rent which Lessee assumes or agrees or is otherwise obligated or
designated to pay under the Lease or any other Operative Document (whether or
not designated as Supplemental Rent) to Certificate Trustee, Administrative
Agent, the Certificate Purchasers, the Lenders or any other Person, including
Additional Costs, indemnities and damages for breach of any covenants,
representations, warranties or agreements.
"Support Agreement" means the Support Agreement, dated the date of the
-----------------
Participation Agreement, between Lessee and Certificate Trustee, substantially
in the form of Exhibit G to the Participation Agreement.
---------
"Support Items" has the meaning set forth in Section 2.3 of the Support
------------- -----------
Agreement.
A-38
<PAGE>
Appendix 1 to
Participation Agreement
"Support Rights" means all Access Rights, Rights of Use, Support Items and
--------------
Governmental Approvals granted pursuant to Article 2 of the Support Agreement.
---------
"Surviving Company" has the meaning set forth in Section 5.2(a) of the
----------------- --------------
Participation Agreement.
"System" means an integrated assembly of Equipment that is economically
------
operable, in conjunction with the related Support Rights, as a discrete revenue-
producing unit for telephone, data transmission, video or other communications
or other data transmissions purposes at, within or among one or more Designated
Locations, and which forms all, or a component part, of a MAN or an FCL.
"Taxes" and "Tax" mean any and all fees (including documentation, recording,
----- ---
license and registration fees), taxes (including income (whether net, gross or
adjusted gross), franchise, gross receipts, sales, rental, use, turnover, value-
added, property, excise and stamp taxes), levies, imposts, duties, charges,
assessments or withholdings of any nature whatsoever, together with any
penalties, fines or interest thereon or additions thereto.
"Transaction Costs" means transaction costs and expenses incurred (a) by the
-----------------
Arranger, Certificate Trustee, Administrative Agent, Information Agent and the
Participants in connection with the consummation and closing of the transactions
contemplated by the Operative Documents, and the preparation, negotiation,
execution and delivery of the Operative Documents, including (1) subject to a
maximum of $275,000, the reasonable fees and expenses of Mayer, Brown & Platt,
or any other firm which is the primary special counsel to the Participants
through the Document Closing Date, (2) the reasonable legal fees and expenses of
Mayer, Brown & Platt, or any other firm which is the primary special counsel to
the Participants incurred after the Document Closing Date; (3) the reasonable
fees and expenses of regulatory counsel
A-39
<PAGE>
Appendix 1 to
Participation Agreement
(which shall be selected by Information Agent after consultation with Lessee) in
connection with FERC or state public utility commission hearings arising out of
the Overall Transaction; (4) the ongoing fees and reasonable expenses of
Certificate Trustee and its special counsel; (5) all appraisal fees and
reasonable expenses; and (6) all fees, costs and expenses of Administrative
Agent, subject to the letter agreement dated December 21, 1994, and, (b) subject
to a maximum of $300,000, by Lessee and Guarantor in connection with the
consummation and closing of the transactions contemplated by the Operative
Documents, and the preparation, negotiation, execution and delivery of the
Operative Documents.
"Trust" means the trust created by the Trust Agreement.
-----
"Trust Agreement" means the Trust Agreement (Electric Lightwave, Inc. Trust
---------------
No. 1995-A), dated the date of the Participation Agreement, among Certificate
Trustee and the Certificate Purchasers, substantially in the form of Exhibit F
---------
to the Participation Agreement.
"Trust Estate" means all estate, right, title and interest of Certificate
------------
Trustee in, to and under the Systems and related Equipment, the Trust Agreement,
the Lease, and all of the other Operative Documents, including (i) all amounts
(other than Excluded Amounts) of Rent and other payments due or to become due of
any kind for or with respect to the Systems and related Equipment or payable
under any of the foregoing, (ii) any or all payments or proceeds received by
Certificate Trustee after the termination of the Lease with respect to the
Systems and related Equipment as the result of the sale, lease or other
disposition thereof and (iii) proceeds of the Loans and the investments in the
Certificates, together with any other moneys, proceeds or property at any time
received by Certificate Trustee under or in connection with the Operative
Documents.
"UCC" means the Uniform Commercial Code of New York or any other applicable
---
jurisdiction.
A-40
<PAGE>
Appendix 1 to
Participation Agreement
"Yield" means, during the Lease Term with respect to each Interest Period, the
-----
product of (a) the applicable Yield Rate payable from time to time and (b) the
aggregate Certificate Purchaser Amounts outstanding.
"Yield Rate" means, with respect to each Interest Period, the applicable
----------
interest rate payable from time to time on the Certificates, which interest rate
shall be (a) for an Interest Period for which a LIBO Rate Loan is made, the
interest rate per annum equal to (i) the Blended Rate Differential, as defined
below, plus (ii) the Applicable Index Rate, or (b) for an Interest Period for
which an Alternate Base Rate Loan is made, the Alternate Base Rate.
For purposes of the foregoing calculation, the "Blended Rate Differential" shall
-------------------------
mean, for any Interest Period for which a LIBO Rate Loan is made, with reference
to any Applicable Margin set forth below in effect as of the date of
determination, the interest rate per annum which would cause the total of all
interest and Yield payable during such Interest Period on the total outstanding
principal amount of such LIBO Rate Loan and the aggregate related Certificate
Purchaser Amounts to equal the product of (A) the sum of the then outstanding
principal balance of such LIBO Rate Loan and the aggregate related Certificate
Purchaser Amounts and (B) the Applicable Index Rate plus the Blended Margin
(expressed as a per annum interest rate) set forth below opposite such
Applicable Margin:
Applicable Margin Blended Margin
----------------- --------------
0.2425% 0.25%
0.4425% 0.45%
0.9925% 1.00%
A-41
<PAGE>
Appendix 2 to
Participation Agreement
APPENDIX 2
to
Participation Agreement
-----------------------
(Electric Lightwave Inc. Trust No. 1995-A)
CONDITIONS PRECEDENT TO DOCUMENT CLOSING DATE
(a) Authorization, Execution and Delivery of Documents; No Default. The
--------------------------------------------------------------
Participation Agreement, the Lease, the Construction Agency Agreement, the
Guaranty, the Trust Agreement, the Loan Agreement, the Notes and the
Certificates and each other Operative Document shall have been duly authorized,
executed and delivered by each of the parties thereto, shall (to the extent the
form and substance thereof shall not be prescribed hereby) be in form and
substance satisfactory to such parties and an executed counterpart of each
thereof shall have been delivered to each of the Certificate Purchasers,
Certificate Trustee, the Lenders and Administrative Agent. Each Lender shall
have received an original, duly executed Note registered in such Lender's name,
and each Certificate Purchaser shall have received an original, duly executed
Certificate registered in such Certificate Purchaser's name. Each of the
Participation Agreement, the Lease, the Construction Agency Agreement, the
Guaranty, the Trust Agreement, the Loan Agreement, the Notes and the
Certificates shall be in full force and effect as to all other parties and no
Lease Default or Lease Event of Default shall have occurred or be continuing.
(b) Litigation. No action or proceeding shall have been instituted or
----------
threatened nor shall any Governmental Approval be instituted or threatened
before any Governmental Authority, nor shall any order, judgment or decree have
been issued or proposed to be issued by any Governmental Authority, to set
aside, restrain, enjoin or prevent the performance of this Agreement, any other
Operative Document or the Overall
1
<PAGE>
Appendix 2 to
Participation Agreement
Transaction or which is reasonably likely, in the sole opinion of the Required
Entities, to have a Material Adverse Effect.
(c) Legality, etc. In the opinion of each Participant or its counsel, the
-------------
transactions contemplated by the Operative Documents shall not violate any
Applicable Laws and no change shall have occurred or been proposed in Applicable
Laws that would make it uneconomic or illegal for any party to any Operative
Document to participate in any of the transactions
contemplated by the Operative Documents or otherwise would prohibit the
consummation of any transaction contemplated by the Operative Documents or
expand the duties, obligations and risks of such Participant.
(d) Governmental and Other Approvals. All necessary (or, in the reasonable
--------------------------------
opinion of Certificate Trustee, the Required Entities, Administrative Agent
or any of their respective counsel, advisable) Governmental Approvals, in
each case required by any Applicable Laws, and other required third party
approvals, including (i) a final, nonappealable order of the Federal Energy
Regulatory Commission approving the Guaranty and (ii) either (A) approvals
of the state public utility commissions in each State in which all or any
part of a System will be located or (B) opinions of local regulatory
counsel in each such State to the effect that no such approval is required,
shall have been obtained or made and be in full force and effect.
(e) Requirements of Law. In the reasonable opinion of Lessor, the Information
-------------------
Agent and their respective counsel, the transactions contemplated by the
Operative Documents do not and will not violate in any Applicable Laws and
do not and will not subject Lessor, any Certificate Purchaser, either Agent
or any Lender to any adverse regulatory prohibitions or constraints.
(f) Opinions. The following opinions, each dated the Document Closing Date,
--------
substantially in the form set forth in the Exhibit noted below, and containing
such other matters as the
2
<PAGE>
Appendix 2 to
Participation Agreement
parties to whom they are addressed shall reasonably request, shall have been
delivered and addressed to each of Certificate Trustee, the Certificate
Purchasers, Administrative Agent and the Lenders:
(i) the opinion of Boulanger, Hicks, Stein & Churchill, counsel
for Lessee (Exhibit H-1/H-2);
---------------
(ii) the opinion of internal counsel for Lessee (Exhibit H-1/H-
-------------
2);
(iii) the opinion of Shipman & Goodwin, special counsel for
Certificate Trustee (Exhibit H-3); and
-----------
(iv) the opinion of Boulanger, Hicks, Stein & Churchill, counsel
for Guarantor (Exhibit H-5)).
-------------
(g) Corporate Status and Proceedings. On or prior to the
--------------------------------
Document Closing Date, each of the Participants, Certificate Trustee and
Administrative Agent shall have received:
(i) certificates of existence and good standing with respect to
each of Lessee and Guarantor from (A) the Secretary of the State of the
State of Delaware and (B) the Secretary of State of each State in which all
or any part of any System is located, each dated no earlier than the 10th
day prior to the Document Closing Date;
(ii) copies of each of Lessee's and Guarantor's certificate of
incorporation, certified by the Secretary of State of the State of Delaware
no earlier than the 10th day prior to the Document Closing Date; and
(ii) with respect to Lessee and Guarantor, an Officer's
Certificate substantially in the form of Exhibits I-1 and I-2,
--------------------
respectively, dated the Document Closing Date, with respect to such
Person's governing documents, resolutions
3
<PAGE>
Appendix 2 to
Participation Agreement
and incumbent officers, representations and warranties and absence of
defaults.
(h) No Material Adverse Effect. There shall not have occurred
--------------------------
any Material Adverse Effect.
(i) Certificate Trustee Officer's Certificate. Each Participant
-----------------------------------------
and Administrative Agent shall have received (x) a certificate of the Secretary
or Assistant Secretary of Certificate Trustee attaching and certifying as to (i)
the corporate authority for the execution, delivery and performance by
Certificate Trustee of each Operative Document to which it is or will be a
party, (ii) its organizational documents, (iii) its by-laws, and (iv) the
incumbency and signature of persons authorized to execute and deliver such
documents on behalf of Certificate Trustee, and (y) a good standing certificate
from the appropriate Governmental Authority as to Certificate Trustee's good
standing.
(j) Arrangement Fee. Lessee shall have paid the Arrangement Fee
---------------
to BA Leasing & Capital Corporation.
(k) UCC Filings. All required UCC filings shall have been made
-----------
sufficient to perfect Administrative Agent's security interest in the
Collateral.
(l) Lease Supplements. Lessee and Lessor shall have executed
-----------------
and delivered a separate Lease Supplement with regard to each group of Systems
to be leased under the Lease that will comprise part or all of a single MAN or
the Southwest FCL.
(m) Letter Agreements. In the opinion of Administrative Agent,
-----------------
all appropriate letter agreements between the parties to the Participation
Agreement shall have been executed by and delivered to the appropriate parties.
4
<PAGE>
Appendix 2 to
Participation Agreement
(n) Purchase Order Assignment. Administrative Agent shall have
-------------------------
received, with sufficient counterpart originals for Certificate Trustee,
Information Agent and each Participant, a Purchase Order Assignment, fully
executed by the Construction Agent and Lessor.
(o) Insurance. Administrative Agent shall have received
---------
certificates of insurance conforming with the requirements of Section 9.1 of the
-----------
Lease.
(p) Other Documents. Participants shall have received such
---------------
other documents as they may reasonably require.
All documents and instruments required to be delivered on the Document Closing
Date shall be delivered at the offices of Mayer, Brown & Platt, 1675 Broadway,
New York, New York 10019-5820, or at such other location as may be determined by
Certificate Trustee, Administrative Agent and Lessee.
5
<PAGE>
================================================================================
EXHIBIT A TO
GUARANTY
dated as of April 28, 1995
of
CITIZENS UTILITIES COMPANY
in favor of
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION,
individually and as Certificate
Trustee and Administrative Agent
and
BA LEASING & CAPITAL CORPORATION,
individually and as
Information Agent
and
OTHER BENEFICIARIES
================================================================================
<PAGE>
TABLE OF CONTENTS
-------------------------
Page
----
SECTION 1. Guaranty.................................. 2
SECTION 2. Guarantor's Obligations Unconditional..... 3
SECTION 3. Waiver and Agreement...................... 5
SECTION 4. Waiver of Subrogation..................... 6
SECTION 5. Rights of the Beneficiaries............... 7
SECTION 6. Term of Guaranty.......................... 7
SECTION 7. Further Assurances........................ 7
SECTION 8. Notices, etc.............................. 7
SECTION 9. Amendments, etc........................... 7
SECTION 10. Severability............................. 7
SECTION 11. Choice of Law............................ 7
SECTION 12. Successors and Assigns................... 8
SECTION 13. Table of Contents........................ 8
<PAGE>
Guaranty
GUARANTY
--------
This GUARANTY (the "Guaranty"), dated as of April 28, 1995, of CITIZENS
--------
UTILITIES COMPANY, a Delaware corporation (the "Guarantor"), is made in favor of
---------
the Beneficiaries, as such term is defined in Appendix 1 to that certain
Participation Agreement (Electric Lightwave, Inc. Trust No. 1995-A), dated as of
April 28, 1995, among Electric Lightwave, Inc., a Delaware corporation
("Lessee"), Certificate Trustee, the Agents, the Guarantor and the Lenders and
------
Certificate Purchasers identified therein. Capitalized terms used herein and
not otherwise defined shall have the meanings assigned to them in the
Participation Agreement, unless the context otherwise requires.
WHEREAS, Guarantor is the beneficial owner of all of the issued and
outstanding capital stock of Lessee;
WHEREAS, pursuant to the Lease, the Construction Agency Agreement and the
Participation Agreement, Certificate Trustee has agreed to lease the Systems
referred to therein to Lessee after the construction thereof is completed, and
Lessee has agreed to lease the Systems at such time from Certificate Trustee;
WHEREAS, pursuant to the Construction Agency Agreement, Construction Agent has
agreed to construct the Systems;
WHEREAS, pursuant to the Loan Agreement, Lenders have agreed to fund ninety-
seven percent (97%) of the costs of the construction of the Systems, including
the costs of purchasing and installing the related Equipment, and, pursuant to
the Trust Agreement, Certificate Purchasers have agreed to fund three percent
(3%) of such costs;
WHEREAS, Lenders and Certificate Purchasers are unwilling to enter into the
transactions contemplated by the Participation Agreement, Shawmut Bank
Connecticut, National Association is unwilling to accept its appointment as
Certificate Trustee and Administrative Agent set forth in the Trust Agreement
and the
<PAGE>
Guaranty
Participation Agreement, respectively, and BA Leasing & Capital Corporation is
unwilling to accept its appointment as Information Agent, unless Guarantor
executes this Guaranty, and as a material and necessary inducement to the
Lenders, the Certificate Purchasers and the Agents, Guarantor is entering into
this Guaranty and the guaranty provided for herein; and
WHEREAS, it is in the best interest of Guarantor to execute this Guaranty
inasmuch as Guarantor will derive substantial direct and indirect economic
benefits from the transactions contemplated by the Participation Agreement;
NOW, THEREFORE, Guarantor covenants and agrees as follows:
SECTION 1. Guaranty. Guarantor hereby unconditionally and irrevocably
--------
guarantees to each Beneficiary as their respective interests may appear: (a)
the due, punctual and full payment by Lessee of all amounts (including, without
limitation, amounts payable as damages in case of default) to be paid by Lessee
pursuant to the Construction Agency Agreement, the Lease, the Participation
Agreement and any other Operative Documents to which Lessee is or is to be a
party, whether such obligations now exist or arise hereafter, as and when the
same shall become due and payable, in accordance with the terms thereof; and (b)
the due, prompt and faithful performance of, and compliance with, all other
obligations, covenants, terms, conditions and undertakings of Lessee contained
in the Construction Agency Agreement, the Lease, the Participation Agreement or
any other Operative Document to which Lessee is or is to be a party in
accordance with the terms thereof (such obligations referred to in clauses (a)
-----------
and (b) above being hereinafter called the "Obligations"). Guarantor further
--- -----------
agrees to pay any and all reasonable costs and expenses (including reasonable
fees and disbursements of counsel) that may be paid or incurred by any
Beneficiary in collecting any Obligations and/or in preserving or enforcing any
rights under this Guaranty or under the Obligations.
The Guaranty is an unconditional and irrevocable guaranty of payment,
performance and compliance and not of collectability, is in no way conditioned
or contingent upon any attempt to collect
-2-
<PAGE>
Guaranty
from or enforce performance or compliance by Lessee, and shall be binding upon
and against Guarantor without regard to the validity or enforceability of the
Construction Agency Agreement, the Lease, the Participation Agreement or any
other Operative Document.
If for any reason whatsoever Lessee shall fail or be unable duly, punctually
and fully to pay such amounts as and when the same shall become due and payable
or to perform or comply with any such obligation, covenant, term, condition or
undertaking, Guarantor will immediately pay or cause to be paid such amounts to
the Person or Persons entitled to receive the same (according to their
respective interests) under the terms of the Operative Documents, as
appropriate, or perform or comply with any such obligation, covenant, term,
condition or undertaking or cause the same to be performed or complied with,
together with interest on any amount due and owing from the date the same shall
have become due and payable to the date of payment.
SECTION 2. Guarantor's Obligations Unconditional. The covenants and
-------------------------------------
agreements of Guarantor set forth in this Guaranty shall be primary obligations
of Guarantor, and such obligations shall be continuing, absolute and
unconditional, shall not be subject to any counterclaim, setoff, deduction,
diminution, abatement, recoupment, suspension, deferment or reduction or defense
available to a surety or guarantor (other than full and strict compliance by
Guarantor with its expressed obligations hereunder and under the Participation
Agreement or by Lessee under the Operative Documents to which it is a party),
whether based upon any claim that Lessee, Guarantor, or any other Person may
have against any Beneficiary or any other Person or otherwise, and shall remain
in full force and effect without regard to, and shall not be released,
discharged or in any way affected by, any circumstance or condition whatsoever
(whether or not Guarantor or Lessee shall have any knowledge or notice thereof)
including, without limitation:
(a) any amendment, modification, addition, deletion, supplement or renewal
to or of or other change in the Obligations, including a change in the
amount of Rent, or any Operative Document or any of the agreements
-3-
<PAGE>
Guaranty
referred to in any thereof, or any other instrument or agreement
applicable to any Operative Document or any of the parties to such
agreements, or to the Equipment, or any assignment, mortgage or
transfer thereof or of any interest therein, or any furnishing or
acceptance of additional security for, guaranty of or right of offset
with respect to, any of the Obligations; or the failure of any
security or the failure of any Beneficiary to perfect or insure any
interest in any collateral (Guarantor acknowledges that the
Beneficiaries do not intend to have a perfected security interest in
the Equipment);
(b) any failure, omission or delay on the part of Lessee to conform or
comply with any term of any instrument or agreement referred to in
clause (a) above;
----------
(c) any waiver, consent, extension, indulgence, compromise, release or
other action or inaction under or in respect of any instrument,
agreement, guaranty, right of offset or security referred to in clause
------
(a) above or any obligation or liability of Lessee or any Beneficiary,
---
or any exercise or non-exercise by any Beneficiary of any right,
remedy, power or privilege under or in respect of any such instrument,
agreement, guaranty, right of offset or security or any such
obligation or liability;
(d) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or similar proceeding with respect to Lessee,
or any of its properties or creditors, the imposition of any stay or
injunction in connection with any such proceeding, including the
automatic stay imposed by '362(a) of the Bankruptcy Code, or any
action taken by any trustee or receiver or by any court in any such
proceeding;
(e) any limitation on the liability or obligations of any Person under the
Lease or any other Operative Document, the Obligations, any collateral
security for the
-4-
<PAGE>
Guaranty
Obligations or any other guaranty of the Obligations
or any discharge, termination, cancellation, frustration,
irregularity, invalidity or unenforceability, in whole or in part, of
any of the foregoing, or any other agreement, instrument, guaranty or
security referred to in clause (a) above or any term of any thereof;
----------
(f) any defect in the title, compliance with specifications, condition,
design, operation or fitness for use of, or any damage to or loss or
destruction of, or any interruption or cessation in the use of the
Systems or Equipment subject to a Lease Supplement by Lessee or any
other Person for any reason whatsoever (including, without limitation,
any governmental prohibition or restriction, condemnation,
requisition, seizure or any other act on the part of any governmental
or military authority, or any act of God or of the public enemy)
regardless of the duration thereof (even though such duration would
otherwise constitute a frustration of a lease), whether or not
resulting from accident and whether or not without fault on the part
of Lessee or any other Person;
(g) any merger or consolidation of Lessee (or any sublessee or assignee)
or Guarantor into or with any other Person or any sale, lease or
transfer of any of the assets of Lessee or Guarantor to any other
Person;
(h) any change in the ownership of any shares of capital stock of Lessee
or any corporate change in Lessee; or
(i) any other occurrence or circumstance which is similar to the
foregoing, and any other circumstance that might otherwise constitute
a legal or equitable defense or discharge of the liabilities of a
guarantor or surety.
The obligations of Guarantor set forth herein constitute the full recourse
obligations of Guarantor, enforceable against it to the full extent of all its
assets and properties.
-5-
<PAGE>
Guaranty
SECTION 3. Waiver and Agreement. Guarantor waives any and all notice of the
--------------------
creation, renewal, extension or accrual of any of the Obligations and notice of
or proof of reliance by any Beneficiary upon this Guaranty or acceptance of this
Guaranty, and the Obligations, and any of them, shall conclusively be deemed to
have been created, contracted or incurred in reliance upon this Guaranty.
Guarantor unconditionally waives, to the extent permitted by law: (a)
acceptance of this Guaranty and proof of reliance by any Beneficiary hereon; (b)
notice of any of the matters referred to in Section 2, or any right to consent
---------
or assent to any thereof; (c) all notices that may be required by statute, rule
of law or otherwise, now or hereafter in effect, to preserve intact any rights
against Guarantor, including without limitation, any demand, presentment,
protest, proof or notice of nonpayment under the Construction Agency Agreement,
the Lease, the Participation Agreement or any other Operative Document (other
than notice of legal proceedings against Guarantor; provided, that the filing of
--------
any suit against Guarantor in accordance with Applicable Laws and rules of court
shall be deemed to constitute such notice), and notice of default or any failure
on the part of Lessee to perform and comply with any covenant, agreement, term
or condition of the Construction Agency Agreement, the Lease, the Participation
Agreement or any other Operative Document; (d) any right to the enforcement,
assertion or exercise against Lessee of any right, power, privilege or remedy
conferred in the Construction Agency Agreement, the Lease, the Participation
Agreement or any other Operative Document or otherwise; (e) any requirement of
diligence on the part of any Person; (f) any requirement of any Beneficiary to
take any action whatsoever, to exhaust any remedies or to mitigate the damages
resulting from a default by any Person under the Construction Agency Agreement,
the Lease, the Participation Agreement, or any other Operative Document; (g) any
notice of any sale, transfer or other disposition by any Person of any right
under, title to or interest in the Construction Agency Agreement, the Lease, the
Participation Agreement, any other Operative Document or the Collateral; (h) any
circumstance similar to the foregoing which might otherwise limit recourse
against Guarantor by any Beneficiary, and (i) any other
-6-
<PAGE>
Guaranty
circumstance whatsoever that might otherwise constitute a legal or equitable
discharge, release or defense of a guarantor or surety.
Guarantor agrees that this Guaranty shall be automatically reinstated if and
to the extent that for any reason any payment by or on behalf of Lessee is
rescinded or must be otherwise restored by any of the Beneficiaries, whether as
a result of any proceedings in bankruptcy or reorganization or otherwise.
Guarantor further agrees that, without limiting the generality of this
Guaranty, if a Lease Event of Default shall have occurred and be continuing and
Certificate Trustee is prevented by Applicable Laws, including, without
limitation, the imposition of an automatic stay under Section 312(a) of the
Bankruptcy Code or the imposition of an injunction under Section 105 of the
Bankruptcy Code, from exercising its remedies under the Lease, Certificate
Trustee shall be entitled to receive hereunder from Guarantor, upon demand
therefor, the sums which would have otherwise been due from Lessee had such
remedies been exercised.
SECTION 4. Waiver of Subrogation. Guarantor hereby irrevocably waives any
---------------------
claim or other rights which it may now or hereafter acquire against Lessee that
arise from the existence, payment, performance or enforcement of Guarantor's
obligations under this Guaranty or any other Operative Document, including any
right of subrogation, reimbursement, exoneration, or indemnification, any right
to participate in any claim or remedy of the Beneficiaries against Lessee or any
Collateral which Administrative Agent or Certificate Trustee now has or
hereafter acquires, whether or not such claim, remedy or right arises in equity
or under contract, statute or common law, including the right to take or receive
from Lessee, directly or indirectly, in cash or other property or by set-off or
in any manner, payment or security on account of such claim or other rights. If
any amount shall be paid to Guarantor in violation of the preceding sentence and
the Obligations shall not have been indefeasibly paid in cash, such amount shall
be deemed to have been paid to Guarantor for the benefit of, and held in trust
for, the Beneficiaries, and shall forthwith be paid to Certificate Trustee to be
credited and applied pursuant to the terms of the Participation Agreement and
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<PAGE>
Guaranty
the Lease. Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by the Participation
Agreement and that the waiver set forth in this Section 4 is knowingly made in
---------
contemplation of such benefits. Guarantor hereby absolutely, unconditionally
and irrevocably waives and agrees not to assert or take advantage of any defense
based upon an election of remedies by Certificate Trustee, including an election
to proceed by non-judicial rather than judicial foreclosure, which destroys or
impairs any right of subrogation of Guarantor or the right of Guarantor to
proceed against any Person for reimbursement or both.
SECTION 5. Rights of the Beneficiaries. This Guaranty is made for the
---------------------------
benefit of, and shall be enforceable by, each Beneficiary as its interest may
appear.
SECTION 6. Term of Guaranty. This Guaranty and all guaranties, covenants and
----------------
agreements of Guarantor contained herein shall continue in full force and effect
and shall not be discharged until such time as all the Obligations shall be
indefeasibly paid in full in cash and all the agreements of Lessee and Guarantor
hereunder and under Construction Agency Agreement, the Lease, the Participation
Agreement and the other Operative Documents shall have been duly performed. If,
as a result of any bankruptcy, dissolution, reorganization, insolvency,
arrangement or liquidation proceedings (or proceedings similar in purpose or
effect), or if for any other reason any payment received by any Beneficiary in
respect of the Obligations is rescinded or must be returned by such Beneficiary,
this Guaranty shall continue to be effective as if such payment had not been
made and, in any event, as provided in the preceding sentence.
SECTION 7. Further Assurances. Guarantor hereby agrees to execute and
------------------
deliver all such instruments and take all such action as Administrative Agent or
any other Beneficiary may from time to time reasonably request in order to fully
effectuate the purposes of this Guaranty.
SECTION 8. Notices, etc. All notices, demands, requests, consents, approvals
-------------
and other instruments hereunder shall be in
-8-
<PAGE>
Guaranty
writing and shall be deemed to have been properly given if given as provided for
in Section 9.3 of the Participation Agreement.
SECTION 9. Amendments, etc. No amendment to or waiver of any provision of
----------------
this Guaranty, nor consent to any departure by Guarantor herefrom, shall in any
event be effective unless the same shall be in writing and signed by
Administrative Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
SECTION 10. Severability. In case any provisions of this Guaranty or any
------------
application thereof shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions and statements and any
other application thereof shall not in any way be affected or impaired thereby.
To the extent permitted by law, Guarantor hereby waives any provision of law
that renders any term or provision hereof invalid or unenforceable in any
respect.
SECTION 11. Choice of Law. THIS GUARANTY SHALL IN ALL RESPECTS BE GOVERNED
-------------
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE.
SECTION 12. Successors and Assigns. This Guaranty shall be binding upon
----------------------
Guarantor and its successors, transferees and assigns and inure to the benefit
of and be enforceable by the respective successors, transferees, and assigns of
the Beneficiaries, provided, however, that Guarantor may not delegate any of its
-------- -------
obligations hereunder without the prior written consent of Administrative Agent,
each Lender and each Certificate Purchaser.
SECTION 13. Table of Contents. The table of contents and headings in this
-----------------
Guaranty are for purposes of reference only, and shall not limit or otherwise
affect the meaning hereof.
[signature page follows]
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<PAGE>
Guaranty
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed as of
the date first above written.
CITIZENS UTILITIES COMPANY
By:
------------------------------------------
Name: Robert J. DeSantis
Title: Vice President and Treasurer
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<PAGE>
================================================================================
EXHIBIT B TO
CONSTRUCTION AGENCY AGREEMENT
dated as of April 28, 1995
between
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION
not in its individual capacity
but solely as Certificate Trustee
and
ELECTRIC LIGHTWAVE, INC.,
as Construction Agent
<PAGE>
Construction Agency Agreement
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
1.1. Defined Terms................................................. 2
ARTICLE II APPOINTMENT OF CONSTRUCTION AGENT
2.1. Appointment................................................... 2
2.2. Acceptance; Construction...................................... 2
2.3. Commencement of Construction.................................. 2
2.4. Application to this Agreement................................. 2
2.5. Term.......................................................... 3
2.6. Delegation; Construction Documents............................ 3
2.7. Scope of Authority............................................ 3
2.8. Covenants of Construction Agent............................... 4
ARTICLE III THE SYSTEMS
3.1. Construction.................................................. 5
3.2. Casualty, Condemnation and Events of Force Majeure............ 5
ARTICLE IV PAYMENT OF FUNDS
4.1. Funding of Construction Costs................................. 5
ARTICLE V CONSTRUCTION AGENCY EVENTS OF DEFAULT
5.1. Construction Agency Events of Default......................... 7
5.2. Survival...................................................... 8
5.3. Remedies; Remedies Cumulative................................. 8
ARTICLE VI NO CONSTRUCTION AGENCY FEE
6.1. Lease as Fulfillment of Certificate Trustee's
Obligations.................................................. 8
S-1
<PAGE>
Construction Agency Agreement
ARTICLE VII CERTIFICATE TRUSTEE'S RIGHTS; CONSTRUCTION
AGENT'S RIGHTS
7.1. Exercise of Certificate Trustee's Rights.................... 9
7.2. Certificate Trustee's Right to Cure Construction
Agent's Defaults............................................ 9
7.3. No Certificate Trustee Consent or Liability................. 9
S-2
<PAGE>
Construction Agency Agreement
ARTICLE IX MISCELLANEOUS
8.1. Notices........................................................ 10
8.2. Successors and Assigns......................................... 10
8.3. GOVERNING LAW.................................................. 10
8.4. Amendments and Waivers......................................... 10
8.5. Counterparts................................................... 10
8.6. Severability................................................... 10
8.7. Headings and Table of Contents................................. 11
8.8. Limitations on Recourse........................................ 11
8.9. Knowledge of Certificate Trustee and Bank...................... 11
S-3
<PAGE>
Construction Agency Agreement
CONSTRUCTION AGENCY AGREEMENT
-----------------------------
THIS CONSTRUCTION AGENCY AGREEMENT, dated as of April 28, 1995 (this
"Agreement"), is entered into between SHAWMUT BANK CONNECTICUT, NATIONAL
- ----------
ASSOCIATION, not in its individual capacity but solely as Certificate Trustee
("Certificate Trustee"), and ELECTRIC LIGHTWAVE, INC., a Delaware corporation
- ---------------------
(in its capacity as construction agent, "Construction Agent").
------------------
PRELIMINARY STATEMENT
A. Electric Lightwave, Inc., as Lessee, and Certificate Trustee, as Lessor,
are parties to that certain Lease, dated as of even date herewith (as amended,
supplemented or otherwise modified from time to time pursuant thereto, the
"Lease"), pursuant to which Lessee has agreed to lease from Certificate Trustee,
- ------
and Certificate Trustee has agreed to lease to Lessee, certain Systems and
Equipment.
B. Certificate Trustee and Lessee are also parties to that certain
Participation Agreement (Electric Lightwave, Inc. Trust No. 1995-A), dated of
even date herewith (as amended, supplemented or otherwise modified, the
"Participation Agreement"), among Certificate Trustee, Electric Lightwave, Inc.,
- ------------------------
as Lessee and as Construction Agent, Shawmut Bank Connecticut, National
Association, as Certificate Trustee and Administrative Agent, the Lenders and
the Certificate Purchasers identified therein, BA Leasing & Capital Corporation,
as Information Agent, and Citizens Utilities Company, as Guarantor.
C. In accordance with the terms and conditions hereof and pursuant to the
Participation Agreement, (i) Certificate Trustee desires to appoint Construction
Agent as its sole and exclusive agent for the construction of each System, and
(ii) Construction Agent desires, for the benefit of Certificate Trustee, to
cause each System to be constructed.
<PAGE>
Construction Agency Agreement
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
I.1. Defined Terms. Capitalized terms used but not otherwise defined in this
-------------
Agreement shall have the meanings set forth in Appendix 1 to the Participation
Agreement.
ARTICLE II
APPOINTMENT OF CONSTRUCTION AGENT
II.1. Appointment. Pursuant to and subject to the terms and conditions set
-----------
forth herein and in the Participation Agreement and the other Operative
Documents, Certificate Trustee hereby irrevocably designates and appoints
Construction Agent as its exclusive agent for the construction of each System.
II.2. Acceptance; Construction. Construction Agent hereby unconditionally
------------------------
and irrevocably accepts the designation and appointment as Construction Agent.
Construction Agent will cause each System to be constructed so that at the end
of the Construction Period (a) each System has the demonstrated capability of
performing in Commercial Operation; (b) the equipment in each System is fully
integrated and self-contained, (c) each component of a System is interrelated to
the other components of such System in terms of economic useful life, function
and design, and (d) each System is designed or intended for use in Commercial
Operation by a Person (other than Lessee) as a separate and independent system
which, in conjunction with the Support Rights, will permit the operation of each
System in a commercially reasonable manner (collectively, the "Design
------
Objectives").
- ----------
-2-
<PAGE>
Construction Agency Agreement
II.3. Commencement of Construction. Construction Agent hereby agrees,
----------------------------
unconditionally and for the benefit of Certificate Trustee, to commence
construction of each System no later than April 1, 1996 or, if Construction
Agent has extended the term hereof, April 1, 1998 (with respect to each System,
the "Construction Commencement Date"). Without limiting the foregoing, no such
------------------------------
construction shall be undertaken until all required permits have been issued
therefor.
II.4. Application to this Agreement. In connection with the initial Advance
-----------------------------
Request for each System, Construction Agent shall identify the location at which
the System is to be constructed or completed and shall, among other things,
acknowledge and agree that the construction and development of such System will
be governed by the terms of this Agreement.
II.5. Term. This Agreement shall commence on the date hereof and shall
----
terminate (the "Construction Agreement Termination Date") with respect to any
---------------------------------------
given System upon the first to occur of:
(a) the Lease Termination Date;
(b) termination of this Agreement pursuant to Article V; and
---------
(c) April 30, 1998 or, with respect to any System suffering an event of Force
Majeure, the last day of the Construction Period with respect to that
System.
II.6. Delegation; Construction Documents. Construction Agent may execute any
----------------------------------
of its duties under this Agreement by or through agents, contractors, employees
or attorneys-in-fact, and Construction Agent shall enter into such agreements
with contractors, equipment suppliers and other parties as Construction Agent
deems necessary or desirable for the construction of each System pursuant hereto
(the "Construction Documents"); provided, however, that no such delegation shall
---------------------- -------- -------
limit or reduce in any way Construction Agent's duties and obligations under
this Agreement.
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<PAGE>
Construction Agency Agreement
II.7. Scope of Authority. (a) Subject to the terms, conditions,
------------------
restrictions and limitations set forth in the Operative Documents, Certificate
Trustee hereby expressly authorizes Construction Agent, or any agent or
contractor of Construction Agent, and Construction Agent unconditionally agrees,
for the benefit of Certificate Trustee, to take all action necessary or
desirable for the performance and satisfaction of all of Construction Agent's
obligations hereunder, including, without limitation:
(i) performing all design and supervisory functions relating to the
construction of each System and all engineering work related to the construction
of each System;
(ii) negotiating and entering into all Purchase Orders or arrangements to
procure the Equipment necessary to construct each System on such terms and
conditions as are customary and reasonable in light of local standards and
practices; provided, that each such Purchase Order shall be assigned to the
--------
Certificate Trustee pursuant to a Purchase Order Assignment;
(iii) obtaining all necessary permits, licenses, consents, approvals and
other authorizations, including those required under Applicable Laws, from all
Governmental Authorities in connection with the development and construction of
each System in accordance with the terms hereof and of the Participation
Agreement;
(iv) maintaining all books and records with respect to the construction,
operation and management of each System; and
(v) performing any other acts necessary in connection with the construction
and development of each System in accordance with the terms hereof and of
the Participation Agreement.
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<PAGE>
Construction Agency Agreement
(b) Neither Construction Agent nor any of its Affiliates or agents shall
enter into any contract which would, directly or indirectly, impose any
liability or obligation on Certificate Trustee or any Participant.
(c) Subject to the terms and conditions of this Agreement and the other
Operative Documents, Construction Agent shall have sole management and control
over the means, methods, sequences and procedures with respect to the
construction of each System.
II.8. Covenants of Construction Agent. Construction Agent hereby covenants and
-------------------------------
agrees that it will:
(a) following the Construction Commencement Date for each System, cause
construction of such System to be prosecuted diligently without
interruption and completed by the Construction Agreement Termination Date
in accordance with (i) the Design Objectives for such System, (ii) good
engineering and construction practices, (iii) all Applicable Laws, and (iv)
the Insurance Requirements. Construction Agent's obligation under this
Section 2.8(a) shall be absolute and unconditional, notwithstanding any
--------------
excess of the cost of construction of any System or Systems over the
aggregate Commitments, the payment of which excess shall be the recourse
obligation of Construction Agent;
(b) notify Certificate Trustee in writing not less than ten (10) Business Days
after the occurrence of each event of Force Majeure;
(c) take all reasonable and practical steps to minimize the disruption of the
construction process arising from events of Force Majeure;
(d) cause the Completion Date for each System to occur on or prior to the
Commitment Termination Date, and cause all Liens (including, without
limitation, Liens or claims for materials supplied or labor or services
performed in connection with the construction of such System), other than
Permitted Liens, to be discharged;
-5-
<PAGE>
Construction Agency Agreement
(e) execute, prior to the completion of any System and without any consent of
the Participants, any change order, modification or addition to any System
to be built, so long as such change order, modification or addition does
not materially and adversely affect the residual value, utility and
expected economic useful life of such System or the MAN or the FCL of which
it is a component, as built, in accordance with the Design Objectives; and
(f) at all times during the Construction Period, maintain for the benefit of
Certificate Trustee all insurance required to be maintained during the
Lease Term under Section 9.1 of the Lease.
ARTICLE III
THE SYSTEMS
III.1. Construction. Construction Agent shall cause each System to be
------------
constructed, equipped, maintained and used in accordance with the Design
Objectives and in compliance with all Applicable Laws and the Insurance
Requirements.
III.2. Casualty, Condemnation and Events of Force Majeure. If at any time
--------------------------------------------------
prior to the Completion Date with respect to any System there occurs a Casualty
or a Condemnation or Certificate Trustee or Construction Agent receives notice
of a Condemnation, then, in each case, Construction Agent shall promptly and
diligently complete the construction of such System in accordance with the
Design Objectives and cause the Completion Date to occur on or prior to the last
day of the Construction Period.
-6-
<PAGE>
Construction Agency Agreement
ARTICLE IV
PAYMENT OF FUNDS
IV.1. Funding of Construction Costs. (a) In connection with and during the
-----------------------------
course of the construction of each System, Construction Agent may request that
Certificate Trustee advance funds for the payment of the cost of constructing
such System. Certificate Trustee will comply with such request to the extent
provided for under, and subject to the conditions, restrictions and limitations
contained in, the Participation Agreement. Construction Agent and Certificate
Trustee acknowledge and agree that Construction Agent's right to request funds
and Certificate Trustee's obligation to advance funds for the payment of
construction costs is subject in all respects to the terms and conditions of the
Participation Agreement and each of the other Operative Documents. Construction
Agent's obligations hereunder shall not be limited or reduced by virtue of (i)
any failure of Certificate Trustee to provide any funds, or (ii) any lack of
funds of Construction Agent, except if such failure constitutes, or such lack of
funds is caused by the failure of Certificate Trustee to provide any funds to
Construction Agent which failure constitutes, a breach of Certificate Trustee's
obligations under the Participation Agreement after all conditions to such
funding shall have been duly and timely satisfied.
(b) The proceeds of any funds made available to Certificate Trustee to pay
construction costs shall be made available to Construction Agent in accordance
with the Advance Request relating thereto, this Agreement and the Participation
Agreement. To the extent that Advances made in order to fund the cost of
construction of any System are paid into a deposit account maintained by
Certificate Trustee, Construction Agent shall be granted a power of attorney to
withdraw funds from such account in accordance with the terms of the
Participation Agreement, including the requirement that all conditions precedent
to the making of the relevant Advance to Lessee under the Participation
Agreement shall be either satisfied or waived in writing before funds relating
to such Advance may be withdrawn by the
-7-
<PAGE>
Construction Agency Agreement
Construction Agent from such account, and Lessor shall not allow Construction
Agent to withdraw funds from such account unless and until Lessor has received
timely notice from the Administrative Agent that all conditions precedent to the
making of the relevant advance to Lessee under the Lease have been either
satisfied or waived in writing. Construction Agent will use all such proceeds
only to pay or reimburse itself for the costs related to construction, including
installation and internally allocated overheard properly allocable to the
construction of a System in accordance with Construction Agent's then current
accounting practices, as set forth in the Advance Request relating to such
funds. If, for any reason, the aggregate cost, including Capitalized Interest
and Capitalized Yield on the Notes and Certificates, respectively, to complete
construction of all the Systems exceeds the sum of the then available
Commitments, then all such costs (including such Capitalized Interest and
Capitalized Yield) in excess of the available Commitments shall be borne by
Construction Agent from its own funds.
ARTICLE V
CONSTRUCTION AGENCY EVENTS OF DEFAULT
V.1. Construction Agency Events of Default. If any one or more of the
-------------------------------------
following events (each a "Construction Agency Event of Default") shall occur:
------------------------------------
(a) Construction Agent shall fail to apply any funds paid by Certificate
Trustee to Construction Agent (or withdrawn by Construction Agent from a
deposit account maintained for such purpose by Certificate Trustee in the
name of Certificate Trustee) for, or for reimbursement of itself for, the
construction of any System to the payment of such construction costs in
accordance with the terms hereof;
(b) the construction with respect to any System shall fail to commence for any
reason on or prior to the Construction Commencement Date;
-8-
<PAGE>
Construction Agency Agreement
(c) the Completion Date with respect to any System shall fail to occur for any
reason on or prior to the last day of the Construction Period;
(d) Construction Agent shall fail to observe or perform any term, covenant or
condition of this Agreement (except those specified in clauses (a) through
-----------
(c) above), and such failure shall remain uncured for a period of thirty
---
(30) days after receipt of notice thereof by Construction Agent; provided,
--------
however, no Construction Agency Event of Default shall be deemed to occur
-------
if such failure or breach cannot reasonably be cured within such period, so
long as Construction Agent shall have promptly commenced the cure thereof
within such thirty (30) day period, continues to act with diligence to cure
such failure or breach and cures such failure or breach within ninety (90)
days after receipt of the original notice of such failure or breach by
Construction Agent; or
(e) any Lease Event of Default shall have occurred and be continuing;
then, in any such event, Certificate Trustee may, in addition to the other
rights and remedies provided for in this Article V, (A) immediately terminate
---------
this Agreement as to any System or each and every System, separately,
successively or concurrently (all in Certificate Trustee's sole discretion) by
giving Construction Agent written notice of such termination, and upon the
giving of such notice, this Agreement shall terminate as to such System or each
and every System (as the case may be) and all rights of Construction Agent and
all obligations of Certificate Trustee under this Agreement with respect to such
System or each and every System (as the case may be) shall cease. Construction
Agent shall pay upon demand all costs, expenses, losses, expenditures and
damages (including, without limitation, attorneys' fees and the fees and
expenses of any construction agent thereafter appointed by the Certificate
Trustee from time to time) incurred by or on behalf of Certificate Trustee in
connection with any Construction Agency Event of Default, and the obligations of
the Construction Agent shall survive any termination of this Agreement.
-9-
<PAGE>
Construction Agency Agreement
With respect to any System as to which this Agreement shall be so terminated,
(i) the Construction Period for such System shall automatically terminate, in
which event the Equipment in such System shall become subject to the Lease
pursuant to Section 2.1 and Section 2.2 thereof, and (ii) Lessor and the
Participants shall not be obligated to make any further Advances (including any
Advances in respect of Capitalized Interest or Capitalized Yield) with respect
to such System.
V.2. Survival. The termination of this Agreement pursuant to Section 5.1
-------- -----------
shall in no event relieve Construction Agent of (i) its liability and
obligations hereunder which accrued prior to such termination, all of which
shall survive any such termination, or (ii) its liability under Section 2.8 or
-----------
7.2.
- ---
V.3. Remedies; Remedies Cumulative. No failure to exercise and no delay in
-----------------------------
exercising, on the part of Certificate Trustee, any right, remedy, power or
privilege under this Agreement or under the other Operative Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege under this Agreement preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges provided in this
Agreement are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law.
-10-
<PAGE>
Construction Agency Agreement
ARTICLE VI
NO CONSTRUCTION AGENCY FEE
VI.1. Lease as Fulfillment of Certificate Trustee's Obligations . All
---------------------------------------------------------
obligations, duties and requirements imposed upon or allocated to Construction
Agent hereunder shall be performed by Construction Agent at Construction Agent's
sole cost and expense, and Construction Agent will not be entitled to receive,
and Certificate Trustee shall have no obligation to pay, any agency fee or other
fee or compensation, and Construction Agent shall not be entitled to receive,
and Certificate Trustee shall have no obligation to make or pay, any
reimbursement therefor, it being understood that this Agreement is being entered
into as consideration for and as an inducement to Certificate Trustee and
Construction Agent entering into the Lease and the other Operative Documents.
ARTICLE VII
CERTIFICATE TRUSTEE'S RIGHTS; CONSTRUCTION AGENT'S RIGHTS
VII.1. Exercise of Certificate Trustee's Rights . Construction Agent hereby
----------------------------------------
acknowledges and agrees that, subject to and in accordance with the terms of the
assignment made by Certificate Trustee in favor of Administrative Agent pursuant
to the Security Agreement, the rights and powers of Certificate Trustee under
this Agreement have been assigned to and may be exercised by Administrative
Agent. Construction Agent hereby consents to the assignment by Certificate
Trustee to Administrative Agent of Certificate Trustee's right, title and
interest in, to and under this Agreement pursuant to the Security Agreement.
VII.2. Certificate Trustee's Right to Cure Construction Agent's Defaults .
-----------------------------------------------------------------
Without waiving or releasing any obligation or Construction Agency Event of
Default, Certificate Trustee may (but shall be under no obligation to) remedy
any Construction Agency
-11-
<PAGE>
Construction Agency Agreement
Event of Default for the account of and at the sole cost and expense of
Construction Agent. Construction Agent shall pay, on demand, to Certificate
Trustee all reasonable costs and expenses so incurred (including, without
limitation, reasonable fees and expenses of counsel, together with interest
thereon at the Overdue Rate from the date on which such costs or expenses are
paid by Certificate Trustee).
VII.3. No Certificate Trustee Consent or Liability . Nothing contained in
-------------------------------------------
this Agreement shall be construed as constituting the consent or request of the
Certificate Trustee, express or implied, to or for the performance by any
contractor, mechanic, laborer, materialman, supplier or vendor of any labor or
services or for the furnishing of any materials for any construction,
alteration, addition, repair or demolition of or to the Equipment or any part
thereof. NOTICE IS HEREBY GIVEN THAT NONE OF CERTIFICATE TRUSTEE, ANY
CERTIFICATE PURCHASER, ANY LENDER OR ANY AGENT (OTHER THAN CONSTRUCTION AGENT)
IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE
FURNISHED TO CONSTRUCTION AGENT, OR TO ANYONE HOLDING THE EQUIPMENT OR ANY PART
THEREOF THROUGH OR UNDER CONSTRUCTION AGENT, AND THAT NO MECHANIC'S OR OTHER
LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE
INTEREST OF CERTIFICATE TRUSTEE, ANY CERTIFICATE PURCHASER, ANY LENDER, OR ANY
AGENT (OTHER THAN CONSTRUCTION AGENT) IN AND TO THE EQUIPMENT.
ARTICLE VIII
MISCELLANEOUS
VIII.1. Notices. All notices, consents, directions, approvals, instructions,
-------
requests, demands and other communications required or permitted by the terms
hereof to be given to any Person shall be given in writing in the manner
provided in, shall be sent to the respective addresses set forth in, and the
effectiveness thereof shall be governed by the provisions of, Section 9.3 of the
Participation Agreement.
-12-
<PAGE>
Construction Agency Agreement
VIII.2. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of Certificate Trustee, Construction Agent and their
respective successors and assigns; provided, however, that Construction Agent
-------- -------
shall not assign any of its rights or, except as permitted by Section 2.6,
-----------
delegate any of its duties or obligations under this Agreement without the prior
written consent of Certificate Trustee and Administrative Agent, which consent
may be granted or withheld in Certificate Trustee's and Administrative Agent's
sole and absolute discretion.
VIII.3. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES.
VIII.4. Amendments and Waivers. Subject to Section 9.5 of the Participation
----------------------
Agreement, Certificate Trustee and Construction Agent may from time to time
enter into written amendments, supplements or modifications hereto.
VIII.5. Counterparts. This Agreement may be executed on any number of
------------
separate counterparts, and by different parties on different counterparts, and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.
VIII.6. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
VIII.7. Headings and Table of Contents. The headings and table of contents
------------------------------
contained in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.
-13-
<PAGE>
Construction Agency Agreement
VIII.8. Limitations on Recourse. The parties hereto agree that Bank shall
-----------------------
have no personal liability whatsoever to Construction Agent or its successors
and assigns for any claim based on or in respect of this Agreement or any of the
other Operative Documents or arising in any way from the transactions
contemplated hereby or thereby; provided, however, that Bank shall be liable in
-------- -------
its individual capacity (a) for its own willful misconduct or gross negligence
(or negligence in the handling of funds), (b) for liabilities that may result
from the incorrectness of any representation or warranty expressly made by it in
its individual capacity in Section 4.3 of the Participation Agreement or from
the failure of Bank to perform its covenants and agreements set forth in Section
6.2(a) of the Participation Agreement, or (c) for any Tax based on or measured
by any fees, commission or compensation received by it for acting as Certificate
Trustee as contemplated by the Operative Documents. It is understood and agreed
that, except as provided in the preceding proviso: (i) Bank shall have no
personal liability under any of the Operative Documents as a result of acting
pursuant to and consistent with any of the Operative Documents; (ii) all
obligations of Bank to Construction Agent are solely nonrecourse obligations
(with liability payable solely out of the Trust Estate) except to the extent
that it has received payment from others; (iii) all such personal liability of
Bank hereunder or under the other Operative Documents is expressly waived and
released as a condition of, and as consideration for, the execution and delivery
of the Operative Documents by Bank; and (iv) this Agreement is executed and
delivered by Bank solely in the exercise of the powers expressly conferred upon
it as Certificate Trustee under the Trust Agreement.
VIII.9. Knowledge of Certificate Trustee and Bank. For all purposes of this
-----------------------------------------
Agreement and the other Operative Documents, in the absence of actual knowledge
of an officer in the Corporate Trust Department of Bank, Certificate Trustee and
Bank shall not be deemed to have knowledge of any Construction Agency Event of
Default unless Certificate Trustee or Bank receives written notice thereof given
by or on behalf of Administrative Agent or a Participant.
-14-
<PAGE>
Construction Agency Agreement
8.10. Failure of Requisite Governmental Approvals.
-------------------------------------------
If any System or Systems constructed hereunder and to be located in the State of
Oregon may not be leased to Electric Lightwave, Inc. under the Lease without
obtaining prior Governmental Approval or waivers, then, unless such Approvals or
waivers have been obtained no later than the date such System or Systems are to
be delivered and become subject to the Lease, Construction Agent shall purchase
such System or Systems for Lessor's Cost upon completion of the System or
Systems. Payment by Construction Agent shall be in immediately available funds
and paid to the Certificate Trustee on the date of purchase.
[signature page follows]
-15-
<PAGE>
Construction Agency Agreement
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
ELECTRIC LIGHTWAVE, INC.
By: _______________________________
Name: Robert J. DeSantis
Title: Chief Financial Officer
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Certificate Trustee
By: _____________________________
Name: Robert L. Reynolds
Title: Vice President
<PAGE>
================================================================================
EXHIBIT C TO
LEASE
(Electric Lightwave, Inc. Trust No. 1995-A)
Dated as of April 28, 1995
between
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION
not in its individual capacity, except as
expressly stated herein, but solely as
Certificate Trustee, as Lessor,
and
ELECTRIC LIGHTWAVE, INC., as Lessee
================================================================================
ALL RIGHT, TITLE AND INTEREST OF LESSOR UNDER THIS LEASE AND THE PROPERTY RIGHTS
SUBJECT HERETO HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN
FAVOR OF SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
("ADMINISTRATIVE AGENT"), UNDER THE SECURITY AGREEMENT, DATED AS OF APRIL 28,
--------------------
1995, FOR THE BENEFIT OF THE ADMINISTRATIVE AGENT AND THE LENDERS AND
CERTIFICATE PURCHASERS REFERRED TO IN SUCH SECURITY AGREEMENT. THIS LEASE HAS
BEEN EXECUTED IN SEVERAL COUNTERPARTS. TO THE EXTENT, IF ANY, THAT THIS LEASE
CONSTITUTES
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
ARTICLE I DEFINITIONS; LESSEE LIABILITY..................... 1
ARTICLE II LEASE OF SYSTEMS; LEASE TERM...................... 1
SECTION 2.1. Acceptance and Lease of Systems..................... 1
SECTION 2.2. Acceptance Procedure................................ 1
SECTION 2.3. Lease Term and Lease Supplement Term................ 2
SECTION 2.4. Lease Supplement Renewal............................ 2
ARTICLE III RENT.............................................. 2
SECTION 3.1. Base Rent........................................... 2
SECTION 3.2. Supplemental Rent................................... 2
SECTION 3.3. Method and Amount of Payment........................ 2
SECTION 3.4. Late Payment........................................ 3
SECTION 3.5. Net Lease; No Setoff; Etc........................... 3
ARTICLE IV RENEWAL OPTIONS; SALE, RETURN AND PURCHASE OPTIONS 5
SECTION 4.1. Renewal Terms....................................... 5
SECTION 4.2. Purchase Option..................................... 5
SECTION 4.3. Sale Option......................................... 6
SECTION 4.4. Exercise of Options................................. 6
SECTION 4.5. Sale Option Procedure............................... 7
SECTION 4.6. Return of Equipment................................. 9
SECTION 4.7. Completion of Systems............................... 10
SECTION 4.8. Failure of Lessee to Sell System.................... 10
ARTICLE V CONDITION OF EQUIPMENT; DISCLAIMER OF WARRANTIES.. 12
SECTION 5.1. Waivers............................................. 12
ARTICLE VI LIENS............................................. 13
SECTION 6.1. Liens............................................... 13
SECTION 6.2. No Lessor Consent or Liability...................... 14
-i-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
PAGE
----
ARTICLE VII MAINTENANCE AND REPAIR; ALTERATIONS AND ADDITIONS. 14
SECTION 7.1. Maintenance and Repair; Compliance With Law......... 14
SECTION 7.2. Alterations......................................... 15
SECTION 7.3. Title to Alterations................................ 16
SECTION 7.4. Maintenance and Repair Reports...................... 17
ARTICLE VIII USE............................................... 17
ARTICLE IX INSURANCE......................................... 18
SECTION 9.1. Required Coverage................................... 18
SECTION 9.2. Delivery of Insurance Certificates.................. 19
ARTICLE X ASSIGNMENT AND SUBLEASING......................... 19
SECTION 10.1. Assignment and Subleasing.......................... 19
SECTION 10.2. Release from Obligations........................... 20
ARTICLE XI LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE......... 21
SECTION 11.1. Event of Taking.................................... 21
SECTION 11.2. Application of Certain Payments Relating to
Condemnation...................................... 22
SECTION 11.3. Event of Loss...................................... 22
SECTION 11.4. Casualty........................................... 22
SECTION 11.5. [Intentionally Deleted]............................ 23
SECTION 11.6. Other Dispositions................................. 23
SECTION 11.7. Negotiations....................................... 23
SECTION 11.8. No Rent Abatement.................................. 23
ARTICLE XII NON-INTERFERENCE.................................. 24
SECTION 12.1. Non-Interference................................... 24
SECTION 12.2. Certain Duties and Responsibilities of Lessor...... 24
ARTICLE XIII INSPECTION AND REPORTS............................ 24
-ii-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
PAGE
----
SECTION 13.1. Inspection......................................... 24
SECTION 13.2. Reports............................................ 25
ARTICLE XIV
[INTENTIONALLY DELETED]........................................... 25
ARTICLE XV LEASE EVENTS OF DEFAULT........................... 25
ARTICLE XVI ENFORCEMENT....................................... 27
SECTION 16.1. Remedies........................................... 27
SECTION 16.2. Sale of Systems.................................... 28
SECTION 16.3. Application of Proceeds............................ 28
SECTION 16.4. Power of Attorney.................................. 29
SECTION 16.5. Remedies Cumulative; No Waiver; Consents........... 29
ARTICLE XVII RIGHT TO PERFORM FOR LESSEE....................... 30
ARTICLE XVIII MISCELLANEOUS..................................... 30
SECTION 18.1. Binding Effect; Successors and Assigns; Survival... 30
SECTION 18.2. Severability....................................... 30
SECTION 18.3. Notices............................................ 31
SECTION 18.4. Amendment; Complete Agreements..................... 31
SECTION 18.5. Headings........................................... 31
SECTION 18.6. Original Lease..................................... 31
SECTION 18.7. GOVERNING LAW...................................... 31
SECTION 18.8. Discharge of Lessee's Obligations by its Affiliates 32
SECTION 18.9. Liability of Trustee Limited....................... 32
SECTION 18.10. Estoppel Certificates............................. 32
SECTION 18.11. No Joint Venture.................................. 33
SECTION 18.12. No Accord and Satisfaction........................ 33
SECTION 18.13. Successor Lessor.................................. 33
SECTION 18.14. Survival.......................................... 34
SECTION 18.15. Transfer of Systems to Lessee..................... 34
SECTION 18.16. Enforcement of Certain Warranties................. 34
SECTION 18.17. Investment of Security Funds...................... 35
-iii-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
PAGE
----
EXHIBIT A Form of Lease Supplement
-iv-
<PAGE>
Lease
THIS LEASE dated as of April 28, 1995 (as amended, supplemented, or otherwise
modified from time to time, this "Lease"), is between SHAWMUT BANK CONNECTICUT,
-----
NATIONAL ASSOCIATION, not in its individual capacity, except as expressly stated
herein, but solely as Certificate Trustee under the Trust Agreement, as Lessor
("Lessor"), and ELECTRIC LIGHTWAVE, INC., a Delaware corporation, as Lessee
------
("Lessee").
- --------
In consideration of the mutual agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, hereby
agree as follows:
ARTICLE I
DEFINITIONS; LESSEE LIABILITY
-----------------------------
For all purposes hereof, the capitalized terms used herein and not otherwise
defined shall have the meanings assigned thereto in Appendix 1 to that certain
Participation Agreement (Electric Lightwave, Inc. Trust No. 1995-A) dated as of
April 28, 1995, among Lessee, Lessor, the Certificate Purchasers and Lenders
identified therein, Administrative Agent, Information Agent and Guarantor (the
"Participation Agreement"). All obligations imposed on the "Lessee" in this
- ------------------------ ------
Lease shall be the full recourse liability of Lessee.
ARTICLE II
LEASE OF SYSTEMS; LEASE TERM
----------------------------
SECTION II.1. Acceptance and Lease of Systems. On each Delivery Date,
-------------------------------
Lessor, subject to the satisfaction or waiver of the conditions set forth in
Article III of the Participation Agreement, hereby agrees to lease the Systems
delivered on such Delivery Date to Lessee hereunder, and Lessee, subject to the
satisfaction or waiver of the conditions set forth in Article III of the
Participation Agreement, hereby agrees, expressly for the direct benefit of
Lessor, to lease such Systems from Lessor for the applicable Lease Supplement
Term.
-1-
<PAGE>
Lease
SECTION II.2. Acceptance Procedure. Lessee hereby agrees that the execution
--------------------
and delivery by Lessee on each Delivery Date of a Certificate of Acceptance in
the form of Exhibit M to the Participation Agreement (appropriately completed)
---------
shall, without further act, constitute the irrevocable acceptance by Lessee on
behalf of Lessor of the Systems which are the subject thereof and the Lease
Supplement referred to in the Certificate of Acceptance for all purposes of
this Lease, such Lease Supplement and the other Operative Documents.
SECTION II.3. Lease Term and Lease Supplement Term. The term of this Lease
------------------------------------
(the "Lease Term") shall commence on the date of execution of this Lease by
----------
Lessor and Lessee, and shall expire on the Lease Termination Date. Unless
earlier terminated, the term of each Lease Supplement shall consist of a base
period, commencing on and including the initial Delivery Date with respect to
such Lease Supplement and ending on, but not including, the third anniversary of
such initial Delivery Date (the "Base Term") and one or more Renewal Terms, if
---------
exercised (collectively, the applicable "Lease Supplement Term").
---------------------
Notwithstanding anything to the contrary contained herein or in any other
Operative Document, the term of this Lease and all Lease Supplements shall
expire no later than April 30, 2002.
SECTION II.4. Lease Supplement Renewal. Lessee may elect to renew any Lease
------------------------
Supplement for one or more one-year renewal terms (each, a "Renewal Term") as
------------
provided in Section 4.1 and in the applicable Lease Supplement; provided, that
----------- --------
no Renewal Term may extend beyond April 30, 2002.
-2-
<PAGE>
Lease
ARTICLE III
RENT
----
SECTION III.1. Base Rent. During the Lease Term, Lessee shall pay to Lessor
---------
Base Rent on each Payment Date determined in accordance with the definition of
"Base Rent." During any Holdover Period, Lessee shall pay rent to Lessor from
time to time on demand in an amount equal to the sum of (i) Base Rent (as
determined in accordance with the definition thereof) during the Holdover Period
plus (ii) $40,000 per day ("Holdover Rent") and Lessor shall apply the amounts
-------------
set forth in this clause (ii) from time to time paid by Lessee in reduction of
-----------
the Lease Balance.
SECTION III.2. Supplemental Rent. Lessee shall pay to Lessor, or to whomever
-----------------
shall be entitled to payment thereof as expressly provided herein or in any
other Operative Document (and Lessor hereby directs Lessee, on behalf of Lessor,
so to pay any such other Person) any and all Supplemental Rent promptly as the
same shall become due and payable, and, in the event of any failure on the part
of Lessee to pay any Supplemental Rent, Lessor shall have all rights, powers and
remedies provided for herein or by law or in equity or otherwise in the case of
nonpayment of Base Rent. Lessee hereby reaffirms its obligation to pay as
Supplemental Rent (i) any and all Additional Costs as the same become due and
payable, and (ii) all amounts determined to be due and payable pursuant to
Section 7.1(a) of the Trust Agreement in accordance with its terms.
SECTION III.3. Method and Amount of Payment. Base Rent and Supplemental Rent
----------------------------
shall be paid to Lessor (or, in the case of Supplemental Rent, to such Person as
may be entitled thereto) at such place as Lessor (or such other Person) shall
specify in writing to Lessee at least five (5) Business Days prior to the due
date therefor; provided that, so long as the Notes remain outstanding, such Rent
--------
shall be paid directly to Administrative Agent. Each payment of Rent shall be
made by Lessee prior to 12:00 noon, Hartford, Connecticut time (and payments
made after such time shall be deemed to have been made on the next day) at the
place of payment in funds consisting of lawful currency of the United States of
America which (in the case of any amount payable
-3-
<PAGE>
Lease
to Lessor, either Agent or any Participant) shall be immediately available on
the scheduled date when such payment shall be due, unless the scheduled date
shall not be a Business Day, in which case such payment shall be made on the
next succeeding Business Day (unless, in the case of any payment the amount of
which is determined by reference to LIBOR, the result of such extension would be
to carry such payment into the next calendar month, in which event such payment
shall be made on the next preceding Business Day). The provisions of the
foregoing sentence of this Section 3.3 shall be applicable only to Base Rent and
-----------
to Supplemental Rent payable to, or on behalf or for the account of, Lessor, any
Participant, either Agent and any other Indemnitee.
SECTION III.4. Late Payment. If any Base Rent shall not be paid when due,
------------
Lessee shall pay to Lessor, or if any Supplemental Rent payable to or on behalf
or for the account of Lessor, any Participant, either Agent or any other
Indemnitee is not paid when due, Lessee shall pay to whomever shall be entitled
thereto, in each case as Supplemental Rent, interest at the Overdue Rate on such
overdue amount from and including the due date thereof (not including any
applicable grace period) to but excluding the Business Day of payment thereof.
SECTION III.5. Net Lease; No Setoff; Etc. This Lease shall constitute a net
-------------------------
lease and, notwithstanding any other provision of this Lease, it is intended
that Base Rent and Supplemental Rent shall be paid without counterclaim, setoff,
deduction or defense of any kind and without abatement, suspension, deferment,
diminution or reduction of any kind, and Lessee's obligation to pay all such
amounts, throughout the Base Term and any Renewal Term, if applicable, is
absolute and unconditional. The obligations and liabilities of Lessee hereunder
shall in no way be released, discharged or otherwise affected for any reason,
including, without limitation, to the maximum extent permitted by law: (a) any
defect in the condition, merchantability, design, construction, quality or
fitness for use of any portion of a System or any related Equipment, or any
failure of a System or any related Equipment to comply with all Applicable Laws,
including any inability to use a System or any related Equipment by reason of
such non-compliance; (b) any damage to, abandonment, loss, destruction,
requisition, taking or contamination of or Release
-4-
<PAGE>
Lease
from a System or any related Equipment or any part thereof, including
eviction; (c) any restriction, prevention or curtailment of or interference with
any use of a System or any related Equipment or any part thereof, including
eviction; (d) the attachment of any Lien of any third party to a System or any
related Equipment; (e) any prohibition or restriction of or interference with
Lessee's use of any or all of a System or any related Equipment by any Person;
(f) any change, waiver, extension, indulgence or other action or omission or
breach in respect of any obligation or liability of or by Lessor, either Agent
or any Participant; (g) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceedings relating to
Lessee, Lessor, either Agent, any Participant or any other Person, or any action
taken with respect to this Lease by any trustee or receiver of Lessee, Lessor,
either Agent, any Participant or any other Person, or by any court, in any such
proceeding; (h) any claim that Lessee has or might have against any Person,
including, without limitation, Lessor, either Agent or any Participant; (i) any
failure on the part of Lessor to perform or comply with any of the terms of this
Lease, any other Operative Document or of any other agreement whether or not
related to the Overall Transaction; (j) any invalidity or unenforceability or
disaffirmance against or by Lessee of this Lease or any provision hereof or any
of the other Operative Documents or any provision of any thereof; (k) the
impossibility of performance by Lessee, Lessor or both; (l) any action by any
court, administrative agency or other Governmental Authority; (m) any
restriction, prevention or curtailment of or any interference with the
construction or any use of a System or any related Equipment; or (n) any other
occurrence whatsoever, whether similar or dissimilar to the foregoing, whether
or not Lessee shall have notice or knowledge of any of the foregoing. Except as
specifically set forth in Articles IV, XI, XVI or XVIII of this Lease, this
----------- -- --- -----
Lease shall be noncancellable by Lessee for any reason whatsoever, and Lessee,
to the extent permitted by Applicable Laws, waives all rights now or hereafter
conferred by statute or otherwise to quit, terminate or surrender this Lease, or
to any diminution, abatement or reduction of Rent payable by Lessee hereunder.
If for any reason whatsoever this Lease shall be terminated in whole or in part
by operation of law or otherwise, except as expressly provided in Articles IV,
-----------
XI, XVI or
- -- ---
-5-
<PAGE>
Lease
XVIII of this Lease, Lessee shall, unless prohibited by Applicable Laws,
- -----
nonetheless pay to Lessor (or, in the case of Supplemental Rent, to whomever
shall be entitled thereto) an amount equal to each Rent payment at the time and
in the manner that such payment would have become due and payable under the
terms of this Lease if it had not been terminated in whole or in part, and in
such case, so long as such payments are made and no Lease Event of Default shall
have occurred and be continuing, Lessor will deem this Lease to have remained in
effect. Each payment of Rent made by Lessee hereunder shall be final and, absent
manifest error in the determination of the amount thereof, Lessee shall not seek
or have any right to recover all or any part of such payment from Lessor,
Administrative Agent or any party to any agreements related thereto for any
reason whatsoever. Lessee assumes the sole responsibility for the condition,
use, operation, maintenance and management of the Equipment, and Lessor shall
have no responsibility in respect thereof and shall have no liability for damage
to the property of either Lessee or any subtenant of Lessee on any account or
for any reason whatsoever other than by reason of Lessor's willful misconduct or
gross negligence or breach of any of its obligations under any Operative
Document.
ARTICLE IV
RENEWAL OPTIONS; SALE, RETURN AND PURCHASE OPTIONS
--------------------------------------------------
SECTION IV.1. Renewal Terms. In accordance with Section 4.4, but subject to
------------- -----------
the limitations of Section 2.3, Lessee shall have the right, at its option, to
-----------
renew all or any of the Lease Supplements for one or more Renewal Terms,
commencing (i) in the case of the first Renewal Term, immediately following the
expiration of the Base Term, and (ii) in the case of any subsequent Renewal
Term, immediately following the expiration of the immediately preceding Renewal
Term. Lessee shall continue to pay Rent, including Base Rent, during each
Renewal Term on each Payment Date occurring during such Renewal Term. All of
the provisions of this Lease shall remain in effect during any Renewal Term.
-6-
<PAGE>
Lease
SECTION IV.2. Purchase Option. In accordance with Section 4.4, Lessee will
--------------- -----------
have the right, at its option at any time and from time to time, to purchase all
(but not less than all) of the Systems then subject to a Lease Supplement at a
price equal to the applicable Purchase Option Exercise Amount (the "Purchase
--------
Option"). If Lessee elects to purchase the Systems subject to a Lease
- ------
Supplement, Lessor shall transfer by bill of sale all of Lessor's right, title
and interest in and to the Systems subject to such Lease Supplement to Lessee or
its designee, without recourse or warranty (except as to the absence of Lessor
Liens), against payment by Lessee of an amount equal to such Purchase Option
Exercise Amount in immediately available funds. After written exercise of the
Purchase Option pursuant to Section 4.4, Lessee, at its option, may assign its
-----------
right to purchase the Systems subject to the Purchase Option to any Person;
provided, that (i) such assignee shall be bound by the provisions of this
- --------
Article IV applicable to the Purchase Option and (ii) no such assignment shall
- ----------
release Guarantor from any of its obligations under the Guaranty or Lessee from
its obligations under this Article IV, and Lessee shall remain primarily liable
----------
to Lessor for the payment of all amounts due under this Article IV in respect of
----------
the Purchase Option.
SECTION IV.3. Sale Option. If no Lease Default or Lease Event of Default
-----------
shall have occurred and be continuing, then Lessee may cause all (but not less
than all) Systems that are subject to a Lease Supplement to be sold on the last
day of the applicable Lease Supplement Term for cash to a purchaser or
purchasers not affiliated in any way with Lessee (the "Sale Option") in
-----------
accordance with Sections 4.4 and 4.5. In the event Lessee timely elects the
------------ ---
Sale Option, Lessee shall pay to Lessor on the last day of the applicable Lease
Supplement Term, as Supplemental Rent or Base Rent, as applicable, the amounts
determined in accordance with Sections 4.5(c) and 4.5(d).
--------------- ------
SECTION IV.4. Exercise of Options. In order to exercise either the Renewal
-------------------
Option or the Sale Option with respect to a Lease Supplement, Lessee shall give
irrevocable written notice to Lessor not more than 290 days nor less than 270
days prior to the end of the applicable Base Term or Renewal Term (except that,
in the case of a Renewal Term of less than 270 days, such notice
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shall be given at the commencement of such Renewal Term), as the case may be,
that Lessee intends to exercise either the Renewal Option or the Sale Option and
specifying such option. If Lessee shall fail to deliver such written notice in
the time required during the Base Term or a Renewal Term, Lessee shall be
deemed, in the case of the Base Term and each Renewal Term (other than the
Renewal Term that would end on April 30, 2002), to have elected to renew the
related Lease Supplement or Supplements pursuant to Section 4.1 and in the case
-----------
of the Renewal Term ending April 30, 2002, to have elected the Purchase Option
pursuant to Section 4.2. If a Lease Event of Default exists at the date of
-----------
election of either a Renewal Term or the Sale Option or on the last day of the
Base Term or a Renewal Term, Lessee shall be deemed to have chosen the Purchase
Option with respect to all of the Lease Supplements. In addition, if no Lease
Event of Default shall have occurred and then be continuing, Lessee may at any
time notify Lessor that it chooses to exercise the Purchase Option in respect of
one or more Lease Supplements, such purchase to be effected as of the first
Payment Date which is not less than ninety (90) days after the date of such
notice, specified by Lessee and otherwise in accordance with the provisions of
this Section 4.4. Lessee's election (or deemed election) of the Purchase
-----------
Option in respect of one or more Lease Supplements shall be irrevocable at the
time it is made or deemed made. Further, an election of the Sale Option in
respect of a Lease Supplement shall be deemed automatically revoked if the
Lessee does not comply with the terms and conditions of Section 4.6 and execute
-----------
and deliver to the buyer a Support Agreement, conforming with the requirements
therefor set forth in the Operative Documents, together with grants, in
recordable form, of easements or licenses and all other rights and authorities
necessary for the operation in place-in use of any such Systems subject to such
Lease Supplement.
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SECTION IV.5. Sale Option Procedure.
---------------------
(a) In the event that the Sale Option with respect to one or more Lease
Supplements shall be elected pursuant to Sections 4.3 and 4.4, Lessee shall
------------ ---
cause all (but not less than all) Systems subject to such Lease Supplement or
Lease Supplements to be sold in accordance with the procedures set forth in this
Section 4.5. Lessee shall, within five (5) Business Days after notice of its
- -----------
election of the Sale Option, execute and deliver an escrow, pledge and security
agreement (the "Sale Deposit Escrow Agreement") with Administrative Agent and an
-----------------------------
escrow agent selected by Administrative Agent (which may be Administrative
Agent) and reasonably acceptable to Lessee, which Sale Deposit Escrow Agreement
shall be in form and substance acceptable to Information Agent and shall include
provisions consistent with the provisions of Section 4.8, and pursuant thereto,
-----------
Lessee shall contemporaneously make a security deposit (the "Sale Deposit") in
------------
cash equal to the sum of (i) the Applicable Percentage Amount for the Systems
subject to each Lease Supplement for which the Sale Option has been elected, and
(ii) the aggregate amount of estimated sales costs for such Systems, as
reasonably estimated by the Information Agent after consultation with Lessee.
Any failure of Lessee to make the Sale Deposit or to execute and deliver the
Sale Deposit Escrow Agreement within five (5) Business Days after such election
of the Sale Option shall be deemed an election of the Purchase Option pursuant
to Section 4.2. All amounts from time to time held pursuant to the Sale Deposit
-----------
Escrow Agreement shall be invested at the direction of Lessee (or, upon the
occurrence and during the continuance of a Lease Event of Default, at the
direction of Administrative Agent) in Permitted Investments. All net interest
earned on such Permitted Investments shall be held pursuant to the Sale Deposit
Escrow Agreement and shall constitute part of the Sale Deposit. Upon
termination of the Sale Deposit Escrow Agreement, after payment by Lessee of all
amounts owed by Lessee under this Lease and the other Operative Documents, any
remaining amount of such interest shall be remitted to Lessee.
(b) During the period commencing on the date 270 days prior to the
scheduled end of any Base Term or Renewal Term for
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such Lease Supplement, as the case may be, Lessee, on behalf of Lessor, shall
use best commercial efforts, as nonexclusive agent for Lessor, to obtain the
highest cash bids for the purchase of the Systems subject to such Lease
Supplement and, in the event it receives any bid, Lessee shall, within five (5)
Business Days after receipt thereof and at least twenty (20) Business Days prior
to the applicable Lease Supplement Termination Date, certify to Lessor in
writing the amount and terms of such bid or bids, and the name and address of
the party or parties (who shall not be Lessee or any Affiliate of Lessee or any
Person with whom Lessee has an understanding or arrangement regarding the future
use of such Systems by Lessee or such Affiliate, but who may be Lessor or a
Participant, any Affiliate thereof or any Person contacted by a Participant)
submitting such bid or bids. Lessee shall bear its own expenses and pay, as
Supplemental Rent, the expenses of Lessor and each Participant in connection
with any such bidding and sale process pursuant to this Section 4.5,
-----------
as well as all costs and expenses incurred by any party (including a buyer or
potential buyer) to place such System or Systems in the condition required by
Section 4.6 and the costs of repairs and reasonable Alterations or improvements
- -----------
desired by such buyer or buyers.
(c) After Lessee shall have certified to Lessor all bids received, any
Participant, any Affiliate thereof or any Person contacted by any Participant
may submit a further bid or bids to Lessee not later than five (5) Business Days
prior to the applicable Lease Supplement Termination Date. On or before the
applicable Lease Supplement Termination Date, so long as no Lease Event of
Default or Lease Default shall have occurred and be continuing: (i) Lessee
shall transfer all of Lessee's right, title and interest in such Systems, or
cause such Systems to be transferred, to the bidder(s), if any, which shall have
submitted the highest cash bid therefor, at least twenty (20) (or, in the case
of a Participant, any Affiliate thereof or Person contacted by a Participant,
five (5)) Business Days prior to such Lease Supplement Termination Date, in the
same manner and in the condition required by Section 4.6 and otherwise in
-----------
accordance with all the terms of this Lease; and (ii) Lessee shall
simultaneously pay or cause to be paid to Lessor in immediately available funds
an amount equal to the sum of (p) any unpaid Base Rent due on or prior to such
Lease Supplement Termination Date, all Supplemental
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Rent due on or prior to such date and any other amounts due and payable by
Lessee to Lessor, Administrative Agent and each Participant; plus (q) the gross
sale proceeds of the Systems sold by Lessor (the "Recourse Sale Proceeds"); plus
---------------------- ----
(r) the excess, if any, of the Lease Supplement Balance over the Recourse Sale
Proceeds; provided, that the amount of such excess so payable shall not
--------
be greater than the Applicable Percentage Amount, or if the sale occurs at the
end of a Renewal Term, then at Lessor's option (at the direction of the
Participants) not more than the Recourse Deficiency Amount (the selected amount
being referred to as the "Guaranteed Residual Amount"). To the extent the
--------------------------
Recourse Sale Proceeds shall exceed the Lease Supplement Balance, upon receipt
of the amounts described in clause (p) of the preceding sentence, Lessor shall
pay the amount of such excess to Lessee.
(d) If Lessee exercises the Sale Option, Lessor may, at its option, engage
an appraiser of nationally recognized standing, at Lessee's expense, to
determine (by appraisal methods satisfactory to Lessor) the Fair Market Sales
Value of the Systems that were subject to the applicable Lease Supplement as of
the last day of the Base Term or as of the first and last day of the applicable
Renewal Term. The appraiser shall assume for this purpose that the Systems are
in the condition required by, and have been maintained in accordance with, this
Lease. If the appraisal concludes that the Fair Market Sales Value of such
Equipment as of the Lease Supplement Termination Date was in excess of the
Recourse Sale Proceeds from a sale pursuant to the Sale Option, Lessee shall
promptly pay to Lessor, to the extent of the corresponding Lease Supplement
Balance after application of the Recourse Sale Proceeds and the Guaranteed
Residual Amount, such excess as Supplemental Rent.
SECTION IV.6. Return of Equipment. On each Lease Supplement Termination
-------------------
Date, unless the Systems covered by the related Lease Supplement are to be
transferred pursuant to Section 4.2, Lessee shall, at its own expense, (i)
-----------
execute and deliver to Lessor (or a buyer meeting the independence requirements
hereof) in recordable form any grants of easements or of licenses with respect
to real property that may be necessary, in addition to the rights granted
pursuant the related Support Agreement, for the continuous operation of the
Systems subject to such Lease Supplement,
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(ii) transfer such Systems (together with the reports described in Section 7.4
-----------
relating thereto) to the Lessor or independent buyer thereof pursuant to Section
-------
4.5, free and clear of all Liens other than Lessor Liens, in as good
- ---
condition as such Systems were on the Delivery Date applicable to such Systems
(as modified by Alterations permitted by this Lease), ordinary wear and tear
excepted, and in compliance with all Applicable Laws and the other requirements
of Article VII, (iii) represent to the buyer of the Systems that each
-----------
such System meets the Design Objectives as of the date of transfer, and (iv)
either (A) assign to the Lessor or independent buyer Lessee's interest in a Non-
Affiliated Qualified Use Agreement, and obtain the consent of such Qualified
User to such assignment, or (B) pay to Lessor or the independent buyer the
excess by which the then fair market value of such right of use over the
remaining term of such Non-Affiliated Qualified Use Agreement exceeds the
present value (discounted quarterly in arrears at the Alternate Base Rate as of
the date of such determination) of the fair market value of the consideration,
if any, to be derived by or paid to the Lessor or independent buyer thereunder
throughout the remaining term of such Non-Affiliated Qualified Use Agreement.
Lessee shall cooperate with the independent buyer of the Systems in order to
facilitate the ownership and operation by such buyer of such Systems after the
Lease Supplement Termination Date, including providing all books, reports and
records regarding the maintenance, repair and ownership of such Systems and all
know-how, data and technical information relating thereto, granting or assigning
all licenses necessary for the operation and maintenance of such Systems and
cooperating in seeking all necessary Governmental Approval. Lessee also shall
have paid the total cost for the completion of all Alterations commenced prior
to such Lease Supplement Termination Date and all Alterations described in
Section 7.2, and shall satisfy each of the conditions set forth in
- -----------
clauses (i) through (iii) thereof. The obligations of Lessee under this Article
- ----------- ----- -------
IV shall survive the expiration or termination of this Lease. Unless Lessee
- --
shall have exercised or been deemed to have exercised the Purchase Option not
less than 270 days prior to such Lease Supplement Termination Date, Lessor shall
at Lessee's expense be entitled to perform such investigation, including
obtaining reports of engineers and other experts as to the condition and state
of repair and maintenance required by this
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Section 4.6, as it deems appropriate. Lessee, at its sole cost and expense,
- -----------
shall cause the repair or other remediation of any discrepancies between the
actual condition of any Systems and the condition required under this Lease.
SECTION IV.7. Completion of Systems. In the event that any System becomes
---------------------
subject to a Lease Supplement pursuant to Sections 2.1 and 2.2 prior to the
------------ ---
Completion Date thereof due to the termination of the Construction Period
applicable thereto under Section 5.1 of the Construction Agency Agreement,
Lessee (at its cost) shall diligently pursue construction of such System to meet
Design Objectives and, as applicable, in accordance with the construction-
related provisions of the Operative Documents (notwithstanding that the
Participants shall not be obligated to make any Advances in respect of such
construction) and shall cause the Completion Date of such System or Systems, as
applicable, not later than the earlier of the Commitment Termination Date or 360
days after such System becomes subject to a Lease Supplement.
SECTION IV.8. Failure of Lessee to Sell System. If Lessee shall exercise the
--------------------------------
Sale Option and shall fail to sell any Systems relating to such Sale Option on
or before the applicable Lease Supplement Termination Date in accordance with
and subject to the provisions of Sections 4.4 and 4.5, then Lessee and Lessor
------------ ---
hereby agree in respect of the unsold Systems as follows:
(a) At any time on or after the applicable Lease Supplement Termination
Date, Lessor shall have the right to withdraw from the Sale Deposit an amount
equal to the Applicable Percentage Amount for such System or Systems related
thereto and apply such amount to a reduction of the Lease Supplement Balance
(in which event, Lessor shall apply such amount to a reduction of the amounts
outstanding under the Notes). At the direction of the Participants, Lessee
shall also pay to Lessor on the Lease Supplement Termination Date the excess
of the Recourse Deficiency Amount over the Applicable Percentage Amount.
(b) On or after the applicable Lease Supplement Termination Date, Lessor
shall have the right, but not the obligation, to sell the applicable Systems
for such purchase
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price and upon such terms as Lessor shall determine in its sole discretion.
In the event that Lessor shall elect to sell the applicable Systems, Lessor
shall notify Lessee, Administrative Agent and the Participants thereof, and
each thereof shall have the right to cause any Person to submit a bid to
Lessor not later than twenty (20) Business Days prior to the date Lessor
desires to sell the applicable Systems (as set forth in the notice thereof to
Lessee); provided, however, that Lessor shall have the right, in its sole
-------- -------
discretion, from time to time, to defer such proposed sale date, in which
event the rights of Lessee, Administrative Agent, Information Agent and each
Participant to cause any Person to submit a bid to Lessor shall be extended
to the date that is twenty (20) Business Days prior to the revised proposed
sale date. At no time shall Lessor be obligated to accept any bid for the
sale of the applicable Systems (whether such bid was obtained by Lessee,
Administrative Agent, any Participant or otherwise) or to consummate any
proposed sale.
(c) At any time and from time to time on or after the applicable Lease
Supplement Termination Date, Lessor shall have the right to withdraw from the
Sale Deposit (other than the portion thereof constituting the Applicable
Percentage Amount) amounts sufficient to pay, or reimburse itself for the
payment of, expenses of Lessor, Administrative Agent, Information Agent and
each Participant in connection with any bidding and sale (or proposed sale,
whether or not consummated) described in clause (b). In the event that
----------
there are insufficient funds remaining from the Sale Deposit to pay such
expenses, Lessee shall pay such expenses from time to time upon demand.
(d) Contemporaneously with the consummation of any sale of the applicable
Systems by Lessor pursuant to this Section 4.8, (i) Lessee will transfer
-----------
all of Lessee's right, title and interest in the applicable Systems to be
transferred and all Support Rights associated therewith to the purchaser;
(ii) subject to prior or concurrent payment by Lessee of all amounts due
under clause (iii) of this sentence and receipt by Lessor of the Recourse
-----
Sales Proceeds from
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such sale, Lessor shall exercise such rights as it has to cause the
applicable Systems to be released from the Lien of this Lease and shall,
without recourse or warranty (except as to the absence of Lessor Liens),
transfer by bill of sale Lessor's right, title and interest in and to the
applicable Systems to such purchaser in the manner contemplated by Section
-------
18.15; and (iii) Lessee shall simultaneously pay or cause to be
-----
paid to Lessor in immediately available funds an amount equal to all unpaid
Base Rent, Holdover Rent and all Supplemental Rent due on or prior thereto
and any other amounts due and payable by Lessee to Lessor, Administrative
Agent and each Participant. Any Recourse Sales Proceeds in excess of the sum
of (x) the applicable Lease Supplement Balance, plus (y) all unpaid Base
Rent, Holdover Rent and Supplemental Rent due on or prior thereto and any
other amounts due and payable by Lessee to Lessor, Administrative Agent and
each Participant, shall be remitted to Lessee promptly after receipt.
(e) Until a sale of the Systems by Lessor pursuant to this Section 4.8,
-----------
Lessee shall be bound by all of the obligations and duties of Lessee under
this Lease, notwithstanding the occurrence of the applicable Lease Supplement
Termination Date.
(f) Lessor reserves all rights under this Lease and the other Operative
Documents arising out of Lessee's breach of any provisions of this Lease
(including this Article IV), whether occurring prior to, on or after the
----------
applicable Lease Supplement Termination Date, and including Lessee's breach
of any of its obligations under Sections 4.3 and 4.5, including the right
------------ ---
to sue Lessee for damages.
(g) To the greatest extent permitted by law, Lessee hereby
unconditionally and irrevocably waives, and releases Lessor from, any right
to require Lessor to sell the applicable Systems under this Section 4.8 at
-----------
all or for any minimum purchase price or on any particular terms and
conditions, Lessee hereby agreeing that if Lessee shall elect the Sale
Option, its ability to sell the applicable Systems on or prior to the
applicable Lease Supplement Termination
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Date and its right thereafter to cause any Person to submit a bid to Lessor
pursuant to Section 4.8(b) in the event Lessor shall elect to sell the
--------------
applicable Systems shall constitute full and complete protection of Lessee's
interest hereunder.
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ARTICLE V
CONDITION OF EQUIPMENT; DISCLAIMER OF WARRANTIES
------------------------------------------------
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SECTION V.1. Waivers. LESSEE ACKNOWLEDGES AND AGREES THAT, ALTHOUGH LESSOR
-------
WILL OWN AND HOLD TITLE TO THE SYSTEMS THAT ARE THE SUBJECT OF LEASE
SUPPLEMENTS, LESSEE IS SOLELY RESPONSIBLE UNDER THE TERMS OF THE CONSTRUCTION
AGENCY AGREEMENT FOR THE DESIGN, DEVELOPMENT, BUDGETING AND CONSTRUCTION OF SUCH
SYSTEMS AND ALL RELATED EQUIPMENT AND ANY ALTERATIONS. The Systems are let by
Lessor "AS IS" in its present or then condition, as the case may be, subject to
(a) any rights of any parties in possession thereof, (b) the state of the title
thereto existing at the time Lessor acquired its interest in the Systems, (c)
any state of facts which a physical inspection might show, (d) all Applicable
Laws, and (e) any violations of Applicable Laws which may exist at the
commencement of the applicable Lease Supplement Term. Lessee has examined the
Systems and (insofar as Lessor is concerned) has found the same to be
satisfactory. NEITHER LESSOR, ANY AGENT NOR ANY PARTICIPANT HAS MADE OR SHALL
BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OR
SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE TO THE SYSTEMS
OR ANY RELATED EQUIPMENT OR TO THE VALUE, MERCHANTABILITY, HABITABILITY,
CONDITION, OR FITNESS FOR USE OF THE SAME, OR ANY PART THEREOF, OR ANY OTHER
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE
SYSTEMS OR ANY RELATED EQUIPMENT, OR ANY PART THEREOF, AND NEITHER LESSOR, ANY
AGENT NOR ANY PARTICIPANT SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT
DEFECT THEREIN OR THE FAILURE OF THE EQUIPMENT, OR ANY PART THEREOF, TO COMPLY
WITH ANY APPLICABLE LAWS, except that Lessor hereby represents and warrants that
each System is and shall be free of Lessor Liens (such Lessor representation and
warranty being made by (x) Bank with respect to any Lessor Liens attributable to
Bank, and (y) Certificate Trustee with respect to any Lessor Liens attributable
to Certificate Trustee). Lessee has been afforded full opportunity to inspect
the Systems and all related Equipment, is satisfied with the results of its
inspections and is entering into this Lease solely on the basis of the results
of its own inspections, and all risks incident to the matters discussed in the
preceding sentence, as between Lessor, any Agent and the Participants, on the
one hand, and Lessee, on the other, are to be borne by Lessee. The provisions
of this Article V have been negotiated, and, except to the extent otherwise
---------
expressly stated, the foregoing provisions are intended to be a complete
exclusion and negation of any representations or
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warranties by any of Lessor, any Agent or the Participants, express or implied,
with respect to the Systems and all related Equipment (or any interest therein),
that may arise pursuant to any law now or hereafter in effect, or otherwise.
ARTICLE VI
LIENS
-----
SECTION VI.1. Liens. Lessee shall not directly or indirectly create, incur,
-----
assume or suffer to exist any Lien, attachment, levy, title retention agreement
or claim upon any Equipment or Alteration, the title thereto, or any interest
therein, including all Liens which arise out of the possession, use, occupancy
or construction of the Equipment or by reason of labor or materials furnished or
claimed to have been furnished to Lessee or any of its contractors or agents or
by reason of the financing of any Alterations constructed by or for the benefit
of Lessee and not financed by Lessor, except in all cases Permitted Liens.
Lessee shall promptly, but not later than sixty (60) days after the filing
thereof, at its own expense, take such action as may be necessary duly to
discharge or eliminate or bond any Lien (other than Permitted Liens) in a manner
reasonably satisfactory to Lessor.
SECTION VI.2. No Lessor Consent or Liability. Nothing contained in this
------------------------------
Lease shall be construed as constituting the consent or request of Lessor,
express or implied, to or for the performance by any contractor, mechanic,
laborer, materialman, supplier or vendor of any labor or services or for the
furnishing of any materials for any construction, alteration, addition, repair
or demolition of or to the Equipment or any part thereof. NOTICE IS HEREBY
GIVEN THAT NONE OF LESSOR, THE CERTIFICATE PURCHASERS, CERTIFICATE TRUSTEE, ANY
LENDER NOR ANY AGENT IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS
FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE HOLDING THE EQUIPMENT OR
ANY PART THEREOF THROUGH OR UNDER LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS
FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST
OF LESSOR, CERTIFICATE TRUSTEE, ANY AGENT OR ANY PARTICIPANT IN AND TO THE
EQUIPMENT.
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ARTICLE VII
MAINTENANCE AND REPAIR;
ALTERATIONS AND ADDITIONS
-------------------------
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SECTION VII.1. Maintenance and Repair; Compliance With Law. Lessee, at its
-------------------------------------------
own expense, shall at all times (a) maintain the Leased Assets in good and safe
repair and condition, subject to ordinary wear and tear; provided, that the
--------
condition of all Leased Assets shall be maintained in at least as good and safe
repair and condition as similar systems and equipment that Lessee (or its
Affiliates) owns or leases from others; (b) maintain, manage and monitor the
Leased Assets in accordance with all Applicable Laws, whether or not such
maintenance requires structural modifications, noncompliance with which (i)
would have a material adverse effect on Lessee's right to use all or a material
portion of the Leased Assets or Lessee's business or financial condition, (ii)
would result in an injunction preventing or otherwise interfere with the
disposition of any System in any material respect after the Lease Termination
Date, (iii) would adversely affect the fair market value, utility, remaining
economic useful life or residual value of any System comprising a portion of the
Leased Assets, or (iv) would adversely affect Lessor's interest in any System
comprising a portion of the Leased Assets; (c) comply with the standards imposed
by any insurance policies required to be maintained hereunder which are in
effect at any time with respect to the Leased Assets; (d) maintain, manage and
monitor the Leased Assets in accordance with all applicable contracts, including
service contracts and insurance contracts; (e) conduct all scheduled maintenance
of the Leased Assets in conformity with maintenance and repair guidelines, if
any, for similar property (including, without limitation, Lessee's maintenance
program for such property); (f) cause each System subject to a Lease Supplement
to continue to have at all times at least the capacity and functional ability to
be used for, on a continuing basis (subject to normal interruption in the
ordinary course of business for maintenance, inspection and repair) and in
Commercial Operation, the purposes for which it was specifically designed; (g)
make all necessary or appropriate repairs, replacements, substitutions and
renewals of the Leased Assets or any part thereof which may be required to keep
the Leased Assets in the condition required by the preceding clauses (a) through
-----------
(f), in accordance with standard industry practice; and (h) procure, maintain
- ---
and comply in all material respects with all material licenses, permits, orders,
approvals, consents and other authorizations required for the construction, use,
maintenance,
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repair, restoration and operation of the Leased Assets. The foregoing
obligations of Lessee shall apply whether the repairs, replacements,
substitutions or renewals are made to the interior or exterior of a System, are
structural or nonstructural, ordinary or extraordinary, are foreseen or
unforeseen, and include, without limitation, repairs, replacements and renewals
that would constitute capital expenditures under GAAP if incurred by an owner of
property. Leased items of Equipment that have been substituted or replaced
pursuant to this Section 7.1 shall become the property of Lessee, and title
-----------
thereto shall automatically vest in Lessee upon such permitted substitution or
replacement. Lessee waives any right that it may now have or hereafter acquire
to (x) require Lessor to maintain, repair, replace, alter, remove or rebuild all
or any part of the Leased Assets or (y) make repairs at the expense of Lessor
pursuant to any Applicable Laws or other agreements.
SECTION VII.2. Alterations. At Lessee's own cost and expense,
-----------
(a) Lessee shall make alterations, renovations, improvements, additions,
substitutions and replacements to any and all Leased Assets (collectively,
"Alterations") so long as such Alterations are (i) made to repair or
-----------
maintain the Leased Assets in the condition required by Section 7.1; (ii)
-----------
necessary in order for the Leased Assets to be in compliance with
Applicable Laws; (iii) necessary to restore the Leased Assets to their
condition existing prior to an Event of Loss, Casualty or Condemnation; or
(iv) of a type not described in clauses (i) through (iii) above and which
----------- -----
comply with the provisions of Section 7.2(b); and
--------------
(b) so long as no Lease Event of Default has occurred and is then
continuing, Lessee may undertake other Alterations on any Leased Assets so
long as Lessee complies, in each case provided for in Section 7.2(a) or (b)
-------------- ---
with each of the following requirements:
(i) Lessee shall not make any Alterations in violation of the terms of
any restriction, easement, condition or covenant or other matter affecting
title to any of the
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Leased Assets or which would adversely affect Lessor's interest in any of
the Leased Assets.
(ii) Alterations shall be completed in a commercially reasonable
manner.
(iii) Alterations shall be, when completed, of such a character as not
materially adversely to affect the fair market value, utility, remaining
economic useful life or residual value of the affected System or Systems
from the fair market value, utility, remaining economic useful life or
residual value of or such System or Systems immediately prior to the making
thereof or the occurrence of the Event of Loss, Casualty or Condemnation,
as the case may be.
Neither Lessor nor Administrative Agent need inquire into or confirm that the
Alterations were made in conformity with these requirements.
SECTION VII.3. Title to Alterations. Title to Alterations shall without
--------------------
further act vest in Lessor and shall be deemed to constitute a part of the
Leased Assets in each of the following cases:
(a) such Alterations shall be in replacement of or in substitution for a
portion of the Leased Assets;
(b) such Alterations shall be required to be made pursuant to the terms of
Section 7.1 or 7.2(a)(i), (ii) or (iii);
- ----------- --------------- -----
(c) such Alterations shall not be removable from the Leased Assets to
which they are attached without causing material damage thereto;
(d) the removal of such Alteration would impair the fair market value,
utility, remaining economic useful life or residual value of the leased
System as compared in each case with that which such leased System would have
had such Alteration not been made; or
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(e) such Alteration is necessary for the continued Commercial Operation
of a System included in the Leased Assets.
Lessee, at Lessor's request, shall execute and deliver to Lessor any
assignments or other documents of conveyance reasonably necessary to evidence
the vesting of title in and to such Alterations.
If such Alterations are not within any of the categories set forth in clauses
-------
(a) through (e) of this Section 7.3, then title to such Alterations shall vest
- --- --- -----------
in Lessee and such Alterations shall not be deemed to be Alterations which are
Leased Assets. All Alterations to which Lessee shall have title may be removed
at any time, so long as removal thereof shall not result in the violation of any
Applicable Laws and no Lease Event of Default or Lease Default is continuing.
Any such Alterations shall be removed by Lessee at its expense, if Lessor shall
so request, prior to the return of the System to Lessor in accordance with the
provisions of this Lease, and Lessee shall at its expense repair any damage to
any System caused by the removal of such Alterations. Lessor may purchase from
Lessee Alterations (if not already owned by Lessor) which Lessee intends to
remove from any System prior to the return of the System to Lessor, which
purchase shall be at the Fair Market Sales Value of such Alterations. Title to
any Lessee Alterations shall vest in Lessor if not removed from the Leased
Assets by Lessee prior to the return of the Leased Assets to Lessor.
SECTION VII.4. Maintenance and Repair Reports. Lessee shall keep maintenance
------------------------------
and repair reports in sufficient detail, and as customary for owners of
communications systems, to indicate the nature and date of major work done.
Such reports shall be kept on file by Lessee at its offices during the Lease
Term, and shall be made available to Lessor upon reasonable request. Lessee
shall give notice to Lessor and Administrative Agent of any Condemnation or
Casualty the cost to repair which is reasonably expected by Lessee to exceed
$1,000,000, promptly after Lessee has knowledge thereof.
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ARTICLE VIII
USE
---
Lessee shall not use any System subject to a Lease Supplement or any part
thereof for any purpose or in any manner that would materially adversely affect
the fair market value, utility, remaining economic useful life or residual value
thereof or that would violate or conflict with, or constitute or result in a
violation or default under (a) any Applicable Laws, whether now existing or
hereafter in effect, foreseen or unforeseen, except for Permitted Contests, (b)
any insurance policies required by Article IX, or (c) any Operative Document.
----------
ARTICLE IX
INSURANCE
---------
SECTION IX.1. Required Coverage. Lessee will keep insured all property of a
-----------------
character usually insured by corporations engaged in the same or similar
business similarly situated against loss or damage of the kinds and in the
amounts customarily insured against by such corporations, and carry such other
insurance as is usually carried by such corporations; provided, that in any
--------
event Lessee will maintain:
(a) Comprehensive General Liability Insurance. Combined single limit
-----------------------------------------
insurance against claims for bodily injury, death or third-party property
damage occurring on, in or about the Equipment in an amount at least equal to
$10,000,000 per occurrence (subject to a deductible of $250,000 per
occurrence).
(b) Property Insurance. Insurance against loss of damage covering the
------------------
Equipment or any portion thereof by reason of any peril in an amount and with
such deductibles as are carried by companies similar to Lessee owning or
leasing equipment similar to the Equipment; provided, however, that at
-------- -------
no time shall the amount of such coverage, on a replacement cost basis, be
less than the then outstanding Lease Balance. Notwithstanding the foregoing,
Lessee may
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elect to self-insure against property damage for any of the Equipment.
(c) Workers' Compensation Insurance. Lessee shall, in the operation of
-------------------------------
the Equipment, comply with the applicable workers' compensation laws.
Such insurance shall be written by reputable insurance companies that are
financially sound and solvent and otherwise reasonably appropriate considering
the amount and type of insurance being provided by such companies. In the case
of liability insurance maintained by Lessee, it shall name Bank, Administrative
Agent, Lessor and all Participants, as additional insureds. Each policy of
liability insurance referred to in this Section 9.1 shall provide that: (i) it
-----------
will not be cancelled or its limits materially reduced, or allowed to lapse
without renewal, except after not less than thirty (30) days' prior written
notice to Administrative Agent; (ii) the interests of Bank, Administrative
Agent, Lessor and all Participants shall not be invalidated by any act or
negligence of Lessee or any Person having an interest in the Equipment; (iii)
such insurance is primary with respect to any other insurance carried by or
available to Bank, Administrative Agent, Lessor and each Participant; (iv) the
insurer shall waive any right of subrogation, setoff, counterclaim, or other
deduction, whether by attachment or otherwise, against Bank, Administrative
Agent or Lessor; and (v) such policy shall contain a cross-liability clause
providing for coverage of Bank, Administrative Agent, Lessor and each
Participant as if separate policies had been issued to each of them. Lessee
will notify Administrative Agent promptly of any cancellation, material
reduction in policy limits, material modification or amendment of any liability
policy.
SECTION IX.2. Delivery of Insurance Certificates. On or before the initial
----------------------------------
Advance Date and thereafter upon written request of Lessor after a Lease Event
of Default, Lessee shall deliver to each Agent certificates of insurance
satisfactory to Bank (as to itself only) and Information Agent evidencing the
existence of all insurance required to be maintained hereunder and setting forth
the respective coverage, limits of liability, carrier, policy number and period
of coverage.
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ARTICLE X
ASSIGNMENT AND SUBLEASING
-------------------------
SECTION X.1. Assignment and Subleasing. (a) Lessee may not assign, transfer
-------------------------
possession of or sublease, in whole or in part, any of its right, title or
interest in, to or under this Lease or any portion of any System or any related
Equipment subject to this Lease to any Person at any time, and any such
assignment, transfer of possession or sublease shall be void, unless: (i) after
------
giving effect to any such assignment, transfer of possession or sublease
(including all prior transactions of any of the foregoing types) the Indirect
Beneficial Ownership Interest of Guarantor in all of the Leased Assets and in
all of the Owned Assets, respectively, included in any Qualified MAN or FCL
would be equal to or greater than forty-nine percent (49%); provided, however,
-------- -------
that, subsequent to an initial public offering by Lessee that reduces the
Indirect Beneficial Ownership Interest of Guarantor to below 49%, no such
assignment, transfer or sublease shall reduce the Indirect Beneficial Ownership
Interest of Guarantor, calculated On a Fully Diluted Basis, below the Indirect
Beneficial Ownership Interest of Guarantor, calculated On a Fully Diluted Basis,
maintained immediately after such initial public offering, or (ii) such
assignment, transfer of possession or sublease is to a Subsidiary of Guarantor,
in which event such Subsidiary shall be bound by and subject to each of the
provisions set forth herein, or (iii) such assignment, transfer of possession or
sublease is consented to by each Participant, which consent shall not be
unreasonably withheld or delayed. Any sublease, assignment or similar agreement
in respect of a System shall be expressly subject and subordinate to this Lease.
Lessee shall execute and deliver an assignment of its interest in any sublease
permitted by this Section 10.1 to Lessor.
------------
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(b) Notwithstanding anything to the contrary contained in Section 10.1(a),
---------------
Lessee shall have the right, without the prior written consent of Lessor,
to enter into, or have entered into, agreements ("Qualified Use
-------------
Agreements") with any Person (a "Qualified User") by which such Qualified
--------------
User acquires a right (which may be indefeasible) to use one or more fibers
in a cable that is part of an FCL or MAN, for a term that in the case of a
Qualified User that is not an Affiliate of Lessee or Guarantor (a "Non-
---
Affiliated Qualified Use Agreement") may extend beyond the Lease
- ----------------------------------
Termination Date or, in the case of a Qualified User that is an Affiliate
of Lessee or Guarantor, shall automatically terminate upon termination of
this Lease for any reason (an "Affiliate Qualified Use Agreement");
---------------------------------
provided, that the aggregate rights to use granted by all Qualified Use
- --------
Agreements made with regard to a particular MAN shall not exceed twenty
percent (20%) of the capacity of the affected cables in such MAN. A
Qualified Use Agreement shall contain terms, as of the date the Qualified
Use Agreement is entered into, reflective of an arms-length transaction in
the geographical location in which the fiber is intended to be used.
Lessee agrees to provide notice to Lessor of the existence of any such
Qualified Use Agreement within ten (10) Business Days of entering into any
such Qualified Use Agreement. Lessor covenants to each Qualified User
under a Non-Affiliated Qualified Use Agreement that it will not disturb
such Qualified User's peaceful and undisturbed use of the rights it
acquires pursuant to any such Non-Affiliated Qualified Use Agreement,
notwithstanding any Lease Default or Lease Event of Default; provided, that
--------
such Qualified User timely and completely performs its obligations under
such Non-Affiliated Qualified Use Agreement. An Affiliated Qualified Use
Agreement shall be subject and subordinate to this Lease and shall also
comply with the provisions of Section 6.7(f) of the Participation
--------------
Agreement.
SECTION X.2. Release from Obligations. Regardless of Lessor's consent, no
------------------------
assignment, transfer of possession or sublease shall release Guarantor from any
of its obligations under the Guaranty or, except as hereinafter provided, Lessee
of Lessee's obligations hereunder or alter the primary liability of Lessee to
pay Rent hereunder (including, without limitation, Base Rent and Supplemental
Rent) and to perform all other obligations to be performed by Lessee hereunder.
The acceptance of Rent by
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Lessor from any other Person shall not be deemed to be a waiver by Lessor of any
provision hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent or further assignment, subletting, hypothecation or
third party use. Lessor may proceed directly against Lessee without the
necessity of exhausting remedies against said assignee or successor. Lessor may
consent to subsequent assignments or subletting of this Lease or amendments or
modifications to this Lease with assignees of Lessee without notifying Lessee,
or any successor of Lessee, and without obtaining its or their consent thereto,
and such action shall not relieve Lessee or any successor of Lessee of liability
under the Lease. In the event Lessee or a Subsidiary enters into a permitted
assignment of all of the Leased Assets in a Qualified MAN or FCL and such
assignment is accompanied by the transfer to the assignee of all of the Owned
Assets included in such Qualified MAN or FCL, then Lessee shall be released from
its obligations under the Lease Supplement covering the Leased Assets so
assigned upon Lessor's receipt of a new Lease Supplement covering such Leased
Assets duly executed and delivered by such assignee, the reaffirmation by
Guarantor of the Guaranty, together with an opinion of counsel of such assignee,
reasonably acceptable to the Lessor, covering such matters as were covered in
the legal opinion rendered by Lessee's counsel at the Document Closing Date.
ARTICLE XI
LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE
-----------------------------------------
SECTION XI.1. Event of Taking.
---------------
(a) If an Event of Taking shall occur, Lessee shall give Lessor and
Administrative Agent prompt written notice of such occurrence and the date
thereof, and Lessee shall purchase all of the Systems subject to the Lease
Supplement affected thereby from Lessor on the next succeeding Payment Date
after the date on which such Event of Taking shall have occurred at a purchase
price equal to the sum of (i) the applicable Lease Supplement Balance plus (ii)
----
all accrued but unpaid Rent, plus (iii) all other sums due and payable by Lessee
----
to Lessor with respect to such Systems under any of the Operative Documents.
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All proceeds received by Lessee up to the amounts owed by Lessee under this
Section 11.1(a) from an Event of Taking shall be promptly remitted to Lessor or
- ---------------
Administrative Agent and shall be applied in accordance with the next sentence.
In connection with the purchase of Systems pursuant to this Section 11.1(a), all
---------------
such proceeds from an Event of Taking for such Systems then held by Lessor or
Administrative Agent shall be credited against such purchase price, if not
already paid by Lessee, and any such proceeds remaining thereafter shall be paid
over to, or retained by, Lessee, or as Lessee may direct.
(b) Upon payment in full of all amounts payable pursuant to
Section 11.1(a), (i) the applicable Lease Supplement Term shall end, and (ii)
- ---------------
the obligations of Lessee hereunder with respect to the affected Systems (other
than any obligations expressed herein as surviving termination of this Lease)
shall terminate as of the date of such payment.
SECTION XI.2. Application of Certain Payments Relating to Condemnation. In
--------------------------------------------------------
case of a Condemnation with regard to one or more Systems (or portions thereof)
subject to a Lease Supplement, this Lease shall remain in full force and effect,
without any abatement or reduction of Rent, and the proceeds received from any
Governmental Authority relating to such Condemnation for the affected System
shall be paid to Lessee.
SECTION XI.3. Event of Loss. (a) If an Event of Loss shall occur, Lessee
-------------
shall give Lessor and Administrative Agent prompt written notice of such
occurrence and the date thereof, and Lessee shall either (i) purchase the
affected Systems from Lessor on the next succeeding Payment Date after the date
such Event of Loss shall have occurred at a purchase price equal to the sum of
(x) the related Lease Supplement Balance, plus (y) all accrued but unpaid Rent,
----
plus (z) all other sums due and payable by Lessee to Lessor, either Agent or any
- ----
Participant with respect to such affected System under any of the Operative
Documents, or (ii) as soon as practicable after the Event of Loss, repair and
rebuild the Systems suffering such Event of Loss (or cause such affected System
to be repaired and rebuilt) to the condition required to be maintained by
Section 7.1; provided, that the fair market value, utility, remaining economic
- ----------- --------
useful life and residual value of such
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Systems as repaired are at least equivalent to the fair market value, utility,
remaining economic useful life and residual value of such Systems as in effect
immediately prior to the occurrence of such Event of Loss; and provided,
--------
further, that any Equipment installed in such repair or rebuilding of any System
- -------
shall become subject to this Lease and the relevant Lease Supplement, and that
Lessee shall execute and deliver an Acceptance Certificate, as appropriate, for
all such replacement Equipment.
(b) Upon payment in full of all amounts payable pursuant to Section
-------
11.3(a)(i), (i) the Lease Supplement Term shall end with respect to the affected
- ----------
Lease Supplement, and (ii) the obligations of Lessee hereunder with respect to
the Lease Supplement (other than any obligations expressed herein as surviving
termination of this Lease) shall terminate as of the date of such payment.
SECTION XI.4. Casualty. Upon any Casualty with respect to a System, Lessee
--------
shall repair and rebuild the affected portions of the System suffering such
Casualty (or cause such affected portions to be repaired and rebuilt) to the
condition required to be maintained by Section 7.1; provided, that the fair
----------- --------
market value, utility, remaining economic useful life and residual value of such
System as restored is at least equivalent to the fair market value, utility,
remaining economic useful life and residual value of such item as in effect
immediately prior to the occurrence of such Casualty.
SECTION XI.5. [Intentionally Deleted.]
---------------------
SECTION XI.6. Other Dispositions. Notwithstanding the foregoing provisions
------------------
of this Article XI, so long as a Lease Default shall have occurred and be
----------
continuing, any amount that would otherwise be payable to or for the account of,
or that would otherwise be retained by, Lessee pursuant to this Article XI shall
----------
be paid to Administrative Agent as security for the obligations of Lessee under
this Lease, shall be invested by Administrative Agent in accordance with Section
-------
19.17 in Permitted Investments and, if a Lease Event of Default is continuing,
- -----
may be applied to the obligations of Lessee hereunder, and, at such time
thereafter as no Lease Default shall be continuing, such amount and gain thereon
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shall be paid promptly to Lessee to the extent not previously applied in
accordance with the terms of this Lease.
SECTION XI.7. Negotiations. In the event any part of a System becomes
------------
subject to condemnation or requisition proceedings, Lessee shall give notice
thereof to Lessor and Administrative Agent promptly after Lessee has knowledge
thereof, or Lessor shall give notice thereof to Lessee, as applicable, and
Lessee, to the extent permitted by any Applicable Laws, shall control the
negotiations with the relevant Governmental Authority unless a Lease Default
shall have occurred and be continuing, in which case Lessor shall control such
negotiations; provided, that in any event Lessor may participate at Lessor's
--------
expense in such negotiations; and no settlement shall be made without Lessor's
prior written consent, which consent shall not be unreasonably withheld or
delayed. Lessee shall give to Lessor and Administrative Agent such information,
and copies of such documents, which relate to such proceedings, or which relate
to the settlement of amounts due under insurance policies required by Article IX
----------
and are in the possession of Lessee as are reasonably requested by Lessor or
Administrative Agent.
SECTION XI.8. No Rent Abatement. Rent shall not abate hereunder by reason of
-----------------
any casualty, any Event of Taking, any Event of Loss or any Condemnation of any
System, and Lessee shall continue to perform and fulfill all of Lessee's
obligations, covenants and agreements hereunder notwithstanding such casualty,
Event of Loss, Event of Taking or Condemnation until the Lease Supplement
Termination Date(s) with respect to the affected System.
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ARTICLE XII
NON-INTERFERENCE
----------------
SECTION XII.1. Non-Interference. Lessor covenants that it will not interfere
----------------
in Lessee's use of any System subject to this Lease during the Lease Term, so
long as no Lease Event of Default has occurred and is continuing, it being
agreed that Lessee's remedies for breach of the foregoing covenant shall be
limited to a claim for damages or the commencement of proceedings to enjoin such
breach. Such right is independent of and shall not affect Lessor's rights
otherwise to initiate legal action to enforce the obligations of Lessee under
this Lease.
SECTION XII.2. Certain Duties and Responsibilities of Lessor. Except during
---------------------------------------------
the continuance of a Lease Event of Default or a Loan Event of Default, Lessor
undertakes to perform such duties and only such duties as are specifically set
forth herein and in the other Operative Documents, and no implied covenants or
obligations shall be read into this Lease against Lessor, and Lessor agrees that
it shall not, nor shall it have a duty to, manage, control, use, sell, maintain,
insure, register, lease, operate, modify, dispose of or otherwise deal with any
System or any related Equipment or any other part of the Trust Estate in any
manner whatsoever, except as required by the terms of the Operative Documents
and as otherwise provided herein.
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ARTICLE XIII
INSPECTION AND REPORTS
----------------------
SECTION XIII.1. Inspection. Upon fifteen (15) Business Days prior notice to
----------
Lessee, each of Administrative Agent, Lessor, any Participant and their
respective authorized representatives (the "Inspecting Parties") may inspect (a)
------------------
any System in a Qualified MAN or FCL and (b) the books and records of Lessee
relating directly and primarily to any such System or Systems and make copies
and abstracts therefrom. All such inspections shall be at the expense and risk
of the Inspecting Parties, except that if a Lease Event of Default or Lease
Default has occurred and is continuing, Lessee shall reimburse the Inspecting
Parties for the reasonable costs of such inspections and such inspection shall
be at Lessee's risk. None of the Inspecting Parties shall have any duty to make
any such inspection or inquiry, and none of the Inspecting Parties shall incur
any liability or obligation by reason of not making any such inspection or
inquiry. None of the Inspecting Parties shall incur any liability or obligation
by reason of making any such inspection or inquiry unless and to the extent, so
long as no Lease Event of Default has occurred and is continuing at the time of
inspection, such Inspecting Party causes damage to any System or any property of
Lessee or any other Person during the course of such inspection.
SECTION XIII.2. Reports. To the extent permissible under Applicable Laws,
-------
Lessee shall prepare and file in timely fashion, or, where Lessor shall be
required to file, Lessee shall prepare and make available to Lessor and
Administrative Agent within a reasonable time prior to the date for filing and
Lessor shall file, any reports with respect to the condition or operation of the
System and all related Equipment subject to a Lease Supplement that shall be
required to be filed with any Governmental Authority.
ARTICLE XIV
[INTENTIONALLY DELETED]
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ARTICLE XV
LEASE EVENTS OF DEFAULT
-----------------------
The occurrence of any one or more of the following events, whether any such
event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body, shall constitute a "Lease Event of Default":
----------------------
(a) Lessee shall fail to make any payment when due (i) of Base Rent and such
failure shall continue for a period of five (5) Business Days, or (ii) in
connection with the exercise of the Purchase Option or Sale Option;
(b) Lessee shall fail to make any payment of any other amount payable
hereunder or under any of the other Operative Documents (other than the
Construction Agency Agreement) and such failure shall continue for a period of
five (5) Business Days after such amount became due and payable;
(c) Lessee shall fail to maintain insurance as required by Section 9.1, or
-----------
Guarantor shall default in the performance or observance of any term, covenant,
condition or agreement on its part to be performed or observed pursuant to
Section 6.6(a)(vi) of the Participation Agreement;
(d) any representation or warranty by Lessee or Guarantor in any Operative
Document or in any certificate or document delivered to Lessor, either Agent or
any Participant pursuant to any Operative Document shall have been incorrect in
any material respect when made;
(e) Lessee or Guarantor shall fail in any material respect timely to perform
or observe any covenant, condition or agreement (and not constituting an Event
of Default under any other paragraph of this Article XV) to be performed or
----------
observed by it hereunder or under any other Operative Document and such failure
shall continue for a period of thirty (30) days after the earlier to occur of:
(i) written notice thereof by Administrative
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Agent or any Participant to Lessee or Guarantor, or (ii) the date on which
Lessee or Guarantor has Actual Knowledge thereof;
(f) (i) any of Lessee, Guarantor, any Subsidiary that is a sublessee,
assignee or transferee of any Leased Assets, or any Interested Subsidiary shall
generally fail to pay, or admit in writing its inability to pay, its debts as
they become due, or shall voluntarily commence any case or proceeding or file
any petition under any bankruptcy, insolvency or similar law or seeking
dissolution, liquidation or reorganization or the appointment of a receiver,
trustee, custodian or liquidator for itself or a substantial portion of its
property, assets or business or to effect a plan or other arrangement with its
creditors, or shall file any answer admitting the jurisdiction of the court and
the material allegations of any involuntary petition filed against it in any
bankruptcy, insolvency or similar case or proceeding, or shall be adjudicated
bankrupt, or shall make a general assignment for the benefit or creditors, or
shall consent to, or acquiesce in the appointment of, a receiver, trustee,
custodian or liquidator for itself or a substantial portion of its property,
assets or business, or (ii) corporate action shall be taken by Lessee,
Guarantor, any Subsidiary that is a sublessee, assignee or transferee of any
Leased Assets, or any Interested Subsidiary for the purpose of effectuating any
of the foregoing;
(g) involuntary proceedings or an involuntary petition shall be commenced or
filed against Lessee, Guarantor, any Subsidiary that is a sublessee, assignee or
transferee of any Leased Assets or any Interested Subsidiary under any
bankruptcy, insolvency or similar law or seeking the dissolution, liquidation or
reorganization of Lessee, Guarantor, any Subsidiary that is a sublessee,
assignee or transferee of any Leased Assets or any Interested Subsidiary or the
appointment of a receiver, trustee, custodian or liquidator for Lessee,
Guarantor, any Subsidiary that is a sublessee, assignee or transferee of any
Leased Assets or any Interested Subsidiary or of a substantial part of the
property, assets or business of Lessee, or any writ, judgment, warrant of
attachment, execution or similar process shall be issued or levied against a
substantial part of the property, assets or business of Lessee, Guarantor, any
Subsidiary that is a sublessee, assignee or transferee of any Leased Assets or
any Interested Subsidiary, and
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such proceedings or petition shall not be dismissed, or such writ, judgment,
warrant of attachment, execution or similar process shall not be released,
vacated or fully bonded within sixty (60) days after commencement, filing or
levy, as the case may be;
(h) a final judgment or final judgments for the payment of money are entered
by a court or courts of competent jurisdiction against Guarantor or any
Subsidiary and such judgment or judgements remain undischarged, unbonded or
unstayed for a period (during which execution shall be effectively stayed) of
thirty (30) days; provided, that the aggregate of all such judgments exceeds
--------
$50,000,000;
(i) any Operative Agreement shall (except in accordance with its terms), in
whole or in part, terminate, cease to be effective or cease (or fail) to be the
legally valid, binding and enforceable obligation of Lessee or Guarantor, as the
case may be, or Lessee or Guarantor or any Affiliate of either of them shall,
directly or indirectly, contest in any manner in any court the effectiveness,
validity, binding nature or enforceability thereof;
(j) (i) an event of default shall occur in the payment when due (subject to
any applicable grace period), whether by acceleration or otherwise, of any
Indebtedness of Lessee, Guarantor, any Subsidiary that is a sublessee, assignee
or transferee of any Leased Assets, any Interested Subsidiary or any Principal
Subsidiary that individually or in the aggregate exceeds $50,000,000 or (ii) any
other event of default shall occur with respect to any Indebtedness that
individually or in the aggregate exceeds $50,000,000;
(k) a Plan shall fail to maintain the minimum funding standard required by
Section 412(d) of the Code for any plan year or a waiver of such standard is
sought or granted under Section 412(d), or a Plan is or shall have been
terminated or the subject of termination proceedings under ERISA, or the
Borrower or an ERISA Affiliate has incurred a liability to or on account of a
Plan under Section 4062, 4063, 4064, 4201 or 4204 of ERISA, and there shall
result from any such event or events a Material Adverse Effect; and
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(l) there shall have occurred a Change in Control.
ARTICLE XVI
ENFORCEMENT
-----------
SECTION XVI.1. Remedies. If any Lease Event of Default exists, Lessor shall
--------
have the rights, options and remedies of a secured party under the UCC
(regardless of whether the UCC or a law similar thereto has been enacted in a
jurisdiction wherein the rights or remedies are asserted), and, without limiting
the foregoing, Lessor also may exercise in any order one or more or all of the
following remedies (it being understood that no remedy herein conferred is
intended to be exclusive of any other remedy or remedies, but each and every
remedy shall be cumulative and shall be in addition to every other remedy given
herein or now or hereafter existing at law or in equity or by statute): (i)
terminate this Lease by notice in writing to Lessee, but Lessee shall remain
liable as hereinafter provided; (ii) declare the entire outstanding Lease
Balance or any portion thereof (including any Lease Supplement Balance) to be
due and payable, together with accrued unpaid Rent and any other amounts payable
under the Operative Documents; (iii) enforce the security interest given
hereunder pursuant to the UCC or any other law; (iv) enter upon the premises
where any of the Equipment comprising one or more Systems may be and take
possession of all or any of such Equipment; (v) proceed by appropriate court
action or actions either at law or in equity to enforce performance by Lessee of
the applicable covenants of this Lease or to recover damages for the breach
thereof; and (vi) require Lessee to return the Systems and any or all related
Equipment as provided in Section 4.6.
-----------
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Notwithstanding the foregoing,
(a) if any Lease Event of Default described in Article XV exists, Lessor
----------
(at the direction of the Required Entities) may, by notice to Lessee, declare
the then outstanding Lease Balance or any portion thereof (including any
Lease Supplement Balance) to be due and payable together with the interest
component of all accrued unpaid Rent and any other amounts accrued and
payable under the Operative Documents; and
(b) if any Lease Event of Default described in Section (f) or (g) of
----------- ---
Article XV exists, then the entire outstanding Lease Balance and all
----------
accrued Rent and other amounts payable under the Operative Documents shall
automatically and immediately become due and payable, without presentment,
demand, notice, declaration, protest or other requirements of any kind, all
of which are hereby expressly waived.
SECTION XVI.2. Sale of Systems. In addition to the remedies set forth in
---------------
Section 16.1, if any Lease Event of Default occurs, Lessor may, but is not
- ------------
required to, sell the Systems and any or all related Equipment in one or more
sales. Lessor or any Participant may purchase all or any part of the Equipment
at such sale. Lessee acknowledges that sales for cash or on credit to a
wholesaler, retailer or user of such Equipment, or at public or private auction,
are all commercially reasonable. Any notice of intended disposition by Lessor
required by law shall be deemed reasonably and properly given if given at least
ten (10) days before such disposition.
SECTION XVI.3. Application of Proceeds. The proceeds of such sale or
-----------------------
exercise of other remedies shall be applied first in the order set forth in
Section 3.3 of the Loan Agreement and then in the order set forth in Section 3.3
of the Trust Agreement. If there is a deficiency in any amounts due hereunder
after Lessor has exercised remedies, Lessee will promptly pay the same to
Lessor.
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Lease
SECTION XVI.4. Power of Attorney. Lessee unconditionally and irrevocably
-----------------
appoints Lessor as its true and lawful attorney-in-fact, with full power of
substitution, to the extent permitted by Applicable Laws, in its name and stead
and on its behalf, for the purpose of effectuating any sale, assignment,
transfer or delivery hereunder, if a Lease Event of Default occurs, whether
pursuant to foreclosure or power of sale or otherwise, and in connection
therewith to execute and deliver all such deeds, bills of sale, assignments,
releases (including releases of this Lease on the records of any Governmental
Authority) and other proper instruments as Lessor may reasonably consider
necessary or appropriate. Lessee ratifies and confirms all that such attorney
or any substitute shall lawfully do by virtue hereof. If requested by Lessor or
any purchaser, Lessee shall ratify and confirm any such lawful sale, assignment,
transfer or delivery by executing and delivering to Lessor or such purchaser,
all deeds, bills of sale, assignments, releases and other proper instruments to
effect such ratification and confirmation as may be designated in any such
request.
SECTION XVI.5. Remedies Cumulative; No Waiver; Consents. To the extent
----------------------------------------
permitted by, and subject to the mandatory requirements of, Applicable Laws,
each and every right, power and remedy herein specifically given to Lessor or
otherwise in this Lease shall be cumulative and shall be in addition to every
other right, power and remedy herein specifically given or now or hereafter
existing at law, in equity or by statute, and each and every right, power and
remedy whether specifically herein given or otherwise existing may be exercised
from time to time and as often and in such order as may be deemed expedient by
Lessor, and the exercise or the beginning of the exercise of any power or remedy
shall not be construed to be a waiver of the right to exercise at the same time
or thereafter any right, power or remedy. No delay or omission by Lessor in the
exercise of any right, power or remedy or in the pursuit of any remedy shall
impair any such right, power or remedy or be construed to be a waiver of any
default on the part of Lessee or be an acquiescence therein. Lessor's consent to
any request made by Lessee shall not be deemed to constitute or preclude the
necessity for obtaining Lessor's consent, in the future, to all similar
requests. No express or implied waiver by Lessor of any Lease Event of Default
shall in any way be, or be
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<PAGE>
Lease
construed to be, a waiver of any future or subsequent Lease Default or Lease
Event of Default. To the extent permitted by Applicable Laws, Lessee hereby
waives any rights now or hereafter conferred by statute or otherwise that may
require Lessor to sell, lease or otherwise use the Systems or any related
Equipment in mitigation of Lessor's damages upon the occurrence of a Lease Event
of Default or that may otherwise limit or modify any of Lessor's rights or
remedies under this Article XVI.
-----------
ARTICLE XVII
RIGHT TO PERFORM FOR LESSEE
---------------------------
If Lessee shall fail to perform or comply with any of its agreements contained
herein, Lessor may, but shall not be obligated to, on five (5) Business Days'
prior notice to Lessee (except in the event of an emergency, in which case only
one (1) Business Day's prior notice shall be required), perform or comply with
such agreement, and Lessor shall not thereby be deemed to have waived any
default caused by such failure, and the amount of such payment and the amount of
the expenses of Lessor (including reasonable attorneys' fees and expenses)
incurred in connection with such payment or the performance of or compliance
with such agreement, as the case may be, together with interest thereon at the
Overdue Rate, shall be deemed Supplemental Rent, payable by Lessee to Lessor
upon demand; provided, that in the case of an emergency Lessee shall permit
--------
Lessor so to perform or comply on less than one Business Day's notice unless
Lessee has a good faith reason not to permit Lessor to do so.
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Lease
ARTICLE XVIII
MISCELLANEOUS
-------------
SECTION XVIII.1. Binding Effect; Successors and Assigns; Survival. The terms
------------------------------------------------
and provisions of this Lease, and the respective rights and obligations
hereunder of Lessor, Lessee, Administrative Agent and the Participants shall be
binding upon them and their respective successors, legal representatives and
assigns (including, in the case of Lessor, any Person to whom Lessor may
transfer any System or related Equipment or any interest therein in accordance
with the provisions of the Operative Documents), and inure to their benefit and
the benefit of their respective permitted successors, legal representatives and
assigns.
SECTION XVIII.2. Severability. Any provision of this Lease that shall be
------------
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, and Lessee shall remain
liable to perform its obligations hereunder except to the extent of such
unenforceability. To the extent permitted by Applicable Laws, Lessee hereby
waives any provision of law that renders any provision hereof prohibited or
unenforceable in any respect.
SECTION XVIII.3. Notices. Unless otherwise specified herein, all notices,
-------
requests, demands or other communications to or upon the respective parties
hereto shall be in writing and shall be delivered and shall be deemed to have
been given in accordance with Section 9.3 of the Participation Agreement.
SECTION XVIII.4. Amendment; Complete Agreements. Neither this Lease nor any
------------------------------
of the terms hereof may be terminated, amended, supplemented, waived or modified
orally, but only by an instrument in writing signed by the party against which
the enforcement of the termination, amendment, supplement, waiver or
modification
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<PAGE>
Lease
shall be sought. This Lease, together with the other Operative Documents, is
intended by the parties as a final expression of their agreement and as a
complete and exclusive statement of the terms thereof, all negotiations,
considerations and representations between the parties having been incorporated
herein and therein. No course of prior dealings between the parties or their
officers, employees, agents or Affiliates shall be relevant or admissible to
supplement, explain, or vary any of the terms of this Lease or any other
Operative Document. Acceptance of, or acquiescence in, a course of performance
rendered under this or any prior agreement between the parties or their
Affiliates shall not be relevant or admissible to determine the meaning of any
of the terms of this Lease or any other Operative Document or the Letter. No
representations, undertakings, or agreements have been made or relied upon in
the making of this Lease other than those specifically set forth in the
Operative Documents.
SECTION XVIII.5. Headings. The Table of Contents and headings of the various
--------
Articles and Sections of this Lease are for convenience of reference only and
shall not modify, define or limit any of the terms or provisions hereof.
SECTION XVIII.6. Original Lease. The single executed original of this Lease
--------------
containing the receipt of Lessor therefor on or following the signature page
thereof shall be the "original executed counterpart" of this Lease. To the
extent that this Lease constitutes chattel paper, as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction, no security
interest in this Lease may be created through the transfer or possession of any
counterpart other than the "original executed counterpart".
SECTION XVIII.7. GOVERNING LAW. THIS LEASE HAS BEEN DELIVERED IN, AND SHALL
-------------
IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, EXCEPT AS TO MATTERS RELATING TO THE CREATION AND ENFORCEMENT OF
LIENS AND SECURITY INTERESTS AND THE EXERCISE OF REMEDIES WITH RESPECT THERETO,
WHICH SHALL BE GOVERNED BY, AND
-44-
<PAGE>
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE APPLICABLE
EQUIPMENT IS LOCATED.
SECTION XVIII.8. Discharge of Lessee's Obligations by its Affiliates. Lessor
---------------------------------------------------
agrees that performance of any of Lessee's obligations hereunder by one or more
of its Affiliates or one or more permitted sublessees of the Equipment or any
part thereof shall constitute performance by Lessee of such obligations to the
same extent and with the same effect hereunder as if such obligations were
performed by Lessee, but no such performance shall excuse Lessee from any
obligation not performed by it or on its behalf under the Operative Documents.
SECTION XVIII.9. Liability of Trustee Limited. The parties hereto agree that
----------------------------
Shawmut Bank Connecticut, National Association, in its individual capacity (the
"Bank"), shall have no personal liability whatsoever to Lessee or its respective
----
successors and assigns for any Claim based on or in respect of this Lease or any
of the other Operative Documents or arising in any way from the transactions
contemplated hereby or thereby; provided, however, that the Bank shall be liable
-------- -------
in its individual capacity (a) for its own willful misconduct or gross
negligence (or negligence in the handling of funds), (b) for liabilities that
may result from the incorrectness of any representation or warranty expressly
made by it in its individual capacity in Section 4.3 of the Participation
Agreement or from the failure of the Bank to perform its covenants and
agreements set forth in Section 6.2 of the Participation Agreement, or (c) for
any Tax based on or measured by any fees, commission or compensation received by
it for acting as Lessor as contemplated by the Operative Documents. It is
understood and agreed that, except as provided in the preceding proviso: (i)
the Bank shall have no personal liability under any of the Operative Documents
as a result of acting pursuant to and consistent with any of the Operative
Documents; (ii) all obligations of the Bank to Lessee are solely nonrecourse
obligations except to the extent that it has received payment from others; (iii)
all such personal liability of the Bank is expressly waived and released as a
condition of, and as consideration for, the execution and delivery of the
Operative Documents by the Bank; and (iv) this Lease is executed and delivered
by the Bank solely
-45-
<PAGE>
Lease
in the exercise of the powers expressly conferred upon it as Lessor under the
Trust Agreement.
SECTION XVIII.10. Estoppel Certificates. Each party hereto agrees that at
---------------------
any time and from time to time during the Lease Term, it will promptly, but in
no event later than fifteen (15) days after request by the other party hereto,
execute, acknowledge and deliver to such other party or to any prospective
purchaser (if such prospective purchaser or lessee has signed a commitment
letter or letter of intent to purchase or lease one or more Systems subject to a
Lease Supplement or any part thereof or to purchase any Note or Certificate or
to purchase shares of capital stock of an Interested Subsidiary or to merge or
consolidate with or into Lessee), assignee or mortgagee or third party
designated by such other party, a certificate stating (a) that this Lease is
unmodified and in force and effect (or if there have been modifications, that
this Lease is in force and effect as modified, and identifying the modification
agreements); (b) the date to which Base Rent has been paid; (c) in the case of
an estoppel certificate to be given by Lessee, whether or not there is any
existing default by Lessee in the payment of Base Rent or any other sum of money
hereunder, and whether or not there is any other existing Lease Default or Lease
Event of Default with respect to which a notice of default has been served, and,
if there is any such default, specifying the nature and extent thereof; (d) that
such purchase, merger, transfer or lease does not constitute a Lease Default or
Lease Event of Default; (e) other items that may be reasonably requested;
provided, that no such items may be requested unless the requesting party
- --------
has a good faith reason for such request; and (f) in the case of an estoppel
certificate to be given by Lessor, whether or not title to a proposed or
constructed Alteration will vest in Lessor in accordance with Section 7.3;
-----------
provided, that no such certificate may be requested unless the requesting
- --------
party has a good faith reason for such request.
SECTION XVIII.11. No Joint Venture. Any intention to create a joint venture
----------------
or partnership relation between Lessor and Lessee is hereby expressly
disclaimed.
-46-
<PAGE>
Lease
SECTION XVIII.12. No Accord and Satisfaction. The acceptance by Lessor of
--------------------------
any sums from Lessee (whether as Base Rent or otherwise) in amounts which are
less than the amounts due and payable by Lessee hereunder is not intended, nor
shall be construed, to constitute an accord and satisfaction of any dispute
between Lessor and Lessee regarding sums due and payable by Lessee hereunder,
unless the Required Entities specifically deem it as such in writing.
SECTION XVIII.13. Successor Lessor. Lessee agrees that, in the case of the
----------------
appointment of any successor owner trustee pursuant to the terms hereof and of
the Trust Agreement, such successor owner trustee shall, upon written notice by
such successor owner trustee to Lessee, succeed to all the rights, powers and
title of Lessor hereunder and shall be deemed to be Lessor for all purposes
hereof and without in any way altering the terms of this Lease or Lessee's
obligations hereunder. Such appointment and designation of a successor owner
trustee shall not exhaust the right to appoint and designate further successor
owner trustees pursuant to the Trust Agreement, but such right may be exercised
repeatedly as long as this Lease shall be in effect.
SECTION XVIII.14. Survival. The obligations of Lessee to be performed under
--------
this Lease prior to any Lease Supplement Termination Date shall survive the
expiration or termination of this Lease. The extension of any applicable
statute of limitations by Lessor, Administrative Agent, Lessee, the Certificate
Purchasers or any other Indemnitee shall not affect such survival.
SECTION XVIII.15. Transfer of Systems to Lessee. Whenever pursuant to any
-----------------------------
provision of this Lease, Lessor is required to transfer a System to Lessee or to
an independent third party, such transfer shall be made at Lessee's expense by
the bill of sale transfer of all of Lessor's right, title and interest in and to
the Equipment on an "as is, where is, with all faults" basis free and clear of
all Lessor Liens, and otherwise without recourse, representation or warranty of
any kind, and together with the due assumption by Lessee (or such third party)
of, and due release of Lessor from, all obligations relating to the Equipment or
the Operative Documents. In connection with any such transfer to an
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<PAGE>
Lease
independent third party, Lessee shall execute and deliver such documents as may
be required to facilitate the transfer of the Systems. Any provision in this
Lease or other Operative Document to the purchaser thereof to the contrary
notwithstanding, Lessor shall not be obligated to make any such transfer until
Lenders and the Certificate Purchasers have received all Rent and other amounts
due and owing hereunder.
SECTION XVIII.16. Enforcement of Certain Warranties.
---------------------------------
(a) Unless a Lease Event of Default shall have occurred and be continuing,
Lessor authorizes Lessee (directly or through agents), at Lessee's expense,
to assert, during the Lease Term, all of Lessor's rights (if any) under any
applicable warranty and any other claim that Lessee or Lessor may have
under the warranties provided to Lessor in connection with the purchase of
the Equipment, and Lessor agrees to cooperate, at Lessee's expense, with
Lessee and its agents in asserting such rights. Any amount recovered by
Lessee under any such warranties shall be paid to Lessee.
(b) Notwithstanding the foregoing provisions of this Section 18.16,
-------------
so long as a Lease Default shall have occurred and be continuing, any amount
that would otherwise be retained by Lessee pursuant to Section 18.16(a) shall be
----------------
paid to Lessor as security for the obligations of Lessee under this Lease, shall
be invested by Lessor in accordance with Section 18.17 in Permitted Investments
-------------
and, if a Lease Event of Default is continuing, may be applied to the
obligations of Lessee hereunder, and, at such time thereafter as no Lease
Default shall be continuing, such amount and gain thereon shall be paid promptly
to Lessee to the extent not previously applied in accordance with the terms of
this Lease.
SECTION XVIII.17. Investment of Security Funds. Any amounts not payable to
----------------------------
Lessee and paid to or retained by Lessor pursuant to any provision hereof solely
because a Lease Event of Default or Lease Default shall have occurred and be
continuing or because Lessee shall not have performed in full its obligations
under Article XI shall be held by Lessor as security for the obligations of
----------
Lessee under this Lease and the other Operative Documents. At such time as no
Lease Event of Default or Lease Default, or
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<PAGE>
Lease
failure to perform shall be continuing, such amounts, net of any amounts
previously applied to Lessee's obligations hereunder or under any other
Operative Documents, shall be paid to Lessee. Any such amounts which are held
pending payment to Lessee or application hereunder shall be invested by Lessor
(or Administrative Agent) as directed from time to time in writing by Lessee
(provided, however, if a Lease Event of Default has occurred and is
- -------- -------
continuing, such investment will be directed by Lessor), and at the expense and
risk of Lessee, in Permitted Investments. Any gain (including interest
received) realized as the result of any such investment (net of any fees,
commissions and other expenses, if any, incurred in connection with such
investment) shall be applied from time to time in the same manner as the
principal invested. Lessee will promptly pay to Lessor on demand, the amount of
any loss realized as the result of any such investment (together with any fees,
commissions and other expenses, if any, incurred in connection with such
investment), such amount to be held, paid and applied in the same manner as
other amounts subject to this Section 18.17.
-------------
[signature page follows]
-49-
<PAGE>
IN WITNESS WHEREOF, the undersigned have each caused this Lease to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the day and year first above written.
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION,
not in its individual capacity except as
expressly stated herein, but solely as
Certificate Trustee, as Lessor
By_____________________________
Name: Robert L. Reynolds
Title: Vice President
ELECTRIC LIGHTWAVE, INC.,
as Lessee
By______________________________
Name: Robert J. DeSantis
Title: Chief Financial Officer
<PAGE>
RECEIPT FOR COUNTERPART NO. 1
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
as Administrative Agent
By_____________________________
Name: Robert L. Reynolds
Title: Vice President
<PAGE>
Lease
EXHIBIT A
TO
LEASE
FORM OF LEASE SUPPLEMENT
THIS LEASE SUPPLEMENT dated April 28, 1995 (this "Lease Supplement") is
----------------
between Shawmut Bank Connecticut, National Association, not in its individual
capacity, except as expressly stated herein, but solely as Certificate Trustee
under the Trust Agreement, as Lessor (the "Lessor"), and ELECTRIC LIGHTWAVE,
------
INC., a Delaware corporation, as Lessee (the "Lessee");
------
W I T N E S S E T H:
-------------------
WHEREAS, Lessee and Lessor have heretofore entered into that certain Lease
dated as of April 28, 1995 (as amended, supplemented, or otherwise modified from
time to time, the "Lease"). Unless otherwise defined herein, capitalized terms
-----
used herein shall have the meanings specified in the Lease; and
WHEREAS, the Lease provides for the execution and delivery of a Lease
Supplement on the Document Closing Date substantially in the form hereof for the
purpose of confirming the acceptance and lease of certain Equipment, specifying
the Rent applicable to such Equipment and setting forth certain other matters,
all as required pursuant to the Lease;
NOW, THEREFORE, in consideration of the premises and other good and sufficient
consideration, Lessor and Lessee hereby agree as follows:
=================================================================
TO THE EXTENT, IF ANY, THAT THIS LEASE SUPPLEMENT CONSTITUTES CHATTEL PAPER
(AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY
APPLICABLE JURISDICTION), NO SECURITY
-1-
<PAGE>
Lease Supplement
INTEREST IN THIS LEASE SUPPLEMENT MAY BE CREATED THROUGH THE TRANSFER OR
POSSESSION OF ANY COUNTERPART HEREOF OTHER THAN THE "ORIGINAL EXECUTED
COUNTERPART NO. 1", WHICH SHALL BE IDENTIFIED AS THE COUNTERPART CONTAINING THE
RECEIPT THEREFOR EXECUTED BY ADMINISTRATIVE AGENT ON OR FOLLOWING THE SIGNATURE
PAGE THEREOF.
THIS COUNTERPART IS [NOT] THE ORIGINAL EXECUTED COUNTERPART NO. 1.
-2-
<PAGE>
Lease Supplement
1. Systems Subject to Lease Supplement. All Systems located in [identify
-----------------------------------
metropolitan area] that the Lessor has had constructed for its benefit pursuant
to the Construction Agency Agreement shall become, upon satisfaction or waiver
of the conditions set forth in Article III of the Participation Agreement,
subject to the terms and conditions of this Lease Supplement and the Lease.
2. Base Term. The Base Term of this Lease Supplement shall commence on the
---------
initial Delivery Date, as evidenced by a Certificate of Acceptance for Systems
subject to this Lease Supplement, and shall end on the third anniversary of such
initial Delivery Date.
3. Renewal Terms and Lessor's Cost. With respect to the Systems covered by
-------------------------------
this Lease Supplement, Lessee shall have up to four one-year renewal options
that may be exercised pursuant, and subject, to Section 4.1 of the Lease;
provided that no such renewal option may extend beyond April 30, 2002 and the
- --------
final renewal option may have a term of less than one year if necessary to
comply with this requirement.
4. Confirmation. Lessee hereby confirms its agreement, in accordance with
------------
the Lease as supplemented by this Lease Supplement to pay Rent to Lessor for the
Equipment leased hereunder. Nothing herein shall reduce Lessee's obligation to
make all other payments required under the Lease, including those payments to be
made on the last day of the Lease Term pursuant to Article IV of the Lease.
5. Incorporation into Lease. This Lease Supplement shall be construed in
------------------------
connection with and as part of the Lease, and all terms, conditions and
covenants contained in the Lease, as supplemented by this Lease Supplement,
shall be and remain in full force and effect.
6. References. Any and all notices, requests, certificates and other
----------
instruments executed and delivered concurrently with or after the execution and
delivery of this Lease Supplement may refer to the "Lease, dated as of April 28,
1995", or may identify the Lease in any other respect without making specific
reference
-3-
<PAGE>
Lease Supplement
to this Lease Supplement, but nevertheless all such references shall be deemed
to include this Lease Supplement, unless the context shall otherwise require.
7. Counterparts. This Lease Supplement may be executed in any number of
------------
counterparts, each executed counterpart constitute an original but all together
one and the same instrument.
8. Governing Law. THIS LEASE SUPPLEMENT HAS BEEN DELIVERED IN, AND SHALL IN
-------------
ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
[signature page follows]
-4-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement to be
duly executed and delivered on the day and year first above written.
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, not in its individual capacity
except as expressly stated herein, but
solely as Certificate Trustee, as Lessor
By___________________________
Name: Robert L. Reynolds
Title: Vice President
ELECTRIC LIGHTWAVE, INC., as Lessee
By___________________________
Name: Robert J. DeSantis
Title: Chief Financial Officer
<PAGE>
================================================================================
EXHIBIT E TO
LOAN AGREEMENT
(Electric Lightwave, Inc. Trust No. 1995-A)
dated as of April 28, 1995
among
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION,
not in its individual capacity but solely
as Certificate Trustee under the Trust
Agreement for the Certificate Purchasers
named therein, as Borrower,
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION,
not in its individual capacity but solely
as Administrative Agent
and
THE PERSONS NAMED ON SCHEDULE I,
as Lenders
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms............................................ 1
SECTION 1.2. Other Definitional Provisions............................ 1
ARTICLE II
AMOUNT AND TERMS OF COMMITMENTS;
REPAYMENT AND PREPAYMENT OF LOANS
SECTION 2.1. Commitment; Term......................................... 2
SECTION 2.2. Notes.................................................... 2
SECTION 2.3. Procedure for Borrowing.................................. 3
SECTION 2.4. Prepayments and Lease Termination Payments............... 3
SECTION 2.5. Reserved................................................. 4
SECTION 2.6. Interest Rates........................................... 4
SECTION 2.7. Determination of Interest Rate........................... 4
SECTION 2.8............................................................ 5
SECTION 2.9. Pro Rata Treatment among Loans........................... 5
SECTION 2.10. Payment from Trust Estate Only.......................... 5
SECTION 2.11. Illegality.............................................. 6
SECTION 2.12. Other Costs; Increased Costs............................ 6
ARTICLE III
RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME
FROM THE TRUST ESTATE
SECTION 3.1. Rent Distribution........................................ 10
SECTION 3.2. Distribution of Mandatory Prepayments and Other Amounts.. 11
SECTION 3.3. Distribution of Payments After Loan Event of Default..... 12
SECTION 3.4. Other Payments........................................... 13
SECTION 3.5. Distribution to Certificate Purchasers................... 14
SECTION 3.6. Distribution of Excluded Amounts......................... 14
SECTION 3.7. Supplemental Rent........................................ 14
SECTION 3.8. Guaranty Payments........................................ 14
<PAGE>
TABLE OF CONTENTS
-----------------
(CONTINUED)
Page
----
ARTICLE IV
CONDITIONS PRECEDENT
ARTICLE V
AFFIRMATIVE COVENANTS OF BORROWER
SECTION 5.1. Performance by Borrower.............................. 15
SECTION 5.2. Waiver by Borrower................................... 15
ARTICLE VI
LOAN EVENTS OF DEFAULT; REMEDIES
SECTION 6.1. Loan Events of Default................................ 15
SECTION 6.2. Remedies.............................................. 17
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Amendments and Waivers................................ 19
SECTION 7.2. Notices............................................... 19
SECTION 7.3. Successors and Assigns; Transfers and Participations.. 19
SECTION 7.4. Adjustments........................................... 19
SECTION 7.5. Counterparts.......................................... 20
SECTION 7.6. GOVERNING LAW......................................... 20
SECTION 7.7. Survival and Termination of Agreement................. 20
SECTION 7.8. Entire Agreement...................................... 20
SECTION 7.9. Severability.......................................... 21
SECTION 7.10. Limitations of Borrower's Liability................... 21
SCHEDULE I Lenders
EXHIBIT A Form of Note
- 2 -
<PAGE>
THIS LOAN AGREEMENT (Electric Lightwave, Inc. Trust No. 1995-A) (this "Loan
----
Agreement") is entered into as of April 28, 1995 among SHAWMUT BANK CONNECTICUT,
- ---------
NATIONAL ASSOCIATION, a national banking association, not in its individual
capacity, but solely as Certificate Trustee under the Trust Agreement of even
date herewith with the Persons listed on Schedule I thereto (the "Borrower");
--------
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, a national banking association,
as Administrative Agent; and the Persons named on Schedule I hereto, as Lenders.
----------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Participation Agreement, the Construction Agency
Agreement and the Lease, on each Advance Date Borrower desires to pay for the
purchase, construction or installation of Equipment to comprise one or more
Systems, or to pay certain Transaction Costs and the Arrangement Fee related
thereto, and to lease the Systems to Lessee pursuant to the Lease, all as more
particularly described in the Participation Agreement of even date herewith and
in each of the other Operative Documents; and
WHEREAS, Borrower desires to borrow from Lenders all or a portion of the cost
of the acquisition and construction of the Equipment and all or a portion of the
Transaction Costs and the Arrangement Fee;
NOW, THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION I.1. Defined Terms. The capitalized terms used herein and not
-------------
otherwise defined shall have the meanings ascribed thereto in Appendix 1 to the
Participation Agreement (Electric Lightwave, Inc. Trust No. 1995-A) dated as of
the date hereof among Electric Lightwave, Inc., Citizens Utilities Company,
Borrower, the Agents, the Lenders identified therein and the
<PAGE>
Loan Agreement
Certificate Purchasers identified therein (the "Participation Agreement") for
-----------------------
all purposes hereof.
SECTION I.2. Other Definitional Provisions. Unless otherwise specified
-----------------------------
therein, all terms defined in this Loan Agreement shall have such defined
meanings when used in the Notes or any certificate or other document made or
delivered pursuant hereto.
ARTICLE II
AMOUNT AND TERMS OF COMMITMENTS;
REPAYMENT AND PREPAYMENT OF LOANS
SECTION II.1. Commitment; Term. Subject to the terms and conditions hereof
----------------
and of the Participation Agreement, each Lender severally agrees to make term
loans to Borrower ("Loans") on each Advance Date and, during a Construction
-----
Period, on any Payment Date on which interest shall be capitalized, in an
aggregate principal amount not to exceed, for all dates on which Loans are made,
the amount of such Lender's Commitment. LIBO Rate Loans shall be made by each
Lender at its LIBOR Office. The term of this Loan Agreement shall expire on the
Final Maturity Date.
SECTION II.2. Notes. (a) The Loans made by each Lender shall be evidenced
-----
by a Note of Borrower, substantially in the form of Exhibit A hereto, with
---------
appropriate insertions as to payee and principal amount, payable to the order of
such Lender and in a principal amount equal to the aggregate principal amount of
the Commitment of such Lender, or such lesser amount, from time to time, of the
Loan or Loans, as the case may be, made by such Lender and evidenced by such
Note. Each Note shall (i) be dated the Document Closing Date, (ii) be stated to
mature on the Final Maturity Date, (iii) have attached a grid for the purpose of
evidencing all of the Loans (including accruals and payments of interest
thereon) made by such Lender, and (iv) bear interest on the unpaid principal
amount thereof from time to time outstanding at the applicable interest rate per
annum determined as provided in, and payable as specified in, Section 2.6.
-----------
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Loan Agreement
(b) Upon the consummation of each Advance, each Lender shall make a notation
on the grid attached to such Lender's Note indicating the amount of the Loan
advanced by such Lender on such Advance Date. Each Lender is also hereby
authorized to record the date and amount of each Advance made by such Lender,
each continuation or conversion thereof, the length of each Interest Period with
respect thereto and the date and amount of each payment of principal and/or
interest relating thereto, on the grid attached to each Note held by such
Lender, and any such recordation shall constitute prima facie evidence of the
----- -----
accuracy of the information so recorded; provided, that the failure to make any
--------
such recordation or any error in such recordation shall not affect the
obligation of Certificate Trustee under such instrument or the corresponding
obligation of Lessee to pay Rent. In addition, on each Payment Date during any
Construction Period, each Lender shall make a notation on the grid attached to
such Lender's Note indicating the amount of Capitalized Interest accruing on
such Lender's Note during the Interest Period ending on such Payment Date (which
Capitalized Interest shall thereby be added to the principal amount of such
Note).
SECTION II.3. Procedure for Borrowing. (a) Subject to the terms and
-----------------------
conditions of the Participation Agreement and this Loan Agreement, Borrower
shall borrow under the Commitments on each Advance Date upon receipt by
Administrative Agent from Lessee of an Advance Request in accordance with
Section 2.5(a) of the Participation Agreement.
(b) Administrative Agent shall notify each Lender of Administrative Agent's
receipt of any Advance Request on the date of such receipt. Each Lender will
make the amount of its pro rata share of the Advance available to Administrative
Agent for the account of Borrower at the office of Administrative Agent referred
to in Section 7.2 prior to 1:00 p.m., Hartford, Connecticut time, on the
-----------
scheduled Advance Date in funds immediately available to Administrative Agent.
The proceeds of all such Loans will then be made available to Borrower by
Administrative Agent by crediting the account of Borrower on the books of
Administrative Agent, or
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Loan Agreement
such other account of Borrower as shall have been designated by Borrower to
Administrative Agent, with the aggregate of the amounts made available by the
Lenders in like funds as received by Administrative Agent.
SECTION II.4. Prepayments and Lease Termination Payments. Borrower shall
------------------------------------------
repay in full the unpaid principal amount of each Loan (including any Additional
Costs) upon the Final Maturity Date therefor, except with respect to the
aggregate of all amounts that Borrower is not required to pay pursuant to the
proviso of clause (a) below. No principal amortization of the Loans will be
----------
required prior to the Stated Maturity thereof, except as follows:
(a) on any Lease Supplement Termination Date, Borrower shall prepay a
portion of the aggregate outstanding principal amount of the Loans that is
equal to the Lease Supplement Balance being repaid, together with interest
accrued to the date of such prepayment on the principal amount so prepaid,
plus an amount equal to the amount paid by Lessee pursuant to Section 9.11(c)
of the Participation Agreement or pursuant to clause (d) of the definition of
----------
"Purchase Option Exercise Amount;" provided, that if such Lease Supplement
--------
Termination Date results from Lessee's exercise of the Sale Option in respect
of such Lease Supplement, the aggregate amount paid pursuant to such exercise
shall not exceed the sum of the Recourse Sale Proceeds plus the Guaranteed
Residual Payment plus any amount payable under Section 7.4 of the
Participation Agreement and Sections 3.1 (ii) and 4.5(d) of the Lease, each in
respect of such Lease Supplement being terminated; and
(b) upon the occurrence of an Event of Taking or an Event of Loss that has
resulted in Lessee exercising its Purchase Option pursuant to Section
11.3(a)(i) of the Lease, Borrower shall prepay a portion of the aggregate
outstanding principal amount of the Loans that is equal to the Lease
Supplement Balance with respect to the System or Systems suffering such Event
of Taking or Event of Loss, together
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Loan Agreement
with interest accrued to the date of such prepayment on the principal amount
so prepaid.
SECTION II.5. Reserved.
--------
SECTION II.6. Interest Rates. Pursuant to an appropriately delivered Advance
--------------
Request or Continuation/Conversion Request, Borrower may elect that the Loans
accrue interest at a rate per annum:
(a) on that portion maintained from time to time as an Alternate Base Rate
Loan, equal to the Alternate Base Rate from time to time in effect;
(b) on that portion maintained as a LIBO Rate Loan, during each Interest
Period applicable thereto, equal to the LIBO Rate from time to time in effect.
Interest accrued on each Loan (other than Capitalized Interest) shall be payable
in arrears on each Payment Date.
If all or a portion of the principal amount of or interest on the Notes shall
not be paid when due (whether at the Stated Maturity thereof, by acceleration or
otherwise), such overdue amount shall, without limiting the rights of any Lender
under Section 6.2, bear interest at the Overdue Rate, in each case from the date
-----------
first due until paid in full (as well after as before judgment).
SECTION II.7. Determination of Interest Rate. (a) During such time as a
------------------------------
LIBO Rate applies to any of the Notes, interest in respect of such Notes shall
be calculated on the basis of a 360 day year and the actual days elapsed.
During such time as the Alternate Base Rate applies to any of the Notes,
interest in respect of such Notes shall be calculated on the basis of a 365 (or
366, as applicable) day year and the actual number of days elapsed.
Administrative Agent, solely in reliance upon information furnished to it by
Information Agent, shall as soon as practicable, but in no event later than
12:00 noon, Hartford,
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Loan Agreement
Connecticut time, one (1) Business Day prior to the effectiveness of each LIBO
Rate, notify Borrower, Lessee and the Participants of such LIBO Rate and the
corresponding Yield. Administrative Agent, solely in reliance upon information
furnished to it by Information Agent, shall from time to time, as necessary,
notify Borrower, Lessee and the Participants of the Alternate Base Rate and the
corresponding Yield. Any change in the interest rate on the Loan or Yield on
the Certificates resulting from a change in the Applicable Margin shall become
effective as of the opening of business on the day on which such Applicable
Margin changes as provided herein.
(b) Each determination of an interest rate pursuant to any provision of this
Loan Agreement and the determination of the corresponding Yield shall be
conclusive and binding on Borrower, Lessee and the Participants in the absence
of manifest error.
SECTION II.8. Reserved.
--------
SECTION II.9. Pro Rata Treatment among Loans. Except as otherwise expressly
------------------------------
set forth in Article III, each payment (including each prepayment) by Borrower
-----------
on account of principal of and interest on the Loans shall be made pro rata
among the Loans of the same type and, if applicable, having the same Interest
Period. Administrative Agent shall apply any prepayments in reduction of Loans
so that Borrower's funded losses under Section 2.12(h) are minimized. All
---------------
payments (including prepayments) to be made by Borrower hereunder and under the
Notes shall be made without set-off or counterclaim and shall be made to
Administrative Agent, for the account of the Lenders, at Administrative Agent's
office referred to in Section 7.2, in lawful money of the United States of
-----------
America and in immediately available funds. Administrative Agent shall
distribute such payments to each Lender to its LIBOR Office, promptly upon
receipt in like funds as received.
SECTION II.10. Payment from Trust Estate Only. All payments to be made by
------------------------------
Borrower in respect of the Loans and this Loan Agreement shall be made only from
the income and the proceeds from
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Loan Agreement
the Trust Estate and only to the extent that Borrower shall have received
sufficient income or proceeds from the Trust Estate to make such payments in
accordance with the terms of Article III. Each Lender agrees that it will look
-----------
solely to the income and proceeds from the Trust Estate to the extent available
for distribution to such Lender as herein provided and that none of Borrower,
any Certificate Purchaser or Administrative Agent is or shall be personally
liable to any Lender for any amount payable hereunder or under any Note.
SECTION II.11. Illegality. (a) Notwithstanding any other provision herein,
----------
if any change in any law or regulation or in the interpretation thereof by any
governmental authority charged with the administration or interpretation thereof
shall make it unlawful for any Lender to make or maintain any LIBO Rate Loan or
to give effect to its obligations as contemplated hereby with respect to any
LIBO Rate Loan, then, by written notice to Lessee, Borrower and Administrative
Agent, such Lender may:
(i) declare that such LIBO Rate Loans will not thereafter be made by such
Lender hereunder, whereupon any request by Lessee for an Advance bearing
interest with reference to the LIBO Rate shall, as to such Lender only, be
deemed a request for an Advance bearing interest with reference to the
Alternate Base Rate (or for a conversion thereto pursuant to Section 2.5(i) of
the Participation Agreement) unless such declaration shall be subsequently
withdrawn; and
(ii) require that all outstanding LIBO Rate Loans made by it be converted
to Alternative Base Rate Loans, in which event all such LIBO Rate Loans shall
automatically be converted to Alternative Base Rate Loans as of the effective
date of such notice as provided in paragraph (b) below.
-------------
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the LIBO Rate Loans that would have been made by such Lender or the
converted LIBO Rate
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Loan Agreement
Loans of such Lender shall instead be applied to repay the Alternative Base Rate
Loans made by such Lender in lieu of, or resulting from the conversion of, such
LIBO Rate Loans.
(b) For purposes of this Section 2.11, a notice to Lessee by any Lender
------------
shall be effective as to each LIBO Rate Loan, if lawful, on the last day of the
Interest Period currently applicable to such LIBO Rate Loan; in all other cases
such notice shall be effective on the date of receipt by Lessee, the Borrower
and Administrative Agent.
SECTION II.12. Other Costs; Increased Costs. (a) LIBOR Reserve Adjustment.
---------------------------- ------------------------
It is understood that the cost to each Lender of making or maintaining any of
the LIBO Rate Loans may fluctuate as a result of the applicability of reserve
requirements imposed by the Board of Governors of the Federal Reserve System at
the ratios provided for in Regulation D thereof. Borrower agrees to pay to each
of the Lenders from time to time as Supplemental Rent such amounts as shall be
necessary to compensate such Lender for the portion of the cost of making or
maintaining LIBO Rate Loans resulting from any such reserve requirements
provided for in Regulation D.
(b) Indemnification for Charges. Notwithstanding any other provision herein,
---------------------------
if after the date of this Loan Agreement any change in applicable law or
regulation (including, without limitation, Regulation D) or in the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender of
the principal of or interest on any LIBO Rate Loan or Alternative Base Rate Loan
made by such Lender or any fees or other amounts payable hereunder (other than
changes in respect of taxes imposed on the overall net income of such Lender and
franchise taxes imposed on it by the jurisdiction in which such Lender has its
principal office or by any political subdivision or taxing authority therein),
or shall impose, modify, or deem applicable any reserve, special deposit, or
similar requirement against assets of, deposits with or for the account of
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Loan Agreement
or credit extended by such Lender, or shall impose on such Lender or the London
interbank market any other condition affecting this Loan Agreement or any LIBO
Rate Loan or Alternative Base Rate Loan made by such Lender, and the result of
any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any LIBO Rate Loan or Alternative Base Rate Loan or to reduce the
amount of any sum received or receivable by such Lender hereunder or under the
Notes (whether of principal, interest, or otherwise) by an amount deemed by such
Lender to be material, then the Borrower will pay to such Lender upon demand
such additional amount or amounts as will compensate such Lender for such
additional costs incurred or reduction suffered.
(c) Capital Adequacy. If any Lender shall have determined that the adoption
----------------
after the date hereof of any law, rule, regulation, or guideline regarding
capital adequacy, or any change in any existing law, rule, regulation, or
guideline regarding capital adequacy or in the interpretation or administration
of any of the foregoing by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Lender (or any lending office of such Lender) or any Lender's
holding company with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank, or
comparable agency, has or would have the effect of reducing the rate of return
on such Lender's capital or on the capital of such Lender's holding company, if
any, as a consequence of this Agreement or the Loans made by such Lender
pursuant hereto to a level below that which such Lender or such Lender's holding
company could have achieved but for such adoption, change, or compliance (taking
into consideration such Lender's policies and the policies of such Lender's
holding company with respect to capital adequacy) by an amount deemed by such
Lender to be material, then from time to time the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.
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Loan Agreement
(d) Lender's Certificate. A certificate of a Lender setting forth such
--------------------
amount or amounts as shall be necessary to compensate such Lender as specified
in clauses (a), (b), and (c) above, as the case may be, and all of the relevant
----------- --- ---
factors and the calculations supporting such amount or amounts, shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay each Lender the amount shown as due on any such certificate
delivered by it within ten (10) days after the receipt of the same.
(e) Limitation on Increased Costs. Notwithstanding the provisions of clauses
----------------------------- -------
(a), (b) and (c), above, to the contrary, no Lender shall be entitled to demand
- --- --- ---
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital to the extent that such
compensation relates to any period of time prior to the date upon which such
Lender first notified the Borrower of the occurrence of the event entitling such
Lender to such compensation (unless, and to the extent, that any such
compensation so demanded shall relate to the retroactive application of any
event so notified to the Borrower required by any governmental authority,
central bank or comparable agency).
(f) Transfers. If any Lender shall have delivered a notice or certificate
---------
pursuant to clause (d) above or shall have exercised its rights under Sections
---------- --------
2.11(a)(i) or (ii), Lessee shall have the right, at its own expense, to notify
- ---------- ----
Certificate Trustee, on behalf of Certificate Purchasers, to require such Lender
to (i) terminate its Commitment or (ii) transfer and assign without recourse (in
accordance with and subject to the restrictions contained in Section 6.3 of the
Participation Agreement) all or a portion of its interest, rights and
obligations under this Loan Agreement to another financial institution which
shall assume such obligations; provided, that (A) no such termination or
--------
assignment shall conflict with any law, rule or regulation or order of any
Governmental Authority and (B) the Borrower or the assignee, as the case may be,
shall pay to the affected Lender in immediately available funds on the date of
such termination or assignment the principal of and interest accrued to
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Loan Agreement
the date of payment on the Loans made by it hereunder and all other amounts
accrued for its account or owed to it hereunder.
(g) Non-United States Persons. Each Lender that is not a United States
-------------------------
Person as such term is defined in(S) 7701(a)(30) of the Code (a "United States
-------------
Person") shall complete and deliver to Borrower, prior to the date on which the
- ------
first payment to such Lender is due hereunder, a duly certified Internal Revenue
Service Form 1001 in duplicate claiming that it is entitled to complete
exemption from United States withholding tax under an income tax treaty to which
the United States is a party or a duly certified Internal Revenue Service Form
4224 in duplicate claiming that the payments of interest and the return of the
principal amount of Loans, including Capitalized Interest to be received under
this Loan Agreement are effectively connected with the conduct of a trade or
business of such Lender in the United States, as appropriate. Each Lender
further agrees to complete and deliver to Borrower from time to time as required
by Applicable Law any successor or additional form or certificate required by
the Internal Revenue Service in order to secure complete exemption from United
States withholding tax. If for any reason during the term of this Loan
Agreement, a Lender becomes unable to submit the forms or certificate referred
to above or the information or representations contained therein is no longer
accurate in any material respect, such Lender shall notify Administrative Agent
and Borrower in writing to that effect.
(h) Funding Losses. If (i) Borrower makes any payment (including a
--------------
prepayment) of principal with respect to any LIBO Rate Loan (pursuant to any
provision of this Loan Agreement or otherwise) on any day other than the last
day of the Interest Period applicable thereto, or (ii) Borrower shall default in
payment when due of the principal amount of or interest on any Note, or (iii)
Borrower fails to borrow, convert to or continue any LIBO Rate Loan after notice
has been given to any Lender in accordance with Section 2.12(i), Borrower shall
---------------
reimburse each Lender on demand for any resulting loss or reasonable expense
incurred by it (or by any existing or prospective participant in the related
Loan), including (without limitation) any loss
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Loan Agreement
incurred in obtaining, liquidating or employing deposits from third parties;
provided, that such Lender shall have delivered to Borrower a certificate as
- --------
to the amount of such loss or expense, which certificate shall be conclusive in
the absence of manifest error. Without limiting the effect of the preceding
sentence, such reimbursement shall include an amount equal to the excess, if
any, of (i) the amount of interest which otherwise would have accrued on the
principal amount so paid, prepaid or not borrowed, converted or continued for
the period from the date of such payment, prepayment, or failure to borrow,
convert or continue to the last day of the then current Interest Period for such
LIBO Rate Loan (or, in the case of a failure to borrow, convert or continue, the
Interest Period for such LIBO Rate Loan which would have commenced on the date
specified for such borrowing, conversion or continuation) at the applicable rate
of interest for such LIBO Rate Loan provided for herein over (ii) the interest
----
component of the amount such Lender (or any corporation controlling such Lender)
would have bid in the London interbank market for U.S. Dollar deposits of
leading banks in amounts comparable to such principal amount and with maturities
comparable to such period (as reasonably determined by such Lender).
(i) Alternative Base Rate Loans Substituted for Affected LIBO Rate Loans. If
--------------------------------------------------------------------
(i) any Lender has demanded compensation under Section 2.12(b), and Borrower, by
---------------
at least five (5) Business Days' prior notice to such Lender through
Administrative Agent, shall have elected that the provisions of this Section
-------
2.12(i) shall apply to such Lender, or (ii) the obligation of any Lender to make
- -------
LIBO Rate Loans has been suspended pursuant to Section 2.11, then, unless and
------------
until such Lender notifies Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer apply:
(a) all Loans which would otherwise be made by such Lender as LIBO Rate
Loans shall be made instead as Loans bearing interest at the Alternate Base
Rate (on which interest shall be payable contemporaneously with the related
LIBO Rate Loans of the other Lenders), and
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Loan Agreement
(b) after each of its LIBO Rate Loans has been repaid, all payments of
principal which would otherwise be applied to repay such LIBO Rate Loans shall
be applied to repay its Loans bearing interest at the Alternate Base Rate
instead.
ARTICLE III
RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME
FROM THE TRUST ESTATE
SECTION III.1. Rent Distribution. (a) Except as otherwise provided in
-----------------
Section 3.3, each payment of Base Rent under the Lease as well as any payment of
- -----------
interest on overdue installments of Base Rent under the Lease, and any other
monies paid over by Lessee or Borrower to Administrative Agent for such purpose,
shall be distributed as promptly as possible (it being understood that any
payments of Base Rent received by Administrative Agent under the Lease on a
timely basis and in accordance with the provisions of the Lease shall be
distributed on the date received in the funds so received) in the following
order of priority:
first, an amount equal to the aggregate amount of the payment of interest
-----
(as well as any interest on (to the extent permitted by Applicable Laws)
overdue interest) then due shall be distributed and paid to the Lenders;
second, an amount equal to the aggregate amount of the payment of principal
------
then due shall be distributed and paid to the Lenders, pro rata among the
Lenders, without priority of one such Lender over the other, in the
proportion that the unpaid principal amount of the Notes held by each Lender
bears to the aggregate unpaid principal amount of the Notes; and
third, the balance, if any, of such payment remaining thereafter shall be
-----
distributed at Borrower's direction in accordance with Section 3.2(b) of
the Trust Agreement.
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Loan Agreement
(b) Except as otherwise provided in Section 3.3, the amounts, if any, from
-----------
time to time received by Administrative Agent which constitute payments of
Supplemental Rent shall be paid to or upon the order of the Person owed the
same.
SECTION III.2. Distribution of Mandatory Prepayments and Other Amounts.
-------------------------------------------------------
(a) Except as otherwise provided in Section 3.2(b) and Section 3.3, the
-------------- -----------
amount of any prepayment and other amounts received pursuant to Section 2.4
-----------
shall in each case be distributed and paid in the following order of priority:
first, an amount equal to the aggregate unpaid principal, and accrued
-----
interest on, the outstanding Notes, together with the other amounts required
to be paid by Borrower pursuant to Section 2.4 (other than Excluded Amounts),
-----------
shall be distributed and paid to the Lenders pro rata among the Lenders; and
second, the balance, if any, of such payment remaining thereafter shall be
------
distributed at Borrower's direction in accordance with Section 3.2(d) of
the Trust Agreement.
(b) Except as otherwise provided in Section 3.3, any amounts received
-----------
directly or through Lessee from any insurer or from any Governmental Authority
in connection with an Event of Loss or an Event of Taking, to the extent that
such amounts are not at the time required to be paid to Lessee pursuant to the
Lease, shall, except as otherwise provided in the next sentence, be held and
distributed on the Payment Date referred to in Section 11.1(a) of the Lease in
accordance with Section 3.2(a). Any portion of any such amount referred to in
--------------
the preceding sentence which is not required to be so paid to Lessee pursuant to
the Lease solely because a Lease Default shall have occurred shall be held by
Administrative Agent as security for the obligations of Lessee under the Lease
and the other Operative Documents and invested in Permitted Investments, and at
such time as there shall not be continuing any such Lease Default, such portion
shall be paid to
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Loan Agreement
Lessee, unless Administrative Agent (as assignee of Borrower) shall have
theretofore declared the Lease to be in default pursuant to Section 16.1 of the
Lease, in which event such portion shall be distributed forthwith upon such
declaration in accordance with the provisions of Section 3.3.
-----------
SECTION III.3. Distribution of Payments After Loan Event of Default.
----------------------------------------------------
(a) Except as otherwise required in Section 3.4(b), all payments received and
--------------
amounts realized by Administrative Agent after a Loan Event of Default shall
have occurred and be continuing, as well as all payments or amounts then held or
thereafter received by Administrative Agent as part of the Trust Estate while
such Loan Event of Default shall be continuing, shall be distributed forthwith
by Administrative Agent in the following order of priority:
first, so much of such payments or amounts as shall be required to reimburse
-----
Administrative Agent for any tax, expense or other loss incurred by
Administrative Agent (to the extent not previously reimbursed and to the
extent incurred in connection with its duties as Administrative Agent) and any
unpaid ongoing fees of Administrative Agent shall be distributed to
Administrative Agent for its own account;
second, so much of such payments or amounts as shall be required to
------
reimburse Information Agent for any tax, expense or other loss incurred by
Information Agent (to the extent not previously reimbursed and to the extent
incurred in connection with its duties as Information Agent) and any unpaid
ongoing fees of Information Agent shall be distributed to Information Agent
for its own account;
third, so much of such payments or amounts as shall be required to
-----
reimburse the then existing or prior Lenders and (so long as the Loan Events
of Default that have occurred and are continuing arise solely from a Lease
Event of Default)
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Loan Agreement
the Certificate Purchasers for payments made by them to Administrative Agent
pursuant to Section 8.4 of the Participation Agreement (to the extent not
previously reimbursed), and to pay such then existing or prior Lenders and (so
long as the Loan Events of Default that have occurred and are continuing arise
solely from a Lease Event of Default) the Certificate Purchasers the amounts
payable to them pursuant to any expense reimbursement provisions of the
Operative Documents shall be distributed to each such Participant, pro rata
among such Participants without priority of one over the other, in accordance
with the amount of such payment or payments payable to each such Participant;
fourth, so much of such amount as shall be required to pay in full the
------
aggregate unpaid principal amount of the Notes, together with the accrued but
unpaid interest on the Notes to the date of distribution shall be distributed
to the Lenders holding Notes, and in the case the amount so to be distributed
shall be insufficient to pay in full as aforesaid, then, pro rata among such
Lenders, without priority of one such Lender over the other, in the proportion
that the unpaid principal amount of the Notes held by each Lender bears to the
aggregate unpaid principal amount of the Notes; and
fifth, the balance, if any, of such payments or amounts remaining thereafter
-----
shall be promptly distributed as directed by Borrower in accordance with
Section 3.3 of the Trust Agreement.
(b) During the occurrence and continuance of any Loan Event of Default, all
amounts (other than Excluded Amounts) received or realized by Administrative
Agent and otherwise distributable pursuant to Section 3.1 or 3.2 shall be
----------- ---
distributed as provided in Section 3.3(a).
--------------
SECTION III.4. Other Payments.
--------------
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Loan Agreement
(a) Except as otherwise provided in Sections 3.1, 3.2 and 3.3 and paragraph
------------ --- --- ---------
(b) below,
- ---
(i) any payments received by Administrative Agent for which no provision
as to the application thereof is made in the Operative Documents or elsewhere
in this Article III, and
-----------
(ii) all payments received and amounts realized by Administrative Agent
under the Lease or otherwise with respect to the Leasehold Estate to the
extent received or realized at any time after payment in full of the principal
of and interest on all Loans, as well as any other amounts remaining as part
of the Trust Estate after payment in full of the principal of and interest on
all Loans issued hereunder,
shall be distributed forthwith by Administrative Agent in the order of priority
set forth in Section 3.1 (in the case of any payment described in clause (i)
----------- ----------
above) or in Section 3.3(a) (in the case of any payment described in clause (ii)
-------------- -----------
above), except that in the case of any payment described in clause (ii) above,
-----------
such payment shall be distributed omitting clause "fourth" of such Section
------ ------ -------
3.3(a).
- ------
(b) Except after a Loan Event of Default has occurred and is continuing and
as to which Section 3.3(a) applies, any payment received by Administrative Agent
--------------
for which provision as to the application thereof is made in an Operative
Document but not elsewhere in this Article III shall be distributed forthwith by
-----------
Administrative Agent to the Person for the purpose for which such payment was
made in accordance with the terms of such Operative Document.
SECTION III.5. Distribution to Certificate Purchasers. Notwithstanding
--------------------------------------
anything in this Agreement to the contrary, Administrative Agent shall make
payment of all amounts from time to time distributable to the Certificate
Purchasers pursuant to this Article III directly to the Certificate Purchasers,
-----------
unless it
- 17 -
<PAGE>
Loan Agreement
shall have received written instructions from Borrower to the contrary.
SECTION III.6. Distribution of Excluded Amounts. All amounts constituting
--------------------------------
Excluded Amounts received by Administrative Agent shall be paid by
Administrative Agent to the Person or Persons entitled thereto pursuant to the
Operative Documents.
SECTION III.7. Supplemental Rent. Except as otherwise provided in Section
----------------- -------
3.3, the amounts, if any, from time to time received by Administrative Agent
- ---
which constitute payments of Supplemental Rent shall be paid to or upon the
order of the Person entitled thereto pursuant to the Operative Documents.
SECTION III.8. Guaranty Payments. Any payment received by Administrative
-----------------
Agent pursuant to the Guaranty shall be distributed forthwith or retained by
Administrative Agent in the same manner and subject to the same conditions as
provided in this Article III with respect to payments received by Administrative
-----------
Agent in respect of Borrower's obligation as to which such payment relates, all
as if such payment had been made by Borrower.
ARTICLE IV
CONDITIONS PRECEDENT
The agreement of each Lender to make the Loan requested to be made by it on
any Advance Date is subject to the satisfaction on the Advance Date of the
applicable conditions precedent set forth in Article III of the Participation
Agreement.
ARTICLE V
AFFIRMATIVE COVENANTS OF BORROWER
SECTION V.1. Performance by Borrower. Subject to Section 2.10, so long as
----------------------- ------------
any Note remains outstanding and unpaid or any other amount is owing to any
Lender hereunder, Borrower will promptly pay all amounts payable by it under
this Loan
- 18 -
<PAGE>
Loan Agreement
Agreement and the Notes in accordance with the terms hereof and thereof and
shall duly perform each of its obligations under this Loan Agreement and the
Notes.
SECTION V.2. Waiver by Borrower. (a) To the extent permitted by Applicable
------------------
Laws, Borrower is hereby deemed to have irrevocably waived:
(i) the protection of any stay (automatic or otherwise) arising out of or
in connection with any proceedings for the reorganization or liquidation of
Borrower under the Bankruptcy Code or otherwise of the exercise by the Lenders
or Administrative Agent of rights and remedies under the Operative Documents;
and
(ii) any right that Borrower might otherwise have to enjoin, limit or
restrict the good faith exercise of such rights and remedies.
(b) To the extent permitted by Applicable Laws, the Lenders and
Administrative Agent are hereby expressly relieved from any obligation to comply
with any such stay which might otherwise affect their exercise at any time of
such rights and remedies.
ARTICLE VI
LOAN EVENTS OF DEFAULT; REMEDIES
SECTION VI.1. Loan Events of Default. Each of the following events shall
----------------------
constitute a "Loan Event of Default" (whether any such event shall be voluntary
---------------------
or involuntary or come about or be effected by operation of law or pursuant to
or in compliance with any judgment, decree or order of any court or any order,
rule or regulation of any Governmental Authority) and each such Loan Event of
Default shall continue so long as, but only as long as, it shall not have been
remedied:
- 19 -
<PAGE>
Loan Agreement
(a) the failure by Borrower to pay any principal of or interest on any Note
when due and such failure shall continue for a period of five (5) Business Days;
or
(b) the failure by Borrower in any material respect to timely perform any
other covenant or condition herein or in any other Operative Document to which
Borrower is a party and such failure shall continue for a period of thirty (30)
days after written notice thereof to Borrower and Lessee from Administrative
Agent; or
(c) any representation or warranty by Borrower in any Operative Document or in
any certificate or document delivered thereunder shall have been incorrect in a
material respect when made and shall remain material when discovered and if
curable shall continue for a period of thirty (30) days after written notice
thereof to Borrower and the Certificate Purchasers from Administrative Agent; or
(d) the filing by Borrower of any petition for dissolution or liquidation of
Borrower; or the commencement by Borrower of a voluntary case under any
applicable bankruptcy, insolvency or other similar law for the relief of
debtors, foreign or domestic, now or hereafter in effect; or the consent by
Borrower to the entry of an order for relief in an involuntary case under any
such law; or the failure of Borrower generally to pay, or the admission by
Borrower in writing that it is unable to pay, its debts as such debts become due
(within the meaning of the Bankruptcy Code); or the failure by Borrower promptly
to satisfy or discharge any execution, garnishment or attachment of such
consequence as will impair its ability to carry out its obligations under the
Operative Documents; or the appointment of or taking possession by a receiver,
custodian or trustee (or other similar official) for Borrower or any substantial
part of its property; or a general assignment by Borrower for the benefit of
creditors; or the entry by Borrower into an agreement of composition with its
creditors; or the taking by Borrower of any corporate action in furtherance of
any of the foregoing;
- 20 -
<PAGE>
Loan Agreement
or the filing against Borrower of an involuntary petition in bankruptcy which
results in an order for relief being entered or, notwithstanding that an order
for relief has not been entered, the petition not being dismissed within sixty
(60) days of the date of the filing of the petition; or the filing under any law
relating to bankruptcy, insolvency or relief of debtors of any petition against
Borrower which either (i) results in a finding or adjudication of insolvency of
Borrower or (ii) is not dismissed within sixty (60) days of the date of the
filing of such petition; or
(e) a Lease Event of Default shall occur and be continuing.
SECTION VI.2. Remedies.
--------
(a) Upon the occurrence of a Loan Event of Default hereunder, (i) if such
event is a Loan Event of Default specified in clause (d) of Section 6.1 or
---------- -----------
clause (f) or (g) of Article XV of the Lease, automatically the Loans hereunder
(with accrued interest thereon) and all other amounts owing under this Loan
Agreement and the Notes shall immediately become due and payable, and (ii) if
such event is any other Loan Event of Default, with the consent of the Required
Entities, Administrative Agent may, or upon the request of the Required
Entities, Administrative Agent shall, by notice of default to Borrower, declare
the Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Loan Agreement and the Notes to be due and payable forthwith,
whereupon the same shall immediately become due and payable; provided, that the
--------
sole remedies of Administrative Agent upon the occurrence of a Loan Event of
Default specified in clause (b), (c) (but only to the extent the representation
----------- ---
was made in the Borrower's individual capacity) or (d) of Section 6.1 that does
--- -----------
not also constitute a Lease Event of Default shall be to cause the Certificate
Purchasers to remove and replace the Borrower as Certificate Trustee and to
bring suit against Borrower for damages. Except as expressly provided above in
this Section 6.2, presentment, demand, protest and all other notices of any kind
-----------
are hereby expressly waived.
- 21 -
<PAGE>
Loan Agreement
(b) Upon the occurrence of any Loan Event of Default and at any time
thereafter so long as any Loan Event of Default shall be continuing,
Administrative Agent may, and upon the written instructions of the Required
Entities shall, exercise any or all of the rights and powers and pursue any and
all of the remedies available to it hereunder and under the Lease, the Guaranty
and the other Operative Documents, and shall have and may exercise any and all
rights and remedies available under the Uniform Commercial Code or any provision
of law.
(c) Upon the occurrence of any Loan Event of Default and at any time
thereafter so long as any Loan Event of Default shall be continuing,
Administrative Agent may proceed to protect and enforce this Loan Agreement, the
Notes, the Lease, the Guaranty and the other Operative Documents by suit or
suits or proceedings in equity, at law or in bankruptcy, and whether for the
specific performance of any covenant or agreement herein contained or in
execution or aid of any power herein granted, or for foreclosure hereunder, or
for the appointment of a receiver or receivers for the Leasehold Estate, or for
the recovery of judgment for the indebtedness secured thereby or for the
enforcement of any other proper, legal or equitable remedy available under
Applicable Laws.
(d) Borrower shall be liable for any and all accrued and unpaid amounts due
hereunder before, after or during the exercise of any of the foregoing remedies,
including all reasonable legal fees and other reasonable costs and expenses
incurred by Administrative Agent or any Lender by reason of the occurrence of
any Loan Event of Default or the exercise of remedies with respect thereto.
(e) Except as expressly provided above, no remedy under this Section 6.2 is
-----------
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy provided under this Section 6.2 or under the other Operative
-----------
Documents or otherwise available at law or in equity. The exercise by
Administrative Agent or any Lender of any one or more of such remedies shall not
preclude the simultaneous or later exercise of any other remedy or
- 22 -
<PAGE>
Loan Agreement
remedies. No express or implied waiver by Administrative Agent or any Lender of
any Loan Event of Default shall in any way be, or be construed to be, a waiver
of any future or subsequent Loan Event of Default. The failure or delay of
Administrative Agent or any Lender in exercising any rights granted it hereunder
upon any occurrence of any of the contingencies set forth herein shall not
constitute a waiver of any such right upon the continuation or recurrence of any
such contingencies or similar contingencies and any single or partial exercise
of any particular right by Administrative Agent or any Lender shall not exhaust
the same or constitute a waiver of any other right provided herein.
(f) No failure to exercise and no delay in exercising, on the part of
Administrative Agent or any Lender, any right, remedy, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege.
ARTICLE VII
MISCELLANEOUS
SECTION VII.1. Amendments and Waivers. Neither this Loan Agreement, any Note
----------------------
nor any terms hereof or thereof may be amended, supplemented or modified except
in accordance with the provisions of the Participation Agreement.
SECTION VII.2. Notices. Unless otherwise specified herein, all notices,
-------
requests, demands or other communications to or upon the respective parties
hereto shall be delivered in accordance with, and shall be deemed to have been
given as provided in, Section 9.3 of the Participation Agreement; provided, that
--------
any notice, request, demand or other communication to or upon Administrative
Agent or the Lenders pursuant to Section 2.3 shall not be effective until
-----------
received.
- 23 -
<PAGE>
Loan Agreement
SECTION VII.3. Successors and Assigns; Transfers and Participations.
----------------------------------------------------
(a) This Loan Agreement shall be binding upon and inure to the benefit of
Borrower, the Lenders, Administrative Agent, all future holders of the Notes and
their respective successors and assigns.
(b) Any transfer by a Lender of its Notes or any sale by a Lender of any
participating interest in the Loans evidenced by its Notes shall comply with
Sections 6.3 and 6.4 of the Participation Agreement. Any Lender transferring
its Notes shall pay, or cause the transferee to pay, the costs and expenses
(including reasonable counsel fees) incurred by Administrative Agent in
connection with such transfer.
SECTION VII.4. Adjustments. If the holder of any Note (a "benefitted
----------- ----------
Lender") shall at any time receive any payment of all or part of its Note, or
interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Section 6.1(d), or otherwise) in a greater
--------------
proportion than any such payment to and collateral received by any other holders
of Notes in respect of such other Lender's Notes, or interest thereon, such
benefitted Lender shall purchase for cash from the other Lenders such portion of
each such other Lender's Notes, or shall provide such other Lenders with the
benefits of any such collateral, or the proceeds thereof, as shall be necessary
to cause such benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of such holders; provided, however,
-------- -------
that if all or any portion of such excess payment or benefits is thereafter
recovered from such benefitted Lender, such purchase shall be rescinded, and the
purchase price and benefits returned, to the extent of such recovery, but
without interest. Borrower agrees that each Lender purchasing a portion of
another Lender's portion of the Loans pursuant to this Section 7.4 may exercise
-----------
all rights of payment (including, without limitation, rights of set-off) with
respect to
- 24 -
<PAGE>
Loan Agreement
such portion as fully as if such Lender were the direct holder of such portion.
SECTION VII.5. Counterparts. This Loan Agreement may be executed by one or
------------
more of the parties to this Loan Agreement on any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Loan
Agreement signed by all the parties hereto shall be lodged with Borrower and
Administrative Agent.
SECTION VII.6. GOVERNING LAW. THIS LOAN AGREEMENT AND THE NOTES HAVE BEEN
-------------
DELIVERED IN, AND THIS LOAN AGREEMENT AND THE NOTES AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS LOAN AGREEMENT AND THE NOTES SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE.
SECTION VII.7. Survival and Termination of Agreement. All covenants,
-------------------------------------
agreements, representations and warranties made herein and in any certificate,
document or statement delivered pursuant hereto or in connection herewith shall
survive the execution and delivery of this Loan Agreement and the Notes and
shall continue in full force and effect so long as any Note or any amount
payable to any Lender under or in connection with this Loan Agreement or the
Notes is unpaid, at which time this Loan Agreement shall terminate, it being
expressly understood that the obligations of Borrower, as the case may be, to
Administrative Agent and each Lender under Section 2.12 and the obligations of
------------
the Lenders to Administrative Agent under Section 8.4 of the Participation
Agreement shall survive the payment in full of the Notes; provided, that with
--------
respect to amounts payable under Section 2.12 and Section 8.4 of the
------------
Participation Agreement, such amounts shall be deemed to have been paid if no
claim therefor is made within six months after payment in full of the Notes.
SECTION VII.8. Entire Agreement. This Loan Agreement sets forth the entire
----------------
agreement of the parties hereto with respect to
- 25 -
<PAGE>
Loan Agreement
its subject matter, and supersedes all previous understandings, written or oral,
with respect thereto.
SECTION VII.9. Severability. Any provision of this Loan Agreement or of the
------------
Notes which is prohibited, unenforceable or not authorized in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition, unenforceability or non-authorization without invalidating the
remaining provisions hereof or thereof or affecting the validity, enforceability
or legality of any such provision in any other jurisdiction.
SECTION VII.10. Limitations of Borrower's Liability. Except in the case of
-----------------------------------
the representations, warranties and covenants of Borrower in its individual
capacity set forth in Section 4.3 of the Participation Agreement and in the case
of the gross negligence or willful misconduct of Borrower, as to which in any
such case individual liability shall attach, anything in this Loan Agreement to
the contrary notwithstanding, neither Administrative Agent nor any other holder
of Notes nor the successors or assigns of any of said Persons, shall have any
claim, remedy or right to proceed against Borrower in its individual capacity or
any past, present or future stockholder, subscriber of capital stock, officer,
employee, director, incorporator or partner of Borrower whether by virtue of any
constitutional provision, statute or rule of law or by enforcement of any
penalty or assessment or otherwise, for the payment of any deficiency or any
other sum owing on account of the indebtedness evidenced by the Notes or for the
payment of any liability resulting from the breach of any representation,
agreement or warranty of any nature whatsoever in this Loan Agreement or any
other Operative Document, from any source other than any collateral securing the
Notes, including the Rent, and the Trust Estate, but excluding Excluded Amounts.
Administrative Agent by the acceptance of this Loan Agreement and the holders of
the Notes by acceptance of this Loan Agreement and the Notes, waive and release
any liability of Borrower in its individual capacity or any past, present or
future stockholder, subscriber of capital stock, officer, employee, director,
incorporator or partner of Borrower for and on account of such indebtedness or
such liability, and Administrative Agent and the
- 26 -
<PAGE>
Loan Agreement
holders of the Notes agree to look solely to any collateral securing the Notes,
including the Rent, and the Trust Estate, but excluding Excluded Amounts, for
the payment of said indebtedness or the satisfaction of such liability;
provided, however, that nothing herein contained shall limit, restrict or
- -------- -------
impair the rights of Administrative Agent to accelerate the maturity of the
Notes upon a Loan Event of Default or, subject to the limitations hereinabove
described, to bring suit and obtain a judgment against Borrower on the Notes or
to exercise all rights and remedies provided under this Loan Agreement or
otherwise realize upon the Collateral.
[SIGNATURE PAGES FOLLOW]
- 27 -
<PAGE>
Loan Agreement
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, not
in its individual capacity, but solely as
Certificate Trustee, as Borrower
By: _______________________________
Name: Robert L. Reynolds
Title: Vice President
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, not
in its individual capacity, but solely as
Administrative Agent
By: ______________________________
Name: Robert L. Reynolds
Title: Vice President
<PAGE>
Loan Agreement
BA LEASING & CAPITAL CORPORATION, as Lender
By:_________________________________
Name: Sara L. Fitch
Title: Vice President
Loan Agreement
<PAGE>
Loan Agreement
THE DAI-ICHI KANGYO BANK Ltd. New
York Branch, as Lender
By:_________________________________
Name: Shinya Wako
Title: Vice President
<PAGE>
Loan Agreement
THE FUJI BANK LIMITED, SAN FRANCISCO
AGENCY, as Lender
By:_________________________________
Name: Kazuo Kamio
Title: General Manager
<PAGE>
Loan Agreement
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH, as Lender
By:_________________________________
Name:_______________________________
Title:______________________________
<PAGE>
Loan Agreement
SHAWMUT BANK, N.A., as Lender
By:_________________________________
Name: Robert D. Lanigan
Title: Managing Director
<PAGE>
Loan Agreement
SUMITOMO BANK AND LEASING AND
FINANCE, INC., as Lender
By:_________________________________
Name: William N. Ginn
Title: President
<PAGE>
Loan Agreement
SCHEDULE I
Lenders
Commitment
Lender Commitment Percentage
- ------ -------------- ----------
BA LEASING & CAPITAL $18,950,000.00 17.22727272
CORPORATION
DAI-ICHI KANGYO BANK LTD., $19,400,000.00 17.63636364
NEW YORK BRANCH
THE FUJI BANK LIMITED, SAN $ 9,700,000.00 8.81818182
FRANCISCO AGENCY
THE LONG-TERM CREDIT BANK OF $15,000,000.00 13.63636364
JAPAN, LIMITED, NEW YORK
BRANCH
SUMITOMO BANK LEASING $19,400,000.00 17.63636364
AND FINANCE, INC.
SHAWMUT BANK, N.A. $24,250,000.00 22.04545454
-------------- -----------
TOTAL$106,700,000.00 97.00000000%
<PAGE>
Loan Agreement
EXHIBIT A
TO LOAN AGREEMENT
FORM OF NOTE
NOTE NO. __
Dated as of April __, 1995
FOR VALUE RECEIVED, the undersigned, SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, a national banking association, not in its individual capacity but
solely as Certificate Trustee under the Trust Agreement relating to the Electric
Lightwave, Inc. Trust No. 1995-A for the Certificate Purchasers named therein
(the "Borrower"), promises to pay to the order of [NAME OF LENDER], a
--------
_____________________ (the "Lender"), the aggregate unpaid principal amount of
------
all Loans made by the Lender to, or for the benefit of, the Borrower, as
recorded either on the grid attached to this Note or in the records of the
Lender (and such recordation shall constitute prima facie evidence of the
----- -----
information so recorded; provided, however, that the failure to make any such
-------- -------
recordation or any error in such recordation shall not in any way affect the
Borrower's obligation to repay this Note). The principal amount of each Loan
evidenced hereby shall be payable on or prior to the Final Maturity Date as
provided in that certain Loan Agreement, dated as of April 28, 1995, among the
Borrower, Shawmut Bank Connecticut, National Association, as administrative
agent (the "Administrative Agent"), and the various lenders named therein (the
--------------------
"Loan Agreement").
- ---------------
The Borrower also promises to pay interest on the unpaid principal amount
hereof from time to time outstanding at the rates per annum, on the dates
specified in, and in accordance with the terms of the Loan Agreement.
Payments of both principal and interest are to be made in lawful money of the
United States of America in same day or
<PAGE>
Loan Agreement
immediately available funds to the account designated by the Lender pursuant to
the Loan Agreement.
This Note is one of the Notes referred to in, and evidences indebtedness
incurred under, the Loan Agreement, to which reference is made for a statement
of the terms and conditions on which the Borrower is required to make
prepayments and repayments of principal of the indebtedness evidenced by this
Note and on which such indebtedness may be declared to be immediately due and
payable. Capitalized terms used herein without definition shall have the
meanings provided in the Loan Agreement. This Note is secured pursuant to the
Security Agreement made by the Borrower in favor of the Administrative Agent
referred to in the Loan Agreement and reference is hereby made to the Loan
Agreement and such Security Agreement for a statement of the terms and
provisions of such security.
Anything to the contrary herein notwithstanding, the Borrower's liability for
any sums due hereunder shall be limited in accordance with Section 7.10 of the
Loan Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest, and notice of dishonor, notice
of the existence, creation or nonpayment of all or any of the Loans and all
other notices whatsoever.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
[signature page follows]
<PAGE>
Loan Agreement
IN WITNESS WHEREOF, the Certificate Trustee has caused this Note to be executed
in its corporate name by its duly authorized officer as of the date hereof.
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, not
in its individual capacity but solely as
Certificate Trustee, as Borrower
By: _______________________________
Name: Robert L. Reynolds
Title: Vice President
<PAGE>
Loan Agreement
GRID ATTACHED TO NOTE
DATED APRIL __, 1995 OF
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION
AS CERTIFICATE TRUSTEE
PAYABLE TO THE ORDER OF [INSERT LENDER'S NAME]
Loans made by the Lender to Certificate Trustee, as Borrower, and payments of
principal of such Loans.
<TABLE>
<CAPTION>
Date Principal Amount Interest Principal Amount Principal Amount Notation Made
Period Total
(If Ap-
plic-
able)
Advances C.I.*
<S> <C>
</TABLE>
<PAGE>
________________________________________________________________________
EXHIBIT F TO
TRUST AGREEMENT
(Electric Lightwave, Inc. Trust No. 1995-A)
Dated as of April 28, 1995
between
THE PERSONS NAMED ON SCHEDULE I,
as Certificate Purchasers
and
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION,
as Certificate Trustee
________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE TRUST ESTATE................................................... 1
SECTION 1.1. Appointment, Authorization and Direction to Certificate Trustee.... 1
SECTION 1.2. Declaration and Purpose............................................ 2
ARTICLE II CERTIFICATES....................................................... 2
SECTION 2.1. Certificates; Procedure for Investment............................. 2
SECTION 2.2. Scheduled Return of Investment..................................... 3
SECTION 2.3. Yield.............................................................. 4
SECTION 2.4. Determination of Yield Rate........................................ 4
SECTION 2.5. Loan Event of Default.............................................. 4
SECTION 2.6. Payment from Trust Estate Only..................................... 5
SECTION 2.7. Registration, Transfers, Exchanges and Cancellation of Certificates 5
SECTION 2.8. Persons Deemed Owners.............................................. 7
SECTION 2.9. Mutilated, Destroyed, Lost or Stolen Certificates.................. 8
ARTICLE III COLLECTIONS AND DISTRIBUTIONS...................................... 8
SECTION 3.1. Collections and Remittances by Certificate Trustee................. 8
SECTION 3.2. Distribution of Payments........................................... 9
SECTION 3.3. Distributions after Default........................................ 10
SECTION 3.4. Effect of Sales by Certificate Trustee............................. 11
ARTICLE IV CERTAIN PROVISIONS RESPECTING CERTIFICATE TRUSTEE................. 11
SECTION 4.1. Acceptance of Trusts and Duties.................................... 11
SECTION 4.2. Limitation of Power................................................ 11
SECTION 4.3. Notice of Event of Default......................................... 12
SECTION 4.4. Action Upon Instructions........................................... 12
SECTION 4.5. Certain Duties and Responsibilities of Certificate Trustee......... 13
SECTION 4.6. Certain Rights of Certificate Trustee.............................. 15
SECTION 4.7. NO REPRESENTATIONS OR WARRANTIES AS TO
THE LEASEHOLD ESTATE OR DOCUMENTS.................................. 17
SECTION 4.8. Status of Moneys Received.......................................... 17
SECTION 4.9. Permitted Activities............................................... 17
SECTION 4.10. Resignation or Removal of Certificate Trustee..................... 18
SECTION 4.11. Estate and Rights of Successor Certificate Trustee................ 18
SECTION 4.12. Merger or Consolidation of Certificate Trustee..................... 19
SECTION 4.13. CoTrustees......................................................... 19
SECTION 4.14. Doing Business in Other Jurisdictions.............................. 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE V TRANSFER OF CERTIFICATE PURCHASER'S INTEREST....................... 20
ARTICLE VI TERMINATION OF AND AMENDMENTS TO TRUST............................. 20
SECTION 6.1. Termination........................................................ 20
SECTION 6.2. Distribution of Trust Estate Upon Termination...................... 21
SECTION 6.3. Amendments......................................................... 22
ARTICLE VII MISCELLANEOUS...................................................... 23
SECTION 7.1. Compensation and Indemnification................................... 23
SECTION 7.2. Notices............................................................ 24
SECTION 7.3. Applicable Law..................................................... 24
SECTION 7.4. Tax Reports........................................................ 24
SECTION 7.5. Headings........................................................... 25
SECTION 7.6. Successors and Assigns............................................. 25
SECTION 7.7. Severability....................................................... 25
SECTION 7.8. Only Written Waivers............................................... 25
SECTION 7.9. Counterparts....................................................... 25
SECTION 7.10. Rights in Trust Agreement.......................................... 25
SECTION 7.11. Identification of Trust............................................ 25
</TABLE>
Schedule I Certificate Purchasers
EXHIBIT A Form of Trust Certificate
ii
<PAGE>
TRUST AGREEMENT
THIS TRUST AGREEMENT (Electric Lightwave, Inc., Trust No. 1995-A) dated as
of April 28, 1995 is between SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, a
national banking association bank ("Bank"; Bank and any institution that shall
----
act as a successor certificate trustee in accordance with the terms of Section
-------
4.10, "Certificate Trustee"), and the Persons listed on Schedule I hereto
---------------------------- ----------
(together with any permitted successor or assign, each a "Certificate
------------
Purchaser" and collectively the "Certificate Purchasers"). Capitalized terms
---------- -------------------------
used in this Trust Agreement without specific definition herein shall have the
meanings assigned thereto in Appendix 1 to that certain Participation Agreement
(Electric Lightwave, Inc. Trust No. 1995-A) dated as of the date hereof, among
Certificate Trustee, Electric Lightwave, Inc., a Delaware corporation, as
Lessee, the Lenders identified therein, the Certificate Purchasers identified
therein, Shawmut Bank Connecticut, National Association, not in its individual
capacity, but solely as Administrative Agent, BA Leasing & Capital Corporation,
not in its individual capacity, but solely as Information Agent, and Citizens
Utilities Company, as Guarantor.
ARTICLE I
THE TRUST ESTATE
SECTION 1. 1. Appointment, Authorization and Direction to Certificate
-------------------------------------------------------
Trustee. The Certificate Purchasers hereby request that Bank act as
-------
Certificate Trustee of the trust created hereunder (the "Trust"), appoint Bank
--------
as Certificate Trustee hereunder and authorize and direct Certificate Trustee,
subject to confirmation by the Certificate Purchasers of the satisfaction or
waiver of all appropriate conditions set forth in the Participation Agreement,
to enter into, execute and deliver:
(a) on the Document Closing Date and from time to time thereafter
(including on each Advance Date), the Operative Documents to which
Certificate Trustee is to become a party on such date;
(b) from time to time, the Notes in the manner and subject to the
terms and conditions provided in the Participation Agreement and in the
Loan Agreement;
(c) from time to time, the Certificates in the manner and subject to
the terms and conditions provided herein and in the Participation
Agreement; and
(d) all other documents;
<PAGE>
TRUST AGREEMENT
and to do all such things and take all such actions, as may be necessary or
convenient to consummate the Overall Transaction and to perform the terms
and conditions of this Trust Agreement, all as contemplated herein or in
the documents referred to herein.
Each Certificate Purchaser agrees that the making of its monies available
pursuant to Section 2.4 of the Participation Agreement shall constitute,
without further act, authorization or direction by such Certificate
Purchaser to Certificate Trustee to take the actions specified in this
Section 1.1.
SECTION 1. 2. Declaration and Purpose. (a) Certificate Trustee hereby
-----------------------
declares, undertakes and agrees that it will and does receive, take and hold all
estate, right, title and interest of Certificate Trustee in and to the Trust
Estate for the use and benefit of the Certificate Purchasers.
(b) The purpose of the Trust is to hold title to the Equipment and the
remainder of the Trust Estate for the benefit of the Certificate Purchasers and
to engage in activities ancillary and incidental thereto as set forth in the
Operative Documents. Except in connection with the foregoing, Certificate
Trustee in its capacity as Trustee shall not (i) engage in any business or
activity, (ii) have any property, rights or interest, whether real or personal,
tangible or intangible, (iii) incur any legal liability or obligation, whether
fixed or contingent, matured or unmatured, other than in the normal course of
the administration of the Trust or (iv) subject any of the Trust Estate to any
mortgage, lien, security interest or other claim or encumbrance, other than in
favor of Administrative Agent and the Lenders pursuant to the provisions of the
Loan Documents. THE TRUST IS NOT A BUSINESS TRUST. THE SOLE PURPOSE OF THE
TRUST IS TO ACQUIRE AND HOLD TITLE TO THE EQUIPMENT AND TO COLLECT AND CONSERVE
THE VALUE THEREOF AND OF THE REMAINDER OF THE TRUST ESTATE, SUBJECT TO THE
RIGHTS OF ADMINISTRATIVE AGENT, LENDERS AND LESSEE, FOR THE BENEFIT OF THE
CERTIFICATE PURCHASERS. CERTIFICATE TRUSTEE MAY NOT TRANSACT BUSINESS OF ANY
KIND WITH RESPECT TO THE TRUST ESTATE NOR SHALL THIS TRUST AGREEMENT BE DEEMED
TO BE, OR CREATE OR EVIDENCE THE EXISTENCE OF, A CORPORATION DE FACTO OR DE
JURE, OR A MASSACHUSETTS TRUST, OR ANY OTHER TYPE OF BUSINESS TRUST, ASSOCIATION
OR JOINT VENTURE BETWEEN OR AMONG CERTIFICATE TRUSTEE, THE CERTIFICATE
PURCHASERS, ADMINISTRATIVE AGENT AND THE LENDERS.
ARTICLE II
CERTIFICATES
SECTION 2.1. Certificates; Procedure for Investment. (a) The investment made
--------------------------------------
by each Certificate Purchaser in the Trust Estate shall be evidenced by a
certificate (the "Certificate") of
--------------
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<PAGE>
TRUST AGREEMENT
Certificate Trustee, substantially in the form of Exhibit A hereto, with
---------
appropriate insertions and schedules, issued in the name of such Certificate
Purchaser and in a face amount equal to such Certificate Purchaser's Commitment.
Each Certificate shall (i) be dated the Document Closing Date, (ii) be stated to
mature on the Final Maturity Date and (iii) bear a Yield on the unpaid
Certificate Purchaser Amount thereof from time to time outstanding at a rate
equal to the Yield Rate.
(b) Upon receipt of an Advance Request, and subject to the terms and
conditions of the Participation Agreement, each Certificate Purchaser severally
(and not jointly) agrees that it shall make its pro-rata amount of the Advance
available to Certificate Trustee at the office of Administrative Agent referred
to in Schedule III to the Participation Agreement prior to 1:00 p.m., Hartford,
Connecticut time, on the applicable Advance Date in funds immediately available
to Certificate Trustee.
(c) Upon the consummation of each Advance, each Certificate Purchaser
shall make a notation on the grid attached to such Certificate Purchaser's
Certificate indicating the Certificate Purchaser Amount advanced by such
Certificate Purchaser on such Advance Date. Each Certificate Purchaser is
hereby authorized to record the date and amount of each Advance made by such
Certificate Purchaser, each continuation thereof, the date and amount of each
payment of Certificate Purchaser Amount relating thereto and the length of each
Interest Period with respect thereto, on the grid annexed to and constituting a
part of each Certificate held by such Certificate Purchaser, and any such
recordation shall constitute prima facie evidence of the accuracy of the
-----
information so recorded; provided, that the failure to make any such
--------
recordation or any error in such recordation shall not affect the obligation of
Certificate Trustee under such instrument or the corresponding obligation of
Lessee to pay Rent. In addition, on each Payment Date during any Construction
Period, each Certificate Purchaser shall make a notation on the grid attached
to such Certificate Purchaser's Certificate indicating the amount of
Capitalized Yield on such Certificate Purchaser's Certificate during the
Interest Period ending on such Payment Date (which Capitalized Yield shall
thereby be added to the Certificate Purchaser Amount of such Certificate).
SECTION 2.2. Scheduled Return of Investment. Except in the case of a
------------------------------
required return related to an Event of Loss with respect to all of the Leased
Assets, the exercise of the Purchase Option or Sale Option with respect to all
of the Leased Assets or upon default, the outstanding Certificate Purchaser
Amounts shall be paid in full on the Final Maturity Date. On the Final
Maturity Date, Certificate Trustee shall pay, from the Trust, as a return of
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<PAGE>
TRUST AGREEMENT
equity the aggregate unpaid Certificate Purchaser Amount of the Certificates as
of such date.
SECTION 2.3. Yield. (a) Each Certificate, and its related Certificate
-----
Purchaser Amount, shall be entitled to Yield on the unpaid amount thereof at a
rate per annum equal to the Yield Rate.
(b) If all or a portion of the investment amount of or Yield on a
Certificate shall not be paid when due (whether at the Stated Maturity thereof,
by acceleration or otherwise), such overdue amount shall, without limiting the
rights of the Certificate Purchasers under any Operative Document, bear interest
at the Overdue Rate, in each case from the date of nonpayment until paid (as
well after as before judgment).
(c) Yield, other than Capitalized Yield, on each Certificate shall
be payable in arrears on each Payment Date.
(d) Each Certificate Purchaser shall be entitled to the benefits of
Section 2.11 and 2.12 of the Loan Agreement as if it were a party thereto. A
Certificate Purchaser shall make a demand under either Section 2.11 or 2.12 of
the Loan Agreement in accordance with the procedures set forth in such Sections
as if it were a Lender. Upon receipt by Certificate Trustee of a payment of
Supplemental Rent constituting payment of Additional Costs, Certificate Trustee
shall pay to each Certificate Purchaser the amount of such Additional Costs to
which it is entitled.
SECTION 2.4. Determination of Yield Rate. (a) During such time as a LIBO
---------------------------
Rate applies to any of the Certificates, Yield in respect of such Certificates
shall be calculated on the basis of a 360 day year for the actual days elapsed.
During such time as the Alternate Base Rate applies to any of the Certificates,
interest in respect of such Certificates shall be calculated on the basis of a
365 (or 366, as applicable) day year for the actual number of days elapsed. The
LIBO Rate and Alternate Base Rate components of the Yield Rate shall be
determined in accordance with Section 2.6 of the Loan Agreement.
(b) Each determination of a Yield Rate pursuant to any provision of
this Trust Agreement shall be conclusive and binding on Certificate Trustee,
Lessee and the Participants in the absence of manifest error.
SECTION 2.5. Loan Event of Default. Upon the occurrence of a Loan Event
---------------------
of Default and the Loans becoming due and payable, whether automatically or with
the consent, or at the request, of the Required Entities, the Certificate
Purchaser Amounts evidenced by the Certificates (with accrued Yield thereon) and
all other
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<PAGE>
TRUST AGREEMENT
amounts owing under this Trust Agreement and the Certificate shall immediately
become due and payable, subject to the rights and interests of the holders of
the Notes under the Loan Documents.
SECTION 2.6. Payment from Trust Estate Only. All payments to be made by
------------------------------
Certificate Trustee in respect of the Certificates and this Trust Agreement
shall be made only from the income and the proceeds from the Trust Estate and
only to the extent that Certificate Trustee shall have received sufficient
income or proceeds from the Trust Estate to make such payments in accordance
with the terms of Article III. The Certificate Purchasers agree that they will
-------
look solely to the income and proceeds from the Trust Estate to the extent
available for distribution to them as herein provided and that Certificate
Trustee is not nor shall be liable in its individual capacity to any Certificate
Purchaser for any amount payable hereunder or under the Certificates.
SECTION 2.7. Registration, Transfers, Exchanges and Cancellation of
----------------------- -----------------------------
Certificates. (a) Certificate Trustee shall maintain at the Corporate Trust
- ------------
Department a register for the purpose of registering all Certificates and
transfers (other than transfers of a participation in a Certificate pursuant to
Section 2.7(g) and a pledge of a Certificate) and exchanges thereof (the
- --------------
"Certificate Register"). Subject to Section 6.3 of the Participation Agreement,
- ------------ ----------
a Certificate Purchaser that intends to transfer (other than pursuant to this
Section 2.7 or a pledge of a Certificate) a Certificate, or to exchange
- -----------
Certificate(s) of different denominations, shall surrender such Certificate to
Certificate Trustee at the Corporate Trust Department, together with a written
request from such Certificate Purchaser for the issuance of one or more new
Certificates. Such notice shall specify the denomination or denominations of
such new Certificate (s) and, in the case of a surrender for registration of
transfer, the name and address of the Person in whose name such new
Certificate(s) are to be registered together with a duly executed Investor's
Letter substantially in the form of Exhibit i to the Participation Agreement
from each such transferee. Promptly upon receipt of such documents by
Certificate Trustee, Certificate Trustee shall execute and deliver to such
Certificate Purchaser new Certificates in the same aggregate original
Certificate Purchaser Amount, and dated the same date, as such surrendered
Certificate(s). Such new Certificate(s) shall be in such denomination or
denominations and registered in such name or names as shall be specified in the
written request from such Certificate Purchaser. Each Certificate so
surrendered shall be accompanied by a written instrument of transfer duly
executed by the Certificate Purchaser of such Certificate or its attorney duly
authorized in writing. Each new Certificate issued pursuant to this Section 2.7
-----------
shall bear a notation by Certificate Trustee of: (i) the aggregate
-5-
<PAGE>
TRUST AGREEMENT
Certificate Purchaser Amount of, and Yield on, the Certificate so surrendered
that: (1) were paid to any holder thereof at any time prior to the delivery of
such new Certificate(s); and (2) are allocable to such new Certificate on the
basis of the respective original Certificate Purchaser Amounts thereof; and (ii)
the date to which Yield on such Certificate had been paid to any holder thereof
at the time of such delivery. All Certificates issued upon any registration of
transfer or exchange of Certificates shall be valid obligations of the Trust,
and shall be entitled to the same security and benefits under this Trust
Agreement as the Certificates surrendered upon -such registration of transfer or
exchange. No transfer of any Certificate shall be valid unless and until such
transfer is registered on the Certificate Register maintained by Certificate
Trustee pursuant to this Section 2.7 (a) .
---------------
(b) The Certificate Register shall at all reasonable times be open for
inspection by Administrative Agent or any Certificate Purchaser. Upon request
by any Certificate Purchaser, Certificate Trustee shall furnish such Certificate
Purchaser a list of the names and addresses of all Certificate Purchasers,
indicating the respective unpaid Certificate Purchaser Amounts and numbers of
the Certificates held by such holders. Every Certificate Purchaser, by
receiving and holding a Certificate, agrees with Certificate Trustee that
neither Certificate Trustee, nor any agents of Certificate Trustee, shall be
held accountable by reason of the disclosure of any such information.
(c) Each Certificate surrendered to Certificate Trustee pursuant to this
Section 2.7 or Section 2.9 shall be canceled by Certificate Trustee, and no
- ----------- -----------
Certificate shall be issued in lieu thereof except as expressly permitted by
this Section 2.7 or Section 2.9.
----------- -----------
(d) Each Certificate delivered to a Certificate Purchaser pursuant to
Section 2.1 and each Certificate delivered pursuant to this Section 2.7 or
- ----------- -----------
Section 2.9 shall be issued without registration of such Certificate under the
- -----------
Securities Act or under any state securities or "blue sky" law, and without
qualification of this Trust Agreement under the Trust Indenture Act of 1939, as
amended. All Certificates issued hereunder shall bear a legend that shall read
substantially as follows:
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES OR --BLUE SKY" LAW, AND
MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE IN VIOLATION OF
SUCH ACT OR LAWS.
-6-
<PAGE>
TRUST AGREEMENT
Promptly after registration of transfer of any Certificate pursuant to this
Section 2.7, Certificate Trustee will give notice thereof to Administrative
- -----------
Agent, Lessee and each other Certificate Purchaser specifying the name and
address for notices of the transferee or transferees.
(e) If Certificate Trustee shall acquire any of the Certificates, such
acquisition shall not operate as a redemption of, or the satisfaction of, such
Certificates unless and until the same shall be delivered to Certificate Trustee
for cancellation pursuant to this Trust Agreement. Any Certificate Purchaser
transferring its Certificates shall also pay or cause the transferee to pay the
costs and expenses (including reasonable counsel fees) incurred by Certificate
Trustee in connection with such transfer.
(f) No service charge shall be made for the issuance of Certificates
pursuant to Sections 2.1, 2.7 or 2.9, but Certificate Trustee may require from
------------ --- ---
the person requesting the transfer of such Certificates pursuant to Sections 2.7
------------
or 2.9 payment of a sum sufficient to reimburse Certificate Trustee for, or to
--
provide sufficient funds for, the payment of any tax or other governmental
charge in connection therewith or any charges and expenses connected with such
tax or other governmental charge paid or payable by Certificate Trustee.
(g) Certificate Trustee shall not be required to register any transfer or
exchange of a Certificate pursuant to this Section 2.7 if such Certificate is
surrendered to Certificate Trustee for transfer or exchange and such request is
made five (5) or fewer Business Days prior to a Payment Date.
SECTION 2.8. Persons Deemed Owners. Prior to due presentation of a
----------------------
Certificate for registration of transfer, Certificate Trustee and any agent of
Certificate Trustee may treat the person in whose name any Certificate is
registered in the Certificate Register as the owner of such Certificate for the
purpose of receiving distributions pursuant to Article III and for all other
-----------
purposes whatsoever, and neither Certificate Trustee nor any agent of
Certificate Trustee shall be affected by any notice to the contrary; provided,
---------
however, that in determining whether the Certificate Purchasers evidencing the
- -------
requisite principal amount have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Certificates owned by the Lessee
or any Affiliate thereof shall be disregarded and deemed not to be outstanding,
except that, in determining whether Certificate Trustee shall be protected in
relying upon any such request, demand, authorization, direction, notice, consent
or waiver, only Certificates which a Responsible Officer in the Corporate Trust
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<PAGE>
TRUST AGREEMENT
Department of Certificate Trustee knows to be so owned shall be so disregarded.
SECTION 2.9. Mutilated, Destroyed, - Lost or Stolen Certificates.
---------------------------------------------------
(a) If any Certificate shall become mutilated, destroyed, lost or stolen,
then upon the written request of the holder thereof, Certificate Trustee shall
execute and deliver to such holder a new Certificate. Such new Certificate
shall be: (i) registered in the name in which such mutilated, destroyed, lost or
stolen Certificate was registered; (ii) in the same original Certificate
Purchaser Amount as such mutilated, destroyed, lost or stolen Certificate; and
(iii) dated the date of such mutilated, destroyed, lost or stolen Certificate.
If the Certificate being replaced has become mutilated, it shall be surrendered
to Certificate Trustee. If the Certificate being replaced has been destroyed,
lost or stolen, the holder thereof shall furnish to Certificate Trustee such
security or indemnity as reasonably may be required by it to save Certificate
Trustee harmless from any loss and evidence reasonably satisfactory to
Certificate Trustee of the destruction, loss or theft of such Certificate and
the ownership thereof. Each Certificate issued pursuant to this Section 2.9
shall bear a notation by Certificate Trustee of: (i) the aggregate amounts of
Certificate Purchaser Amount of, and Yield on, such mutilated, destroyed, lost
or stolen Certificate that were paid to any holder thereof at any time prior to
the delivery of such new Certificate; and (ii) the date to which Yield on such
mutilated, destroyed, lost or stolen Certificate had been paid to any holder
thereof at the time of such delivery.
(b) Any duplicate Certificate issued pursuant to this Section 2.9 shall
-----------
constitute complete and indefeasible evidence of ownership of such Certificate,
as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.
ARTICLE III
COLLECTIONS AND DISTRIBUTIONS
SECTION 3. 1. Collections and Remittances by Certificate Trustee.
--------------------------------------------------
Certificate Trustee agrees that, subject to the provisions of this Trust
Agreement, it will during the term of this Trust administer the Trust Estate
and, at the direction of the Required Entities, take steps to collect all sums
payable to Certificate Trustee by Lessee under the Lease (to the extent not
payable directly to Administrative Agent pursuant to the Participation
Agreement or to the Lenders pursuant to the Loan Documents). Certificate
Trustee agrees to distribute all proceeds
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<PAGE>
TRUST AGREEMENT
received from the Trust Estate in accordance with Sections 3.2 and 3.3.
------------- ----
Certificate Trustee shall make such distribution promptly upon receipt of such
proceeds (provided such proceeds are available for distribution) by Certificate
Trustee, it being understood and agreed that Certificate Trustee shall not be
obligated to make such distribution until the funds for such distribution have
been received by Certificate Trustee in cash or its equivalent reasonably
acceptable to Certificate Trustee. All distributions to a Certificate Purchaser
shall be made by Certificate Trustee to the order of such Certificate Purchaser,
delivered to such Certificate Purchaser at its address referred to in Section
9.3 of the Participation Agreement.
SECTION 3.2. Distribution of Payments.
------------------------
(a) Payments to Administrative Agent. Subject to a letter Agreement of
--------------------------------
even date herewith among Lessee, Guarantor, Certificate Trustee and
Administrative Agent, until the Loan Agreement shall have been discharged
pursuant to the terms thereof, all Base Rent, Supplemental Rent, insurance
proceeds and requisition or other payments of any kind included in the Trust
Estate (other than Excluded Amounts) payable to Certificate Trustee shall be
payable directly to Administrative Agent (and if any of the same are received by
Certificate Trustee shall upon receipt be paid over to Administrative Agent
without deduction, set-off or adjustment of any kind) for distribution in
accordance with the provisions of Article III of the Loan Agreement; provided,
---------
however, that any payments received by Certificate Trustee from (i) Lessee with
- --------
respect to Certificate Trustee's fees and disbursement, or (ii) the Certificate
Purchasers pursuant to Section 7.1, shall not be paid over to Administrative
-----------
Agent but shall be retained by Certificate Trustee and applied toward the
purpose for which such payments were made.
(b) Payments of Base Rent. All amounts to be distributed pursuant to
---------------------
clause "third" of Section 3.1(a) of the Loan Agreement shall be distributed
forthwith upon receipt by Certificate Trustee from Administrative Agent in the
following order of priority: first, to the Certificate Purchasers (pro rata
-----
among the Certificate Purchasers, without priority of one Certificate Purchaser
over the other, in the proportion that the outstanding Certificate Purchaser
Amount of each Certificate Purchaser bears to the aggregate outstanding
Certificate Purchaser Amounts), to the extent the Certificate Purchasers shall
be entitled to such amounts under this Trust Agreement or any other Operative
Document; and second, the balance, if any, of such payment remaining thereafter
------
shall be distributed to Lessee or at Lessee's direction.
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<PAGE>
TRUST AGREEMENT
(c) Payments After Event of Loss or Termination. Except as otherwise
--------------------------------------------
provided in Section 3.3, all amounts received by Certificate Trustee from
Administrative Agent (other than Excluded Amounts) pursuant to clause "second"
of Section 3.2(a) of the Loan Agreement shall be distributed forthwith upon
receipt by Certificate Trustee in the following order of priority: first, so
much of such payment as shall be required to reimburse Certificate Trustee for
any expenses not otherwise reimbursed as to which Certificate Trustee is
entitled to be so reimbursed pursuant to the provisions hereof shall be retained
by Certificate Trustee; second, so much of such payment as shall be required to
pay in full the aggregate Certificate Purchaser Amounts and all accrued but
unpaid Yield thereon to the date of distribution shall be paid to the
Certificate Purchasers (pro rata among the Certificate Purchasers, without
priority of one Certificate Purchaser over the other, in the proportion that the
outstanding Certificate Purchaser Amount of each Certificate Purchaser bears to
the aggregate outstanding Certificate Purchaser Amounts); and third, the
balance, if any, shall be paid to Lessee.
(d) Payments to Certificate Trustee after Discharge of Loan Agreement;
------------------------------------------------------------------
Other Payments. Except as otherwise provided in Section 3.3, any payment of the
- --------------
type referred to in Section 3.2(a) (other than Excluded Amounts) received by
--------------
Certificate Trustee after the Loan Agreement shall have been discharged pursuant
to the terms thereof and any other amount received from Administrative Agent or
as part of the Trust Estate and for the application or distribution of which no
provision is made herein, shall be distributed forthwith upon receipt by
Certificate Trustee in the following order of priority: first, in the manner set
-----
forth in clause "first" of Section 3.2(c); second, in the manner set forth in
-------------- -------------- ------
clause "second" of Section 3. 2(c); third, so much of the remainder for which
- --------------- -------------- -----
provision as to the application thereof is contained in the Lease or any of the
other Operative Documents (other than the Loan Documents) shall be applied and
distributed in accordance with the terms of the Lease or such other Operative
Document; and fourth, the balance, if any, shall be paid to Lessee.
------
(e) Excluded Amounts. Any Excluded Amounts received by Certificate Trustee
----------------
shall be paid by Certificate Trustee to the Person to whom such Excluded Amounts
are payable under the provisions of the Participation Agreement or any other
Operative Document.
SECTION 3.3. Distributions after Default. Subject to the terms of Section
--------------------------- -------
4.5, the proceeds received by Certificate Trustee from the exercise of any
- ---
remedy under the Lease shall be distributed forthwith upon receipt by
Certificate Trustee from Administrative Agent in the following order of
priority: first, in
-----
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<PAGE>
TRUST AGREEMENT
the manner set forth in clause "first" of Section 3.2(c); second, in the manner
-------------- --------------- ------
set forth in clause "second" of Section 3.2(c); third, so much of the remainder
--------------- --------------- -----
for which provision as to the application thereof is contained in the Lease or
any of the other Operative Documents (other than the Loan Documents) shall be
applied and distributed in accordance with the terms of the Lease or such other
Operative Document; and fourth, the balance, if any, shall be paid to the Person
------
lawfully entitled thereto. This Trust shall cease and terminate in accordance
with the terms set forth in Section 6.1, upon the final disposition by
-----------
Certificate Trustee of all of the Trust Estate pursuant to this Section 3.3.
-----------
SECTION 3.4. Effect of Sales by Certificate Trustee. Any sale of all or any
--------------------------------------
part of the Trust Estate by Certificate Trustee permitted hereunder shall bind
the Certificate Purchasers and shall be effective for the benefit of the
purchasers thereof and their respective successors and assigns to divest and
transfer all right, title and interest vested in Certificate Trustee or the
Certificate Purchasers hereunder in the property so sold, and no purchaser shall
be required to inquire as to compliance by Certificate Trustee with any of the
terms hereof or to see to the application of any purchase money therefor.
ARTICLE IV
CERTAIN PROVISIONS RESPECTING CERTIFICATE TRUSTEE
SECTION 4.1. Acceptance of Trusts and Duties. Bank accepts the trusts
-------------------------------
hereby created and Agreements to perform the same as herein expressed and to
receive and disburse all moneys constituting part of the Trust Estate in
accordance with the terms hereof.
SECTION 4.2. Limitation of Power. Certificate Trustee shall have no power,
-------------------
right, duty or authority to manage, control, possess, use, sell, lease, dispose
of or otherwise deal with the Equipment or any other property at any time
constituting a part of the Trust Estate, or otherwise to take or refrain from
taking any action under or in connection with the Operative Documents, except
(a) to execute and deliver the Operative Documents to which Certificate Trustee
is to be a party, (b) to exercise and carry out or cause to be exercised and
carried out the rights, duties and obligations of Certificate Trustee hereunder
and under the Operative Documents, (c) to receive, collect and distribute and
deal with the sums due under the Lease and the proceeds thereof as provided in
the Lease and in this Trust Agreement, and (d) as expressly provided in written
instructions from the Required Entities given pursuant to Section 4.3 or 4.4.
----------- ---
Other than as expressly provided in this Trust Agreement, Certificate Trustee
shall not have the authority to make management decisions relating
39084341.13 -11-
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<PAGE>
TRUST AGREEMENT
to the Trust Estate and may take only ministerial actions without consent of the
Required Entities.
SECTION 4.3. Notice of Event of Default. In the event an Authorized
--------------------------
Officer of Certificate Trustee shall have actual knowledge of a Lease Event of
Default or a Loan Event of Default, Certificate Trustee shall give prompt
written notice of such event to the Certificate Purchasers, Lessee and
Administrative Agent by facsimile and confirmed by overnight courier. Subject
to the terms' of Sections 4.5, 4.6 and 7.1, Certificate Trustee shall take such
------------ --- ---
action with respect to any such event as shall be specified in written
instructions from the Required Entities. For all purposes of this Trust
Agreement and the Lease, in the absence of such actual knowledge, Certificate
Trustee shall not be deemed to have knowledge of a Lease Event of Default or a
Loan Event of Default unless any of its Authorized Officers is notified in
writing by a Certificate Purchaser, Administrative Agent or a Lender. if
Certificate Trustee shall not have received instructions as provided above
within thirty (30) days after mailing notice of such a Lease Event of Default or
a Loan Event of Default to the Certificate Purchasers, Lessee and Administrative
Agent, Certificate Trustee shall provide written notice to the Certificate
Purchasers, Lessee and Administrative Agent five (5) days in advance of the date
it proposes to take any action, describing such action and may, following the
giving of such notice, subject to the terms of the Loan Documents, take such
action, or refrain from taking such action, with respect to such Lease Event of
Default or Loan Event of Default as it shall deem advisable and in the best
interests of the Certificate Purchasers; provided, however, that Certificate
-----------------
Trustee shall have no obligation to take action in the event it receives no
direction from the Required Entities.
SECTION 4.4. Action Upon Instructions. Subject to the terms of Sections
------------------------ --------
4.5. 4.6 and 7.1 and the Loan Documents, upon the written instructions at any
--- ---
time and from time to time of the Required Entities, Certificate Trustee shall
take such of the following actions as may be specified in such instructions:
(a) give such notice or direction or exercise such right or power under
the Lease or any other Operative Document as shall be specified in such
instructions;
(b) approve as satisfactory to it all matters required by the terms of any
Operative Document to be satisfactory to Certificate Trustee;
(c) after the expiration of the applicable Lease Supplement Term, unless
Lessee shall have purchased the Equipment or any portion thereof in accordance
with the Lease,
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<PAGE>
TRUST AGREEMENT
convey all of Certificate Trustee's right, title and interest in and to the
Equipment or any portion thereof f or such amount, on such terms and to such
purchaser or purchasers as shall be designated in such instructions, or
otherwise lease or dispose of such Equipment or any portion thereof on such
terms as shall be designated in such instructions; and
(d) any other action as specified by the Required Entities.
SECTION 4.5. Certain Duties and Responsibilities of Certificate Trustee.
----------------------------------------------------------
(a) Except during the continuance of a Lease Event of Default or a Loan
Event of Default:
(i) Certificate Trustee undertakes to perform such duties and
only such duties as are specifically set forth herein and in the other
Operative Documents, and no implied covenants or obligations shall be
read into this Trust Agreement against Certificate Trustee, and
Certificate Trustee Agreement that it shall not, nor shall it have a
duty to, manage, control, use, sell, maintain, insure, register,
lease, operate, modify, dispose of or otherwise deal with the
Equipment or any other part of the Trust Estate in any manner
whatsoever, except as required by the terms of the Operative Documents
and as otherwise provided herein; and
(ii) in the absence of bad faith or gross negligence on its
part, Certificate Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein,
upon certificates or opinions furnished to Certificate Trustee and
conforming to the requirements of this Trust Agreement.
(b) In case a Lease Event of Default or a Loan Event of Default has
occurred and is continuing, Certificate Trustee may, if it does not timely
receive the instructions referred to in the first sentence of Section 4.3,
-----------
subject to the terms of the Loan Documents, exercise such of the rights and
powers vested in Certificate Trustee pursuant to the last sentence of Section
-------
4.3 as it shall deem advisable and in the best interests of the Certificate
- ---
Purchasers; provided, however, that Certificate Trustee in exercising such
-----------------
rights and powers shall be liable only for its gross negligence or willful
misconduct (except that it shall be liable for its negligence in the handling of
funds).
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<PAGE>
TRUST AGREEMENT
(c) No provision hereof shall be construed to relieve Bank in its
individual capacity or Certificate Trustee of liability for its gross negligence
or willful misconduct or its negligence in the handling of funds, it being
understood that, without limiting the foregoing:
(i) Certificate Trustee shall not be liable for any error of
judgment made in good faith by an Authorized Officer of Certificate
Trustee, unless it shall be proved that Certificate Trustee was
grossly negligent;
(ii) Certificate Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Required Entities pursuant to the
express provisions hereof;
(iii) no provision hereof shall require Bank in its individual
capacity to expend or risk its own funds in the performance of any of
its duties hereunder or under any of the other Operative Documents, or
in the exercise of any of its rights or powers;
(iv) Certificate Trustee shall not be personally responsible
for or in respect of the validity or sufficiency of this Trust
Agreement or for the due execution hereof by any Certificate
Purchaser;
(v) Except as expressly provided in this Trust Agreement, in
accepting the trust created hereby, Certificate Trustee acts solely as
trustee and not in its individual capacity, and all persons having any
claim against Certificate Trustee by reason of the transactions
contemplated by this Trust Agreement shall, other than as expressly
provided in this Trust Agreement and the other Operative Documents,
look solely to the Trust's property for payment or satisfaction
thereof; and
(vi) Bank shall be liable for (A) any taxes on, with respect to
or measured by any amounts paid to it as compensation for services or
otherwise under the Operative Documents, (B) acts or omissions not
related to the transactions contemplated by the Operative Documents,
(C) the inaccuracy of representations and warranties made by Bank in
its individual capacity in the Participation Agreement or any
certificate or document delivered pursuant thereto, and (D) its
negligence in the handling of funds.
-14-
<PAGE>
TRUST AGREEMENT
(d) Certificate Trustee shall not be required to take any action hereunder
or under the Operative Documents, nor shall any other provision of this Trust
Agreement or any Operative Document be deemed to impose a duty on Certificate
Trustee to take any action, if Certificate Trustee shall determine, or shall
have been advised by counsel, that such action is likely to result in personal
liability or is contrary to Applicable Laws or the Operative Documents.
(e) Whether or not therein expressly so provided, every provision of this
Trust Agreement relating to the conduct or affecting the liability of or
affording protection to Certificate Trustee shall be subject to the provisions
of this Section 4.5.
-----------
SECTION 4.6. Certain Rights of Certificate Trustee. Except as otherwise
-------------------------------------
provided in Section 4.5:
-----------
(a) Certificate Trustee may rely and shall be protected in acting or
refraining from acting upon any signature, resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order or other
paper or document reasonably believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request, direction or authorization by any party hereto or to any
other Operative Document shall be sufficiently evidenced by a request, direction
or authorization in writing, delivered to Certificate Trustee and signed in the
name of such party by the president, any vice president, the treasurer or the
secretary of such party, as the case may be, and any resolution of the board of
directors or committee thereof of such party shall be sufficiently evidenced by
a copy of such resolution certified by the secretary or an assistant secretary
of such party, as the case may be, to have been duly adopted and to be in full
force and effect on the date of such certification, and delivered to Certificate
Trustee;
(c) whenever in the administration of this Trust Agreement Certificate
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, Certificate Trustee may in
good faith rely upon a certificate in writing, delivered to Certificate Trustee
and signed by the president, any vice president, any assistant vice president,
the treasurer, any assistant treasurer, the secretary or any assistant secretary
of a Certificate Purchaser;
-15-
<PAGE>
TRUST AGREEMENT
(d) Certificate Trustee may exercise its powers and perform its duties by
or through such attorneys, agents and servants as it shall appoint; and it shall
be entitled to the advice of counsel and shall be protected by the advice of
such counsel in anything done or omitted to be done in accordance with such
advice (provided that such advice pertains to such matters as Certificate
Trustee may reasonably presume to be within the scope of such counsels area of
expertise);
(e) Certificate Trustee shall not be under any obligation to exercise any
of the rights or powers vested in it by this Trust Agreement at the request or
direction of the Required Entities, unless the Required Entities shall have
offered to Certificate Trustee reasonable security or indemnity against the
costs, expenses (including reasonable fees and expenses of its legal counsel)
and liabilities which may be incurred by it in compliance with such request or
direction;
(f) provided no Authorized Officer has actual knowledge of the inaccuracy
thereof, Certificate Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent or other paper
or document, but Certificate Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and, if
Certificate Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books and records of Lessee
related to the Leasehold Estate to reasonably determine whether Lessee is in
compliance with the terms and conditions of the Lease and to examine the
Equipment, by agent or attorney, all upon the terms and conditions contained in
the Lease; and
(g) without limiting the generality of Section 4.5, Certificate Trustee
-----------
shall not have any duty (i) to see to any recording or filing of the Operative
Documents or any Uniform Commercial Code financing statements or to see to the
maintenance of any such recording or filing, (ii) to see to any insurance on the
Equipment or to effect or maintain any such insurance, whether or not Lessee
shall be in default with respect thereto, other than to promptly forward to the
Certificate Purchasers copies of all certificates, reports And other written
information which it receives from Lessee pursuant to the requirements of the
Lease or the Participation Agreement (unless the Certificate Purchasers are to
receive such certificates, reports and other written information directly from
Lessee), (iii) to see to the payment or
-16-
<PAGE>
TRUST AGREEMENT
discharge of any tax, assessment or other governmental charge or any Lien owing
with respect to, assessed or levied against any part of the Trust Estate, except
as provided in Section 6.2(a) of the Participation Agreement, (iv) to confirm or
verify any financial statements of Lessee or Guarantor, or (v) to inspect the
Equipment at any time or ascertain or inquire as to the performance or
observance of any of Lessee' s covenants under the Operative Documents with
respect to the Equipment.
SECTION 4.7. NO REPRESENTATIONS OR WARRANTIES AS TO THE LEASEHOLD ESTATE
-----------------------------------------------------------
OR DOCUMENTS. BANK IS NOT A BUILDER, DEVELOPER OR MANUFACTURER OF THE SYSTEMS
- ------------
OR ANY RELATED EQUIPMENT OR A DEALER IN SIMILAR PROPERTY AND HAS NOT INSPECTED
THE EQUIPMENT PRIOR TO DELIVERY TO AND ACCEPTANCE BY LESSEE. BANK HAS NOT MADE
NOR DOES IT MAKE (A) ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO
ANY ENVIRONMENTAL MATTER OR CONDITION, VALUE, DESIGN, OPERATION, CONDITION,
QUALITY, DURABILITY, SUITABILITY, MERCHANTABILITY OR FITNESS FOR USE OR FITNESS
FOR A PARTICULAR PURPOSE, ABSENCE OF LATENT OR OTHER DEFECTS WHETHER OR NOT
DISCOVERABLE, ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT,
OR ANY OTHER WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE
EQUIPMENT, OR AS TO TITLE THERETO, OR (B) ANY REPRESENTATION OR WARRANTY AS TO
THE VALIDITY, LEGALITY OR ENFORCEABILITY OF THE OPERATIVE DOCUMENTS (OTHER THAN
AS TO THIS TRUST AGREEMENT AGAINST BANK), OR AS TO THE CORRECTNESS OF ANY
STATEMENT CONTAINED IN ANY THEREOF, EXCEPT AS SET FORTH IN SECTION 4.3 OF THE
PARTICIPATION AGREEMENT.
SECTION 4.8. Status of Moneys Received. All moneys received by Certificate
-------------------------
Trustee under or pursuant to any provision of this Trust Agreement (other than
Excluded Amounts to be paid to Bank) shall constitute trust funds for the
purpose for which they were paid or are held, but need not be segregated in any
manner from any other moneys and may be deposited by Certificate Trustee under
such conditions as may be prescribed or permitted by Applicable Laws for trust
funds, or, at the direction of the Required Entities may be invested in
Permitted Investments.
SECTION 4.9. Permitted Activities. Certificate Trustee or any corporation
--------------------
in or with which Certificate Trustee may be interested or affiliated or any
officer or director of' any such corporation may acquire and hold Certificates
hereunder (subject to the restrictions of Sections 6.3 and 6.4 of the
Participation Agreement), and have commercial relations and otherwise deal with
Lessee or with any other corporation having relations with Lessee to the full
extent permitted by Applicable Laws.
-17-
<PAGE>
TRUST AGREEMENT
SECTION 4.10. Resignation or Removal of Certificate Trustee. Certificate
---------------------------------------------
Trustee or any successor thereto may resign at any time without cause by giving
at least sixty (60) days' prior written notice to each Certificate Purchaser,
Administrative Agent and Lessee, and the Required Entities may at any time
remove Certificate Trustee without cause by an instrument in writing delivered
to Certificate Trustee, Administrative Agent and Lessee, such resignation or
removal to be effective on the later of the date specified in such notice or
written instrument or the date on which a successor certificate trustee is
appointed hereunder. With the written consent of Administrative Agent and, so
long as a Lease Event of Default shall not have occurred and, be continuing, the
Required Entities may, at any time upon thirty (30) days' prior written notice
to Administrative Agent and Lessee by an instrument in writing, appoint a
successor certificate trustee, provided, however, that a successor certificate
-------- -------
trustee shall be a bank or trust company which is organized under the laws of
the United States of America or any state thereof and has a combined capital and
surplus of at least $100,000,000. If the Required Entities shall not have
appointed a successor certificate trustee within thirty (30) days after the
giving of notice of such resignation or removal, Administrative Agent or
Certificate Trustee may apply to any court of competent jurisdiction to appoint
a successor certificate trustee to act until such time, if any, as a successor
or successors shall have been appointed by the Required Entities as above
provided. Any successor certificate trustee so appointed by such court shall
immediately and without further act be superseded by a successor certificate
trustee appointed by the Required Entities.
SECTION 4. 11. Estate and Rights of Successor Certificate Trustee. Any
--------------------------------------------------
successor certificate trustee, whether appointed by the Required Participants or
a court, shall execute and deliver to the predecessor Certificate Trustee an
instrument accepting such appointment, and thereupon each successor Certificate
trustee, without further act, shall become vested with all the estates,
properties, rights, powers, duties and trusts of the predecessor Certificate
Trustee in the trusts hereunder with like effect as if originally named as an
Certificate Trustee herein, but nevertheless upon the written request of such
successor Certificate trustee, such predecessor Certificate Trustee shall
execute and deliver an instrument transferring to such successor certificate
trustee, upon the trusts herein expressed, all the estates, properties, rights,
powers and trusts of such predecessor Certificate Trustee, and such predecessor
Certificate Trustee shall duly assign, transfer, deliver and pay over to such
successor certificate trustee any property or moneys then held by such
predecessor Certificate Trustee upon the trusts herein expressed.
-18-
<PAGE>
TRUST AGREEMENT
SECTION 4.12. Merger or Consolidation of Certificate Trustee. Any
-----------------------------------------------
corporation into which Certificate Trustee may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which Certificate Trustee shall be a party, or any corporation to which
substantially all of the corporate trust business of Certificate Trustee may be
transferred, shall be a successor certificate trustee under this Trust Agreement
without further act.
SECTION 4.13. Co-Trustees. At any time, for the purpose of meeting any
-----------
legal requirements of any jurisdiction in which any part of the Trust Estate may
at the time be located, the Required Entities and Certificate Trustee jointly
shall have the power, and shall execute and deliver all instruments, to appoint
one or more persons approved by the Required Entities and Certificate Trustee,
to act as co-trustee, or co-trustees, jointly with Certificate Trustee, or
separate trustee or separate trustees, of all or any part of the Trust Estate,
and to vest in such person or persons, in such capacity, such title to the Trust
Estate or any part thereof, and such rights, powers, duties, trusts or
obligations as the Required Entities and Certificate Trustee may consider
necessary or desirable. If the Required Entities shall not have joined in such
appointment within fifteen (15) days after the receipt by it of a request to do
so, Certificate Trustee alone shall have power to make such appointment.
Certificate Trustee shall not be liable for any act or omission of any co-
trustee or separate trustee appointed under this Section 4.13.
------------
SECTION 4.14. Doing Business in Other Jurisdictions. Notwithstanding
-------------------------------------
anything contained herein to the contrary, Certificate Trustee shall not be
required to take any action in any jurisdiction, other than in the state in
which the Corporate Trust Department is located and other than in any other
jurisdiction in which Certificate Trustee is authorized to do business, if
solely as a result of such action, (i) the taking of such action would require
the consent or approval or authorization or order of or the giving of notice to,
or the registration with or the taking of any other action in respect of, any
Governmental Authority of any jurisdiction, other than the state in which the
Corporate Trust Department is located or any other jurisdiction in which
Certificate Trustee is authorized to do business; (ii) Bank would incur any fee,
tax or other governmental charge under the laws of any Jurisdiction or any
political subdivision thereof in existence on the date hereof, other than the
state in which the Corporate Trust Department is located or any other
jurisdiction in which Certificate Trustee is authorized to do business; or (iii)
Bank would become subject to personal jurisdiction in any jurisdiction, other
than the state of Certificate Trustee's organization or any other jurisdiction
in which Certificate Trustee is authorized to do
-19-
<PAGE>
TRUST AGREEMENT
business, for causes of action arising from acts unrelated to the consummation
of the Overall Transaction by Bank or Certificate Trustee; provided, that if
pursuant to the foregoing paragraph Certificate Trustee shall not be required to
take an action, Certificate Trustee shall promptly appoint an additional trustee
pursuant to Section 4.13 to proceed with such action.
------------
ARTICLE V
TRANSFER OF CERTIFICATE PURCHASER'S INTEREST
Any transfer by a Certificate Purchaser of its Certificates and its
interests under this Trust and in and to the Trust Estate shall comply with
Sections 6.3 and 6.4 of the Participation Agreement.
ARTICLE VI
TERMINATION OF AND AMENDMENTS TO TRUST
SECTION 6. 1. Termination. The Trust created and provided for hereby shall
-----------
cease and be terminated in any one of the following events, whichever shall
first occur:
(a) if the Required Entities shall by notice in writing to Certificate
Trustee, the Lenders, Administrative Agent and Lessee revoke and terminate the
Trust on and as of a date stated in such notice, which date shall not be less
than ten (10) nor more than thirty (30) days from the date of mailing such
notice, then on the date specified in such notice the Trust created and provided
for hereby shall cease and terminate; provided, however, that this Trust shall
-------- -------
not be subject to revocation or termination by the Required Entities prior to
the payment in full and discharge of the Loans and all other indebtedness
secured by the Loan Documents and the termination of the Loan Documents and the
release of the Liens granted thereby; or
(b) the sale or other final disposition by Certificate Trustee of all
property constituting the Trust Estate and the final disposition by Certificate
Trustee of all moneys or other property or proceeds constituting part of the
Trust Estate in accordance with the terms hereof; provided, however that the
-----------------
Trust Estate shall not be subject to sale or other final disposition by
Certificate Trustee prior to the payment in full and discharge of the Loans and
all other indebtedness secured by the Loan Documents and the release of the Loan
Documents and the Liens granted thereby and the payment in full of the
Certificate Purchaser Amounts;
-20-
<PAGE>
TRUST AGREEMENT
(c) 110 years after the date hereof; or
(d) an Insolvency Event with respect to any Certificate Purchaser; provided
--------
that this Trust Agreement shall not be so terminated if, before the end of the
thirty (30) day period referred to in clause (a), Certificate Trustee receives
-----------
written instructions from the Required Certificate Purchasers (other than a
Certificate Purchaser that is the subject of an Insolvency Event and any of its
Affiliates), to the effect that each such Certificate Purchaser disapproves of
the liquidation of the Trust Estate and termination of the Trust and naming a
successor to the Certificate Purchaser that is the subject of an Insolvency
Event. Promptly after the occurrence of any Insolvency Event with respect to
any Certificate Purchaser: (i) such Certificate Purchaser shall give Certificate
Trustee written notice of such Insolvency Event; and (ii) Certificate Trustee
shall, upon the receipt of such written notice from such Certificate Purchaser,
give prompt written notice to the other Certificate Purchasers of the occurrence
of such event; provided, however, that any failure to give a notice required by
-------- -------
this sentence shall not prevent or delay in any manner a termination of the
Trust pursuant to any other provision of this Section 6.1. Upon a termination
------- ----
pursuant to this Section 6.1, subject to Section 4.4, Certificate Trustee shall
----------- -----------
collect all amounts due the Trust pursuant to any of the Operative Documents.
SECTION 6.2. Distribution of Trust Estate Upon Termination. Upon any
---------------------------------------------
termination of this Trust pursuant to the provisions of Section 6.1, Certificate
-----------
Trustee shall convey the Trust Estate to such purchaser or purchasers thereof or
other Person entitled thereto and for such amount and on such terms as shall be
specified in written instructions from the Required Entities delivered to
Certificate Trustee prior to the date of termination; provided that (a) if at
--------
the time of any termination the Lease remains in force and effect, then the
Trust Estate shall be sold as a whole and subject to the Lease, and (b) in the
event such written instructions are not delivered to Certificate Trustee on or
before the date of termination, Certificate Trustee shall transfer title to the
Trust Estate to the Certificate Purchasers. Upon making such transfer or sale,
Certificate Trustee shall be entitled to immediate receipt of any sums due and
owing to Certificate Trustee for expenses (including reasonable attorneys' fees
and expenses) incurred pursuant hereto or as compensation for services rendered
hereunder and not theretofore paid, and Certificate Trustee shall be discharged
and free of any further liability hereunder subject to Section 4.5(c).
--------------
-21-
<PAGE>
TRUST AGREEMENT
Notwithstanding the foregoing provisions of this Section 6.2, upon the
-----------
termination of this Trust pursuant to the provisions of Section 6.1(d), the
---------------
Certificate Purchasers hereby appoint Certificate Trustee to act as liquidating
trustee and the Certificate Trustee, as liquidating trustee, shall gradually
settle and close the Trust's business, dispose of and convey the Trust's
property, discharge or make reasonable provision for the Trust's liabilities,
and distribute to the Certificate Purchasers any assets of the Trust
(collectively the "Settlement Actions"); provided, that, consistent with the
--------------------- --------
rights and obligations of the Trust under the Operative Documents, (A)
Certificate Trustee, as liquidating trustee, shall, without limitation, (i)
continue to collect payments under the Lease and otherwise continue to perform
the obligations of the Lessor under the Lease and continue to exercise the
rights and remedies of the Lessor under the Lease, and (ii) continue to make or
cause to be made payments under the Loan Agreement and otherwise continue to
perform the obligations of the Borrower under the Loan Agreement and continue to
exercise the rights and remedies of the Borrower under the Loan Agreement, and
(B) prior to the satisfaction by Lessee of all its obligations arising under the
Operative Documents and the satisfaction by the Trust of all its obligation
arising under the Operative Documents, Certificate Trustee, as liquidating
trustee, shall not take any Settlement Action (nor shall any Participant direct
Certificate Trustee, as liquidating trustee, or any other party to take any
Settlement Action) which would adversely affect (i) the parties' continuing
rights and obligations under the Operative Documents, (including, without
limitation, the term of the Lease, the Loan Agreement or any other Operative
Documents) or (ii) the rights of any Participant to receive any amounts as
contemplated by and at such times as set forth in the Operative Documents;
provided, further, that it is expressly understood that a termination of the
- -----------------
Trust pursuant to the provisions of Section 6.1(d) shall not constitute a Lease
--------------
Event of Default or a Loan Event of Default.
SECTION 6.3. Amendments. Subject to Section 9.5 of the Participation
----------
Agreement, at any time and from time to time, upon the written request of the
Required Entities, (i) Certificate Trustee shall execute a supplement hereto for
the purpose of adding provisions to, or changing or eliminating provisions of
this Trust Agreement as specified in such request, and (ii) Certificate Trustee
shall enter into or consent to such written amendment of or supplement to the
Operative Documents as Lessee or Administrative Agent, as the case may be, may
agree to and as may be specified in such request, or execute and deliver such
written waiver or modification of the terms of the Operative Documents as may be
specified in such request; provided, however, if in the reasonable opinion of
-----------------
Certificate Trustee, any document required to be executed by it pursuant to this
Section 6.3 affects any right or
- -----------
-22-
<PAGE>
TRUST AGREEMENT
duty of, or immunity or indemnity in favor of, Certificate Trustee under this
Trust Agreement or the other Operative Documents, Certificate Trustee may in its
reasonable discretion decline to execute such document.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Compensation and Indemnification.
--------------------------------
(a) Bank shall receive reasonable compensation for its services hereunder,
including reasonable compensation for acting as liquidating trustee if so
required, from Lessee and shall be reimbursed by Lessee for Bank's reasonable
fees and expenses (including the disbursements and reasonable fees of counsel).
In the event a Lease Event of Default or a Loan Event of Default shall have
occurred and be continuing and Certificate Trustee shall be required pursuant to
the provisions of this Trust Agreement to take any action in connection
therewith or act as liquidating trustee, Lessee shall reimburse it for any
expenses it may incur in relation to taking any such action (including the
disbursements And fees of counsel) except any expenses Certificate Trustee may
incur as a result of its gross negligence or willful misconduct. Certificate
Trustee (at the direction of the Certificate Purchasers) grants to Bank a Lien
on the Trust Estate to secure payment of reasonable compensation and expenses
incurred by it in its performance of any duties it may have as liquidating
trustee.
(b) The Certificate Purchasers shall reimburse, indemnify, protect and save
harmless Certificate Trustee from and against any and all losses, damages,
liabilities, claims, actions, suits, obligations, penalties, demands,
disbursements and expenses, including taxes and counsel fees, and including tort
claims for which Certificate Trustee is strictly liable, which may be asserted
against or incurred by reason of Bank's being Certificate Trustee or acting
hereunder or under the Operative Documents or the performance or enforcement of
any of the terms hereof, or arising out of or relating to this Trust Agreement
or the Operative Documents or the Equipment or the Rent and other sums payable
therefor, or the building, manufacture, purchase, installation, acceptance,
resection, ownership, delivery, lease, possession, use, operation, condition,
sale, return or other disposition of the Equipment or in any way relating to or
arising out of the Trust Estate or the action or the inaction of Certificate
Trustee hereunder or by reason of any occurrence while so acting; provided, that
the Certificate Purchasers shall not be so obligated in respect of any such
losses, damages, liabilities, claims, actions, suits, obligations, penalties,
demands, disbursements and expenses,
-23-
<PAGE>
TRUST AGREEMENT
including taxes and counsel fees pursuant to this Section 7.1, arising from or
-----------
as a result of (a) the willful misconduct or gross negligence of Bank, (b) any
taxes on, with respect to or measured by any amounts paid to Bank as
compensation for services or otherwise under the Operative Documents, or (c) the
inaccuracy of representations and warranties made by Bank in its individual
capacity in the Participation Agreement or in any certificate or documents
delivered pursuant thereto; and, provided, further, that neither Bank nor
-----------------
Certificate Trustee shall make any claim under this Section 7.1 for any claim or
-----------
expense indemnified against by Lessee under Article VII of the Participation
Agreement without first making demand on such Lessee for payment of such claim
or expense and reasonably attempting to collect same. The provisions of this
Section 7.1 (other than the requirements for compensation of Certificate Trustee
- -----------
after its resignation, which shall terminate upon -the resignation or removal of
Certificate Trustee) shall continue in force and effect notwithstanding the
termination of this Trust, the resignation or removal of Certificate Trustee or
the obligation of any other party to any other Operative Document to make any
payment to Certificate Trustee which a Certificate Purchaser is required to make
pursuant to this Section 7.1. The obligations of the Certificate Purchasers
-----------
under this Section 7.1 shall be several and not joint and pro rata in accordance
------------
with their respective Certificate Purchaser Amounts (and if a determination is
to be made after all Certificate Purchaser Amounts are paid, such determination
shall be made based upon the Certificate Purchaser Amounts immediately prior to
final payment thereof). To secure the same, Certificate Trustee shall have a
lien on the Trust Estate which shall be prior to any interest therein of the
Certificate Purchasers.
SECTION 7.2. Notices. All notices and communications provided for herein
-------
shall be in writing and shall be deemed to have been given when delivered in
accordance with Section 9.3 of the Participation Agreement.
SECTION 7.3. Applicable Law. This Trust is being created in the State of
--------------
New York and the validity, construction and all rights under this Trust shall be
governed by the laws of that State. if any provision of this Trust shall be
invalid or unenforceable, the remaining provisions hereof shall continue to be
fully effective, provided that such remaining provisions do not increase the
obligations or liabilities of Certificate Trustee.
SECTION 7.4. Tax Reports. In the event any tax report or tax return is
-----------
required to be made by Certificate Trustee with respect to the Trust Estate and
Lessee is not required to prepare and file the same pursuant to the Lease, each
Certificate Purchaser will prepare such tax report or return in respect of its
interest in the
-24-
<PAGE>
TRUST AGREEMENT
Trust and deliver a copy thereof to Certificate Trustee. Certificate Trustee
Agreements to promptly forward to each Certificate Purchaser any communications
with respect to taxes pertaining to the Trust Estate which are received by
Certificate Trustee from tax authorities or from Lessee.
SECTION 7.5. Headings. The headings of the various Sections herein are for
--------
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
SECTION 7.6. Successors and Assigns. All covenants and Agreements
----------------------
contained herein shall be binding upon, and inure to the benefit of, the parties
hereto and their respective successors and assigns.
SECTION 7.7. Severabilitv. Any provision of this Trust Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition on unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provisions in any other jurisdiction.
SECTION 7.8. Only Written Waivers. No term or provision of this Trust
--------------------
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party or other person against whom
enforcement of the change, waiver, discharge or termination is sought; and any
waiver of the terms hereof shall be effective only in the specific instance and
for the specific purpose given.
SECTION 7.9. Counterparts. This instrument may be simultaneously executed
------------
in any number of counterparts, each of which when so executed shall be deemed to
be an original, and such counterparts together shall constitute and be one and
the same instrument.
SECTION 7.10. Rights in Trust Agreement. Except as expressly provided to
-------------------------
the contrary in the Operative Documents, nothing in this Trust Agreement,
whether express or implied, shall be construed to give any person other than
Certificate Trustee and each Certificate Purchaser and their respective
successors and assigns, any legal or equitable right, remedy or claim under or
in respect of this Trust Agreement.
SECTION 7.11. Identification of Trust. This trust may for convenience be
-----------------------
referred to as Electric Lightwave, Inc. Trust No. 1995-A.
<PAGE>
TRUST AGREEMENT
[Signature page follows]
<PAGE>
TRUST AGREEMENT
IN WITNESS WHEREOF, the Certificate Purchasers and Certificate Trustee
have caused this instrument to be duly executed all as of the day and year first
above written.
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
not in its individual capacity,
but solely as Certificate Trustee
BY: /s/ Robert L. Reynolds
-----------------------------
Name: Robert L. Reynolds
Title: Vice President
<PAGE>
TRUST AGREEMENT
SUMITOMO BANK LEASING AND FINANCE,
INC., as Cerfiticate Purchaser
By: /s/ William M. Ginn
--------------------------
Name: William M. Ginn
Title: President
<PAGE>
TRUST AGREEMENT
SHAWMUT BANK, N.A., as Certificate
Purchaser
By: /s/ Robert D. Linagan
---------------------------------
Name: Robert D. Lanigan
Title: Managing Director
<PAGE>
TRUST AGREEMENT
FBTC LEASING CORP., as Certificate Purchaser
By: /s/ Akahiro Hashimoto
------------------------------
Name: Akihiro Hashimoto
Title: Treasurer
<PAGE>
TRUST AGREEMENT
THE DAI-ICHI KANGYO BANK
Ltd. New York Branch, as
Certificate Purchaser
By: /s/ Shinya Wako
-----------------------
Name: Shinya Wako
Title: Vice President
<PAGE>
TRUST AGREEMENT
BA LEASING & CAPITAL CORPORATION, as
Certificate Purchaser
By: /s/ Sara L. Fitch
-----------------------
Name: Sara L. Fitch
Title: Vice President
<PAGE>
TRUST AGREEMENT
SCHEDULE I
----------
CERTIFICATE PURCHASERS AND
CERTIFICATE PURCHASER AMOUNTS
<TABLE>
<CAPTION>
Commitment
Certificate Purchaser Commitment Percentage
--------------------- ------------ ----------
<S> <C> <C>
BA LEASING & CAPITAL $1,050,000.00 0.95454545
CORPORATION
DAI-ICHI KANGYO BANK LTD., $ 600,000.00 0.54545455
NEW YORK BRANCH
FBTC LEASING CORP. $ 300,000.00 0.27272727
SUMITOMO BANK LEASING $ 600,000.00 0.54545455
AND FINANCE, INC.
SHAWMUT BANK, N.A. $ 750,000.00 0.68181818
------------- ----------
TOTAL $3,300,000.00 3.00000000%
</TABLE>
<PAGE>
EXHIBIT A
TO
TRUST AGREEMENT
FORM OF TRUST CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES OR "BLUE SKY" LAW,
AND MAY NOT BE TRANSFERRED, SOLD OR OFFERED
FOR SALE IN VIOLATION OF SUCH ACT OR LAWS.
ELECTRIC LIGHTWAVE, INC. TRUST NO. 1995-A
TRUST CERTIFICATE
Evidencing an interest in the
Trust Estate, as defined below.
Number R- __________
Dated as of April ______, 1995
THIS CERTIFIES THAT ___________________________________________________
(the "Certificate Purchaser") is the registered owner of a
__________________________________________ Dollars ($ _________________ )
Certificate, evidencing an interest n the Trust Estate created pursuant to (and
defined in) that certain Trust Agreement, dated as of April 28, 1995, (the
"Trust Agreement") among the Persons named on Schedule I thereto, as
Certificate Purchasers, and SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, as
Certificate Trustee, which creates the trust identified under the title hereof.
To the extent not otherwise defined herein, capitalized terms used herein shall
have the meanings assigned to such terms in Appendix 1 to the Participation
Agreement (as defined in the Trust Agreement) , unless the context otherwise
requires. This Certificate is one of the duly authorized Trust Certificates.
This Certificate is being delivered pursuant to, is entitled to the benefits
of, and is subject to the terms, provisions and conditions of' the Trust
Agreement, to which Trust Agreement the holder of this Certificate by virtue of
its acceptance hereof assents and by which such holder is bound.
-1-
<PAGE>
This Certificate entitles the registered owner hereof to the payment of a
principal sum equal to the aggregate unpaid Certificate Purchaser Amounts
advanced by the Certificate Purchaser to, or for the benefit of, Certificate
Trustee, as recorded either on the grid attached to this Certificate or in the
records of the Certificate Purchaser (and such recordation shall constitute
prima facie evidence of the information so recorded); provided, however, that
-----------------
the failure to make any such recordation or any error in such recordation shall
not in any way affect Certificate Trustee's obligation to repay this
Certificate) together with the Yield on the amount of said principal sum
outstanding and remaining unpaid from time to time from the date of this
Certificate until payment hereof is made or duly provided. All payments of the
principal hereof and Yield on such principal amount shall be due and payable in
such amounts and at the times provided in the Trust Agreement, including on the
Final Maturity Date.
Interest on any overdue principal and (to the extent permitted by
Applicable Law) Yield shall be paid from the due date thereof at the Overdue
Rate.
All payments of principal and Yield and other amounts hereunder to be made
by Certificate Trustee shall be made only from the income and proceeds from the
Trust Estate and only to the extent that Certificate Trustee shall have
sufficient income or proceeds from the Trust Estate to make such payments in
accordance with the terms of Articles II and III of the Trust Agreement. Each
holder hereof, by its acceptance of this Certificate, Agreement: (i) that it
will look solely to the income and proceeds from the Trust Estate to the extent
available for distribution to the holder hereof; and (ii) that in any action or
proceeding brought on this Certificate or on any obligation evidenced hereby,
no deficiency or other monetary judgment shall be sought or obtained against
Certificate Trustee by reason of the ownership of this Certificate, except as
is necessary to enforce the rights and remedies of such holder under the Trust
Agreement and the other operative Documents, in which event any such judgment
shall be enforceable against Certificate Trustee only to the extent of the
interest of Certificate Trustee in the Trust Estate, and any such judgment
shall not be enforceable by execution or by a Lien on any of the assets of
Certificate Trustee or Bank other than the interest of Certificate Trustee in
the Trust Estate.
All principal of and Yield on this Certificate shall be payable in
immediately available funds as provided in Article III of the Trust Agreement,
but in any event no later than the Final Maturity Date.
There shall be maintained a register for the purpose of registering
transfers and exchanges of Certificates, at Certificate Trustee's Corporate
Trust Department.
-2-
<PAGE>
Each holder of this Certificate, by its acceptance hereof, agrees that each
payment received by such holder hereunder on account of principal of, or Yield
on, this Certificate shall be applied in the manner set forth in Article III of
the Trust Agreement.
This Certificate is one of the Certificates referred to in the Trust
Agreement that have been delivered pursuant to the terms of the Trust Agreement.
Reference is hereby made to the Trust Agreement and the Operative Documents for
a statement of: (i) the rights of the holder of, and the nature and extent of
the security for, this Certificate; (ii) the rights of the holders of, and the
nature and extent of the security for, other Certificates; and (iii) the terms,
rights and conditions of the trusts created by the Trust Agreement.
This Certificate is not subject to prepayment except as provided in the
Trust Agreement.
This Certificate is a registered Certificate and is transferable, as provided in
the Trust Agreement, only upon surrender of this Certificate for registration
and transfer duly accompanied by a written instrument of transfer duly executed
by the registered holder hereof or his attorney duly authorized in writing.
Prior to due registration of transfer of this Certificate, Certificate Trustee
may treat the Person in whose name this Certificate is registered as the owner
hereof for the purpose of receiving payments of principal and Yield hereunder
and under the Trust Agreement and for all other purposes whatsoever, whether or
not this Certificate be overdue, and Certificate Trustee shall not be affected
by notice to the contrary.
(signature page follows)
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<PAGE>
IN WITNESS WHEREOF, Certificate Trustee has caused this Certificate to be
executed in its corporate name by its duly Authorized Officer as of the date
hereof.
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Certificate Trustee
By: /s/ Robert L. Reynolds
-----------------------------
Name: Robert L. Reynolds
Title: Vice President
This Certificate is one of the Certificates
referred to in the within-mentioned Trust
Agreement.
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<PAGE>
GRID ATTACHED TO TRUST CERTIFICATE
DATED APRIL ___, 1995 OF
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
AS CERTIFICATE TRUSTEE
PAYABLE TO THE ORDER OF [INSERT CERTIFICATE PURCHASER'S NAME]
Certificate Purchaser Amounts advanced by the Certificate Purchaser to
Certificate Trustee, and payments of principal of such Certificate Purchaser
amounts.
<TABLE>
<CAPTION>
Principal Amount Bearing
Prinicpal Amount Interest Paid
Interest Period Base LIBO Base LIBO Principal Amount Notation
Date Advances C.I. * (If Applicable) RATE RATE Rate RATE C.I. Total Made By
- ---- -------- --- --------------- ---- ---- ---- ---- --- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* C.I. = Capitalized Interest
<PAGE>
================================================================================
EXHIBIT K TO
SECURITY AGREEMENT AND ASSIGNMENT OF LEASE
(Electric Lightwave, Inc. Trust No. 1995-A)
dated as of April 28, 1995
among
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION,
not in its individual capacity but solely
as Certificate Trustee,
and
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION,
not in its individual capacity but solely
as Administrative Agent
================================================================================
<PAGE>
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<PAGE>
EXHIBIT K
TO PARTICIPATION AGREEMENT
(Electric Lightwave, Inc. Trust No. 1995-A)
FORM OF
SECURITY AGREEMENT AND ASSIGNMENT OF LEASE
------------------------------------------
THIS SECURITY AGREEMENT AND ASSIGNMENT OF LEASE (this "Security Agreement"),
------------------
dated as of April 28, 1995, is made by SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, a national banking association, not in its individual capacity but
solely as Certificate Trustee ("Grantor") under Electric Lightwave, Inc. Trust
-------
No. 1995-A, created by that certain Trust Agreement dated as of April 28, 1995
among the Persons named on Schedule I thereto, as Certificate Purchasers, and
Grantor, in favor of SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, a national
banking association, not in its individual capacity but solely as Administrative
Agent ("Administrative Agent") for the Certificate Purchasers and the Lenders.
--------------------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Grantor, the Certificate Purchasers, Administrative Agent,
Information Agent, the Lenders, Guarantor and Electric Lightwave, Inc., a
Delaware corporation ("Lessee"), have entered into that certain Participation
------
Agreement (Electric Lightwave, Inc. Trust No. 1995-A), dated as of April 28,
1995 (as amended, modified or supplemented from time to time, the "Participation
-------------
Agreement"); and
- ---------
WHEREAS, concurrently herewith pursuant to the Participation Agreement, (i)
the Trust is providing funding for the purchase, construction and installation
of certain Equipment and Systems comprising one or more MANs and the Southwest
FCL, and (ii)
<PAGE>
Grantor, as lessor, and Lessee, as lessee, are entering into the
Lease; and
WHEREAS, it is a condition precedent to the consummation by the Participants
of the transactions to be consummated on each Advance Date that Grantor execute
and deliver this Security Agreement as security for Grantor's obligations under
the Loan Agreement; and
WHEREAS, it is in the best interests of Grantor that the Overall Transaction
occur; and
WHEREAS, Grantor has duly authorized the execution, delivery and performance
of this Security Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the
Participants to enter into the Overall Transaction, Grantor agrees as follows:
ARTICLE I
DEFINITIONS
SECTION I.1. Certain Terms. The following terms (whether or not underscored)
-------------
when used in this Security Agreement, including its preamble and recitals, shall
have the following meanings (such definitions to be equally applicable to the
singular and plural forms thereof):
"Collateral" is defined in Section 2.1.
---------- -----------
"Secured Obligations" is defined in Section 2.2.
------------------- -----------
"UCC" means the Uniform Commercial Code, as in effect in the State of New
---
York.
SECTION I.2. Participation Agreement Definitions. Unless otherwise defined
-----------------------------------
herein or the context otherwise requires, terms used in this Security Agreement,
including its preamble and
-2-
<PAGE>
Security Agreement
recitals, have the meanings provided in Appendix 1 to the Participation
Agreement.
SECTION I.3. UCC Definitions. Unless otherwise defined herein or the context
---------------
otherwise requires, terms for which meanings are provided in the UCC are used in
this Security Agreement, including its preamble and recitals, with such
meanings.
ARTICLE II
SECURITY INTEREST
SECTION II.1. (a) Grant of Security. Grantor hereby assigns and pledges to
-----------------
Administrative Agent, and hereby grants to Administrative Agent, for the benefit
of the Participants, a security interest in and to all of the following, whether
now existing or hereafter arising or acquired (the "Collateral"):
----------
(i) all of Grantor's right, title and interest in, to and under each
Bill of Sale and each Certificate of Acceptance;
(ii) all of Grantor's right, title and interest in, to and under the
Participation Agreement, the Lease and each Lease Supplement, including all
rights to receive payments thereunder other than Excluded Amounts;
(iii) all of Grantor's right, title and interest in, to and under the
Guaranty;
(iv) all of Grantor's right, title and interest in, to and under the
Construction Agency Agreement, the Support Agreement, the Purchase Order
Assignment and each Qualified Use Agreement;
(v) all books, records, writings, databases, information and other
property relating to, used or useful in connection with, evidencing,
embodying, incorporating or referring to, any of the foregoing; and
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<PAGE>
Security Agreement
(vi) all products, accessions, rents, issues, profits, returns, income
and proceeds of and from any and all of the foregoing Collateral (including
proceeds which constitute property of the types described in the foregoing
clauses of this Section 2.1, proceeds deposited from time to time in any
-----------
lockboxes of the Grantor, and, to the extent not otherwise included, all
payments under insurance (whether or not the Administrative Agent is the
loss payee thereof), or any indemnity, warranty or guaranty payable by
reason of loss or damage to or otherwise with respect to any of the
foregoing Collateral).
(b) Assignment of Interest. Grantor hereby sells, assigns, transfers and
----------------------
sets over unto Administrative Agent all of Grantor's right, title and interest
in and to the Lease, including all Lease Supplements, and all Systems and
Equipment subject thereto, including, without limitation, the right to receive
directly all payments and notices due thereunder. This assignment is made with
full recourse to Grantor and is provided as security for the performance of all
of Grantor's obligations to the Administrative Agent for the benefit of the
Participants pursuant to the Participation Agreement and the other Operative
Documents to which it is a party.
SECTION II.2. Security for Obligations. This Security Agreement secures the
------------------------
payment of all obligations of Grantor now or hereafter existing under the
Certificates, the Notes, the Loan Agreement and any other Operative Document to
which it is a party, whether for principal, interest, costs, fees, expenses or
otherwise, and all other obligations of Grantor to the Participants howsoever
created, arising or evidenced, whether direct or indirect, absolute or
contingent or now or hereinafter existing or due or to become due (all such
obligations being the "Secured Obligations").
-------------------
SECTION II.3. Continuing Security Interest; Transfer of Notes. This Security
-----------------------------------------------
Agreement shall create a continuing security interest in the Collateral and
shall
-4-
<PAGE>
Security Agreement
(a) remain in full force and effect until the payment in full of all
Secured Obligations and the termination of the Commitments and any other
commitments of the Lenders to or for the benefit of Grantor;
(b) be binding upon Grantor, its successors, transferees and assigns;
and
(c) inure, together with the rights and remedies of Administrative Agent
hereunder, to the benefit of Administrative Agent and its successors,
transferees and assigns.
Without limiting the generality of the foregoing clause (c), each transferee of
----------
a Note shall, upon such transfer, become vested with all the rights and benefits
in respect thereof granted under any Operative Document (including this Security
Agreement) or otherwise, subject, however, to any contrary provisions in such
assignment or transfer. Upon the payment in full of all Secured Obligations and
the termination of the Commitments, and any other commitments of the Lenders to
Grantor, the security interest granted herein shall terminate and all rights to
the Collateral shall revert to Grantor. Upon any such termination,
Administrative Agent will, on behalf of the Participants and at Grantor's sole
expense, execute and deliver to Grantor such documents as Grantor shall
reasonably request to evidence such termination.
SECTION II.4. Grantor Remains Liable. Anything herein to the contrary
----------------------
notwithstanding
-5-
<PAGE>
Security Agreement
(a) Grantor shall remain liable under the contracts and agreements
included in the Collateral to the extent set forth therein, and shall
perform all of its duties and obligations under such contracts and
agreements to the same extent as if this Security Agreement had not been
executed;
(b) the exercise by Administrative Agent of any of its rights hereunder
shall not release Grantor from any of its duties or obligations under any
such contracts or agreements included in the Collateral; and
(c) Administrative Agent shall not have any obligation or liability
under any such contracts or agreements included in the Collateral by reason
of this Security Agreement, nor shall Administrative Agent be obligated to
perform any of the obligations or duties of Grantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION III.1. Representations and Warranties. Grantor represents and
------------------------------
warrants unto Administrative Agent as set forth in this Article.
SECTION III.1.1. Ownership, No Liens, etc. Grantor owns the Collateral free
------------------------
and clear of any lien, security interest, charge or encumbrance except for the
security interest created by this Security Agreement.
SECTION III.1.2. Validity, etc. This Security Agreement creates a valid
-------------
first priority security interest in the Collateral, securing the payment of the
Secured Obligations, and all filings and other actions necessary or desirable to
perfect and protect such security interest have been duly taken. The Assigned
Agreements have been duly authorized, executed and delivered by the parties
thereto, have not been amended or otherwise modified, are in full force and
effect, and are binding
-6-
<PAGE>
Security Agreement
upon and enforceable against the parties thereto in accordance with their terms.
SECTION III.1.3. Authorization, Approval, etc. No authorization, approval or
----------------------------
other action by, and no notice to or filing with, any Governmental Authority is
required either
(a) for the grant by Grantor of the security interest granted hereby or
for the execution, delivery and performance of this Security Agreement by
Grantor; or
(b) for the perfection of or the exercise by the Administrative Agent of
its rights and remedies hereunder, except for filing of UCC financing
statements with the office of the Secretary of State of Connecticut.
SECTION III.1.4. Compliance with Laws. Grantor is in compliance with all
--------------------
Applicable Laws of every Governmental Authority, the non-compliance with which
might materially adversely affect the business, properties, assets, operations,
condition (financial or otherwise) or prospects of Grantor, the ability of
Grantor to perform its obligations hereunder, the enforceability of this
Security Agreement, or the value of the Collateral or the worth of the
Collateral as collateral security.
ARTICLE IV
COVENANTS
SECTION IV.1. Certain Covenants. Grantor covenants and agrees that, so long
-----------------
as any portion of the Secured Obligations shall remain unpaid or the
Participants shall have any outstanding Commitments to Grantor, Administrative
Agent may exercise, in its sole and absolute discretion, any and all rights and
powers set forth in this Section.
SECTION IV.1.1. As to Collateral.
----------------
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<PAGE>
Security Agreement
(a) Administrative Agent may, at the expense of Grantor, endeavor to
collect, as and when due, all amounts due with respect to any of the
Collateral. Administrative Agent, as assignee hereunder of the Lease, may,
at any time, enforce collection of any of the Collateral by suit or
otherwise and surrender, release, or exchange all or any part thereof, or
compromise or extend or renew for any period (whether or not longer than
the original period) any indebtedness thereunder or evidenced thereby.
(b) Administrative Agent is authorized to endorse, in the name of
Grantor, any item, howsoever received by Administrative Agent, representing
any payment on or other proceeds of any of the Collateral.
(c) If a Lease Default shall have occurred and be continuing, then the
Administrative Agent, as assignee hereunder of the Lease, when required
pursuant to the provisions of the Participation Agreement or the Lease,
shall declare a Lease Event of Default and shall, when required pursuant to
the provisions of the Participation Agreement or the Lease, exercise any or
all of the rights and powers and pursue any or all of the remedies of
Lessor pursuant to Article XVI of the Lease.
SECTION IV.1.2. Transfers and Other Liens. Grantor shall not:
-------------------------
(a) sell, assign (by operation of law or otherwise) or otherwise dispose
of any of the Collateral;
(b) cancel or terminate the Assigned Agreements or consent to or accept
any cancellation or termination thereof;
(c) amend or otherwise modify the Assigned Agreements or give any
consent, waiver or approval thereunder;
(d) waive any default under or breach of the Assigned Agreements;
-8-
<PAGE>
Security Agreement
(e) create or suffer to exist any Lien or other charge or encumbrance
upon or with respect to any of the Collateral to secure indebtedness of any
Person or entity, except for the security interest created by this Security
Agreement; or
(f) take any other action in connection with the Assigned Agreements
which would impair the value of the interest or rights of Grantor
thereunder or which would impair the interest or rights of Administrative
Agent.
SECTION IV.1.3. Further Assurances, etc. Grantor agrees that, from time to
-----------------------
time and at its own expense, it will promptly execute and deliver all further
instruments and documents, and take all further action that may be necessary or
desirable, or that Administrative Agent may request, in order to perfect,
preserve and protect any security interest granted or purported to be granted
hereby or to enable Administrative Agent to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, Grantor will:
(a) execute and file or record such instruments or notices as may be
necessary or desirable, or as Administrative Agent may request, in order to
perfect and preserve the security interests and other rights granted or
purported to be granted to Administrative Agent hereby; and
(b) furnish to Administrative Agent, from time to time at Administrative
Agent's request, statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as Administrative Agent may reasonably request, all in
reasonable detail.
-9-
<PAGE>
Security Agreement
ARTICLE V
THE ADMINISTRATIVE AGENT
SECTION V.1. Administrative Agent Appointed Attorney-in-Fact. Grantor
-----------------------------------------------
hereby irrevocably appoints Administrative Agent as Grantor's attorney-in-fact,
with full authority in the place and stead of Grantor and in the name of Grantor
or otherwise, from time to time in Administrative Agent's discretion, after the
occurrence of a Loan Event of Default (subject to Section 6.2 of the Loan
Agreement) to take any action and to execute any instrument which Administrative
Agent may deem necessary or advisable to accomplish the purposes of this
Security Agreement, including, without limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above;
----------
(c) to file any claims or take any action or institute any proceedings
which Administrative Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Administrative Agent with respect to any of the Collateral; and
(d) to perform the affirmative obligations of Grantor hereunder
(including all obligations of Grantor pursuant to Section 4.1.3).
-------------
Grantor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
-10-
<PAGE>
Security Agreement
SECTION V.2. Administrative Agent May Perform. If Grantor fails to perform
--------------------------------
any agreement contained herein, Administrative Agent may itself perform, or
cause performance of, such agreement, and the expenses of Administrative Agent
incurred in connection therewith shall be payable by Grantor pursuant to Section
-------
6.2.
- ---
SECTION V.3. Administrative Agent Has No Duty. In addition to, and not in
--------------------------------
limitation of, Section 2.4, the powers conferred on Administrative Agent
-----------
hereunder are solely to protect Administrative Agent's interest in the
Collateral and shall not impose any duty on it to exercise any such powers.
Except for the reasonable care of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Administrative Agent
shall not have any duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
SECTION V.4. Reasonable Care. Administrative Agent is required to exercise
---------------
reasonable care in the custody and preservation of any of the Collateral in its
possession; provided, however, that Administrative Agent shall be deemed to have
-------- -------
exercised reasonable care in the custody and preservation of any of the
Collateral if it takes such action for that purpose as Grantor reasonably
requests in writing at times other than upon the occurrence and during the
continuance of any Loan Event of Default, but failure of Administrative Agent to
comply with any such request at any time shall not in itself be deemed a failure
to exercise reasonable care.
ARTICLE VI
REMEDIES
SECTION VI.1. Certain Remedies. If any Loan Event of Default shall have
----------------
occurred and be continuing:
-11-
<PAGE>
Security Agreement
(a) Administrative Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the UCC (whether or not the UCC applies to the affected Collateral),
and also may exercise any and all rights and remedies of Grantor under or
in connection with the Collateral, including, without limitation, any and
all rights of Grantor to demand or otherwise require payment of any amount
under, or performance of any provision of, the Assigned Agreements. Grantor
agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days' prior notice to Grantor of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. Administrative Agent shall not be
obligated to make any sale of Collateral regardless of whether notice of
sale has been given. Administrative Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(b) All payments received by Grantor under or in connection with the
Assigned Agreements or otherwise in respect of the Collateral shall be
received in trust for the benefit of Administrative Agent, shall be
segregated from other funds of Grantor, and shall be forthwith paid over to
Administrative Agent in the same form as so received (with any necessary
endorsement).
-12-
<PAGE>
Security Agreement
(c) All cash proceeds received by Administrative Agent in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of Administrative Agent, be held by
Administrative Agent as collateral for, and/or then or at any time
thereafter applied (after payment of any amounts payable to Administrative
Agent pursuant to Section 6.2) in whole or in part by Administrative Agent
-----------
against, all or any part of the Secured Obligations in such order as
Administrative Agent shall elect. Any surplus of such cash or cash
proceeds held by Administrative Agent and remaining after payment in full
of all the Secured Obligations shall be paid over to Grantor or to
whomsoever may be lawfully entitled to receive such surplus.
SECTION VI.2. Indemnity and Expenses.
----------------------
(a) Grantor agrees to indemnify Administrative Agent from and against
any and all claims, losses and liabilities arising out of or resulting from
this Security Agreement (including, without limitation, enforcement of this
Security Agreement), except claims, losses or liabilities resulting from
Administrative Agent's gross negligence or wilful misconduct.
(b) Grantor will upon demand pay to Administrative Agent the amount of
any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which
Administrative Agent may incur in connection with
(i) the administration of this Security Agreement,
(ii) the custody, preservation, use or operation of, or the sale
of, collection from, or other realization upon, any of the Collateral,
-13-
<PAGE>
Security Agreement
(iii) the exercise or enforcement of any of the rights of
Administrative Agent hereunder or
(iv) the failure by Grantor to perform or observe any of the
provisions hereof.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION VII.1. Operative Document. This Security Agreement is an Operative
------------------
Document executed pursuant to the Participation Agreement and shall (unless
otherwise expressly indicated herein) be construed, administered and applied in
accordance with the terms and provisions thereof.
SECTION VII.2. Amendments; etc. No amendment to or waiver of any provision
---------------
of this Security Agreement nor consent to any departure by Grantor herefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Administrative Agent, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION VII.3. Addresses for Notices. Unless otherwise specified herein, all
---------------------
notices, requests, demands or other communications to or upon the respective
parties hereto shall be delivered in accordance with, and shall be deemed to
have been given as provided in, Section 9.3 of the Participation Agreement.
SECTION VII.4. Section Captions. Section captions used in this Security
----------------
Agreement are for convenience of reference only, and shall not affect the
construction of this Security Agreement.
SECTION VII.5. Severability. Wherever possible, each provision of this
------------
Security Agreement shall be interpreted in such manner as to be effective and
valid under Applicable Laws, but if any provision of this Security Agreement
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the
-14-
<PAGE>
Security Agreement
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Security Agreement.
SECTION VII.6. Governing Law, Entire Agreement, etc. THIS SECURITY AGREEMENT
------------------------------------
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF, EXCEPT TO
THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER,
OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THIS SECURITY
AGREEMENT AND THE OTHER OPERATIVE DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING
AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE
ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
[signature page follows]
-15-
<PAGE>
IN WITNESS WHEREOF, Grantor has caused this Security Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, not in
its individual capacity but solely as Certificate
Trustee under Electric Lightwave, Inc. Trust No. 1995-
A, created by the Trust Agreement
By: _______________________________
Name: Robert L. Reynolds
Title: Vice President
Address: 777 Main Street, MSN 238
Hartford, Connecticut 06115
Attention: Corporate Trust Administration
(Electric Lightwave, Inc.
Trust No. 1995-A)
Telecopier: (203) 986-7920
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, not in
its individual capacity but solely as Administrative
Agent under the Participation Agreement
By: _______________________________
Name: Robert L. Reynolds
Title: Vice President
Address: 777 Main Street, MSN 238
Hartford, Connecticut 06115
Attention: Corporate Trust Administration
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<PAGE>
Security Agreement
(Electric Lightwave, Inc. Trust No. 1995-A)
Telecopier: (203) 986-7920
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<PAGE>
_________________________________________________________________
_________________________________________________________________
EXHIBIT L TO
PURCHASE ORDER ASSIGNMENT
Dated as of April 28, 1995
Between
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION
as Certificate Trustee under
Electric Lightwave, Inc. Trust No. 1995-A
and
ELECTRIC LIGHTWAVE, INC.
as Lessee and Construction Agent
_________________________________________________________________
_________________________________________________________________
<PAGE>
PURCHASE ORDER ASSIGNMENT
-------------------------
THIS PURCHASE ORDER ASSIGNMENT ("Assignment"), dated as of April 28, 1995,
----------
is entered into between Electric Lightwave, Inc., a Delaware corporation
("Lessee"), and Shawmut Bank Connecticut, National Association, not in its
individual capacity but solely as Certificate Trustee. Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed thereto in
Appendix 1 to the Participation Agreement (Electric Lightwave, Inc. Trust No.
1995-A), dated as of the date hereof, among Lessee, Certificate Trustee, Shawmut
Bank Connecticut, National
<PAGE>
Association, not in its individual capacity but solely as Administrative Agent,
BA Leasing & Capital Corporation, not in its individual capacity but solely as
Information Agent, the Certificate Purchasers and Lenders identified therein,
and Citizens Utilities Company, as Guarantor.
PRELIMINARY STATEMENT
---------------------
A. Pursuant to the Participation Agreement, Lessee shall, as
Construction Agent, purchase from certain vendors (each a "Seller"), certain
------
Equipment (and/or related construction and installation services) comprising, as
constructed and installed,
<PAGE>
one or more Systems that are to be operated for voice, data transmission, video
or other communications purposes as component parts or the whole of, or as
enhancements to, one or more MANs or FCLs. Lessee's purchase of the Equipment
shall be made pursuant to certain purchase orders (the "Purchase Orders").
---------------
B. Lessee desires to lease the Equipment from Certificate Trustee rather
than purchase the Equipment from Sellers. Certificate Trustee is willing to
acquire certain of Lessee's rights and interests under the Purchase Orders,
which rights have been incurred in Lessee's capacity as Construction Agent, all
on the terms and conditions hereinafter set forth.
<PAGE>
C. Upon purchase of the Equipment by Certificate Trustee, Lessee shall
lease the Equipment from the Certificate Trustee under the Lease.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and in reliance on the above recitals, Certificate Trustee and Lessee hereby
agree as follows:
<PAGE>
SECTION 1. ASSIGNMENT
----------------------
Lessee does hereby assign and set over to Certificate Trustee all of
Lessee's title, rights and interests to and in the Purchase Orders to the extent
they relate to the Equipment and all of Lessee's rights to purchase the
Equipment identified in an Advance Request, except and to the extent reserved
below, including without limitation (a) the right to purchase the Equipment
pursuant to the Purchase Orders and the right to take title to the Equipment and
to be named the purchaser in the bill or bills of sale for the Equipment to be
delivered pursuant to the Purchase Orders, (b) all claims for damages in respect
of the
<PAGE>
Equipment (including related construction and installation services) arising as
a result of any default by the Seller under the Purchase Orders, including
without limitation, all warranty and indemnity provisions contained in the
Purchase Orders, and all claims arising thereunder in respect of the Equipment,
and (c) any and all rights of Lessee to compel performance of the terms of the
Purchase Orders, reserving to Lessee, however, so long and only so long as the
Equipment shall be subject to the Lease and Lessee shall be entitled to
possession of the Equipment thereunder: (i) the rights to demand, accept and
retain all rights in and to all property (other than the Equipment), data and
services which the Seller is obligated to provide, or does provide, pursuant to
<PAGE>
the Purchase Orders, (ii) all rights, if any, in respect to spare parts as
provided in the Purchase Orders, and (iii) the right, if any, to obtain
instructions and data pursuant to the Purchase Orders.
Notwithstanding the foregoing, so long and only so long as Certificate
Trustee shall not have notified the Seller in writing that a Lease Event of
Default has occurred and is continuing, Certificate Trustee authorizes Lessee,
to the exclusion of Certificate Trustee, to exercise in its own name all rights
and powers of the purchaser under the Purchase Orders and to retain any recovery
or benefit resulting from the enforcement of any
<PAGE>
warranty or indemnity under the Purchase Orders in respect of the Equipment
(including related construction and installation services); provided, however,
-------- -------
that Lessee may not exercise any of the rights to purchase such Equipment
unless, prior to the exercise thereof by Certificate Trustee as to the
Equipment, Certificate Trustee shall have delivered to the Seller written notice
that Certificate Trustee has released such rights to purchase such Equipment.
All the provisions of this Section 1 shall, to the extent inconsistent with the
Lease, be governed by the Lease.
<PAGE>
SECTION 2. ASSUMPTION OF PURCHASE OBLIGATION BY LESSOR,
--------------------------------------------------------
CONTINUING LIABILITY OF LESSEE FOR EXCLUDED EQUIPMENT
-----------------------------------------------------
Except as provided to the contrary in this Section 2, and subject to
---------
Lessee's satisfaction of each of the conditions and covenants described herein,
Lessee shall not be responsible for any payment due to the Seller as required in
Section 4.
- ---------
<PAGE>
Notwithstanding the foregoing paragraph, Certificate Trustee and the
Participants shall not have any obligation hereunder to the Seller (i) in
respect of Equipment not delivered and accepted on or before April 30, 1998,
(ii) in respect of Equipment with respect to which payment therefor would cause
the aggregate purchase price under all Purchase Orders to exceed the aggregate
of the Commitments, or (iii) in respect of Equipment for which sufficient funds
have not been advanced to Certificate Trustee by the Participants to pay the
full purchase price thereof. Equipment for which such obligations are so
terminated shall be immediately excluded from the terms and provisions of this
Assignment and all other Operative Documents, and in the event of
<PAGE>
such exclusion, Lessee agrees with Certificate Trustee and covenants, for the
benefit of the Seller, that Lessee will purchase from the Seller and will accept
delivery of and pay for the Equipment so excluded from this Assignment upon the
same terms and conditions as those contained in the Purchase Orders.
Notwithstanding the foregoing or any other provision of this Assignment to
the contrary, the delivery to and acceptance by or on behalf of Certificate
Trustee of the Equipment excluded from this Assignment pursuant to the second
paragraph of this Section 2 shall be ineffective, ab initio, to create in or
--------- -- ------
transfer to Certificate Trustee any legal interest in such item of Equipment
<PAGE>
or to impose on Certificate Trustee any liability, obligation or responsibility
with respect thereto. Any right or interest in the Equipment created in or
transferred to, or purported to be created in or transferred to, Certificate
Trustee shall be held by Certificate Trustee solely as trustee for the benefit
of Lessee.
SECTION 3. POWER OF ATTORNEY
-----------------------------
<PAGE>
Lessee does hereby appoint Certificate Trustee the true and lawful
attorney of Lessee, irrevocably, with full power (in the name of Lessee or
otherwise) to ask, require, demand, receive, compound and give acquittance for
any and all monies and claims for money due and to become due under, or arising
out of, the Purchase Orders to the extent that the same have been assigned by
this Assignment, to endorse any checks or other instruments or orders in
connection therewith and to file any claims or take any action or institute any
proceedings which to Certificate Trustee may seem necessary or advisable with
respect thereto; provided, however that the exercise of the power of attorney
-------- -------
conferred by this Section 3 shall be limited so that such power shall be
---------
<PAGE>
exercised only at such times when, pursuant to the terms of the Lease and this
Assignment, the Certificate Trustee is permitted to exercise such rights and
remedies under the Purchase Orders.
SECTION 4. PURCHASE OF EQUIPMENT; LIMITATION OF
------------------------------------------------
CERTIFICATE TRUSTEE'S LIABILITY
-------------------------------
On each Advance Date, Certificate Trustee shall pay to the Seller the
unreimbursed portion of the purchase price of the Equipment to be purchased
under the Purchase Order. All such amounts shall be payable to the Seller in
same day funds for
<PAGE>
credit to such accounts as designated in writing by the Seller as applicable, at
least one business day prior to the date such payment is to be made. Certificate
Trustee shall have no obligation to make the aforesaid payments in its
individual or general corporate capacity, but such obligation shall be payable
solely from funds advanced to Certificate Trustee by the Participants pursuant
to the Trust Agreement.
SECTION 5. FURTHER ASSURANCE
-----------------------------
<PAGE>
At any time and from time to time, upon the written request of Certificate
Trustee, Lessee shall promptly and duly execute and deliver any and all such
further instruments and documents and take such further action as Certificate
Trustee may reasonably request in order to obtain the full benefits of this
Assignment and of the rights and powers herein granted.
SECTION 6. WARRANTIES AND INDEMNITIES OF LESSEE
------------------------------------------------
Lessee as Construction Agent does hereby represent and warrant that it has
not assigned or pledged, and hereby covenants
<PAGE>
that it will not assign or pledge so long as this Assignment shall remain in
effect, the whole or any part of the rights hereby assigned to anyone other than
Certificate Trustee.
<PAGE>
SECTION 7. GOVERNING LAW
-------------------------
This Agreement, and all of the rights and obligations hereunder, including
matters of construction, validity and performance, shall be governed by the
laws of the State of New York, without regard to the conflicts of laws
principles thereof.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment.
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION not in its individual capacity
but solely as Certificate Trustee under
Electric Lightwave, Inc. Trust No. 1995-A
By:
________________________
Name: Robert L. Reynolds
Title: Vice President
ELECTRIC LIGHTWAVE, INC.
By:
________________________
Name:
________________________
Title:
________________________
<PAGE>
================================================================================
EXHIBIT G TO
PARTICIPATION AGREEMENT
FORM OF SUPPORT AGREEMENT
Dated as of April 28, 1995
Between
ELECTRIC LIGHTWAVE, INC.
and
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION
not in its individual capacity
but solely as Certificate Trustee
================================================================================
<PAGE>
Support Agreement
SUPPORT AGREEMENT
-----------------
THIS SUPPORT AGREEMENT (this "Support Agreement") is made as of April 28, 1995
-----------------
by and between ELECTRIC LIGHTWAVE, INC. ("ELI"), and SHAWMUT BANK CONNECTICUT,
---
NATIONAL ASSOCIATION, not in its individual capacity but solely as Certificate
Trustee under the Trust Agreement dated as of April 28, 1995 ("Certificate
-----------
Trustee").
- -------
WHEREAS, ELI as Lessee, Certificate Trustee, Shawmut Bank Connecticut,
National Association, as Administrative Agent, BA Leasing & Capital Corporation,
as Information Agent, Citizens Utilities Company, as Guarantor and the Persons
named on Schedules I and II thereto are parties to that certain Participation
Agreement (Electric Lightwave, Inc. Trust No. 1955-A) dated as of the date
hereof (such agreement, as originally executed or as modified, assigned, amended
or supplemented pursuant to the applicable provisions thereof, the
"Participation Agreement"), and ELI and Certificate Trustees are parties to that
- ------------------------
certain Lease dated as of the date hereof (the "Lease"); and
-----
WHEREAS, in the Participation Agreement, ELI agrees to execute and deliver this
Support Agreement; and
WHEREAS, the Participants, Certificate Trustee, and the Agents are each
unwilling to enter into the transactions contemplated by the Operative Documents
unless ELI executes this Support Agreement, and ELI is therefore entering into
this Support Agreement as a material and necessary inducement to the
Participants, Certificate Trustee and the Agents to execute and deliver the
Operative Documents; and
WHEREAS, it is in the best interest of ELI to execute this Support Agreement
because ELI will derive substantial economic benefits from the transactions
contemplated by the Operative Documents;
1
<PAGE>
Support Agreement
NOW, THEREFORE, for valuable consideration, the sufficiency and receipt of
which are hereby acknowledged, ELI and Certificate Trustee agree as follows:
ARTICLE I. DEFINITIONS
-----------
For all purposes hereof, the capitalized terms used herein and not otherwise
defined shall have the meanings assigned thereto in Appendix 1 to the
Participation Agreement.
"Access Rights" has the meaning set forth in Section 2.1.
------------- -----------
"Agreed Return" has the meaning set forth in clause (a) of Article 4.
------------- ---------- ---------
"Rights of Use" has the meaning set forth in Section 2.2.
------------- -----------
"Sale Option Purchaser" has the meaning set forth in Section 2.1.
---------------------
"Support Items" has the meaning set forth in Section 2.3.
------------- -----------
"Support Rights" means all Access Rights, Rights of Use, Support Items and
--------------
Governmental Approvals.
ARTICLE 2. GRANT OF RIGHTS AND INTERESTS.
-----------------------------
Section 2.1 Grant of Rights and Interests in Real Property. Upon the
----------------------------------------------
effectiveness of any sale of Equipment subject to a Lease Supplement pursuant to
the exercise of the Sale Option under the Lease, ELI shall grant, assign and
transfer to the purchaser of such Equipment (a "Sale Option Purchaser") all
---------------------
sufficient rights of entry or use, licenses, easements, permits, entitlements,
leases of real property, and other authorizations and rights, whether obtained
by contract, by operation of law or otherwise, which ELI now has or may
hereafter acquire that are
2
<PAGE>
Support Agreement
necessary or useful to the ownership, lease, operation, inspection, repair and
replacement of each of the Systems and items of Equipment that at any time are,
were or may become subject to such Lease Supplement, including without
limitation, (a) contractual rights or permission from building owners or from
business entities or other end users to locate any such Systems on their
respective premises or to use any such Systems to provide or deliver services
(whether such services are provided by Certificate Trustee or any third party)
to such premises or to such end users, and (b) all easements, pole attachment
rights or agreements, rights of access, ingress and egress to install Equipment
comprising all or part of any such System on, over or under any real estate, and
to inspect, repair or replace any such Equipment (all rights referred to in this
Section 2.1 being herein referred to collectively as "Access Rights").
- ----------- -------------
Section 2.2 Grant of Right of Use. Upon the effectiveness of any sale of
---------------------
Equipment subject to a Lease Supplement pursuant to the exercise of the Sale
Option under the Lease, ELI shall grant, assign and transfer to the Sale Option
Purchaser an indefeasible right to use ELI's Owned Assets comprising a MAN or
FCL in the same Designated Location for the purpose, among others, of using such
Systems to provide or make available to building owners and other end users the
types of services which such System is capable of providing, including services
provided or made available at the time by ELI to other similar Persons as part
of ELI's business of operating MANs and FCLs, including, without limitation, the
right to connect each of the Systems that at any time are, were or may become
subject to such Lease Supplement to ELI's Owned Assets (all rights referred to
in this Section 2.2 being herein referred to collectively as "Rights of Use");
----------- -------------
provided, that ELI shall receive compensation from the Sale Option Purchaser for
- --------
such use in accordance with the terms of Article 4.
---------
Section 2.3 Grant of Materials and Services. (a) Upon the effectiveness of
-------------------------------
any sale of Equipment subject to a Lease
3
<PAGE>
Support Agreement
Supplement pursuant to the exercise of the Sale Option under the Lease, ELI
shall grant, assign and transfer or make available to the Sale Option Purchaser
all materials, facilities, Systems, equipment, services and supplies, and ELI's
interest in any contracts to provide the same (all items and services referred
to in this Section 2.3 being herein referred to collectively as "Support
----------- -------
Items") which ELI now has or may hereafter acquire that are necessary or useful
- -----
to the ownership, lease, operation, repair or replacement of each of the Systems
and items of Equipment subject to such Lease Supplement or any other Operative
Document, including without limitation, (i) any computer software or hardware
used in connection with the operation or maintenance of such Systems and
Equipment, (ii) supplemental or replacement voice and data transmission services
provided by another Person of a nature similar to the service provided by ELI
through the operation of such Systems, (iii) access to or use of, or an option
to access or use, telecommunications equipment of another Person, including
without limitation cables or a part of the capacity of cables carrying voice or
data transmissions, and (iv) ELI's interest in any contracts by which any Person
provides a service to ELI which enables ELI to operate such Systems and
Equipment on a commercially feasible and economic basis.
(b) Within thirty (30) days following the date on which ELI notifies
Certificate Trustee of any election by ELI of the Sale Option pursuant to
Section 4.5 of the Lease, ELI shall deliver to Certificate Trustee a certificate
of an officer of ELI setting forth a list of those materials, facilities,
services and supplies that, in the good faith opinion of ELI, constitute
relevant Support Items, which list shall indicate, for each material Support
Item, (i) whether such Support Item is to be supplied or made available by ELI
or an Affiliate of ELI, or is a Support Item that ELI obtains or has the legal
right or ability to obtain from a third party (and identifying all such third
parties) and (ii) the proposed initial price therefor, which price shall not
exceed ELI's cost for such Support Item.
4
<PAGE>
Support Agreement
(c) Following receipt of the certificate referred to in Section 2.3(b),
--------------
but no later than thirty (30) days after consummation of the Sale Option, the
Sale Option Purchaser may provide written notice to ELI identifying which of the
Support Items the Sale Option Purchaser elects to be provided by ELI or an
Affiliate of ELI at the price indicated. ELI shall submit to the Sale Option
Purchaser an invoice for all Support Items provided in the prior month and, upon
request, appropriate documentation supporting the determination of the price.
The Sale Option Purchaser shall pay the purchase price properly invoiced within
thirty (30) days following receipt of the invoice. The Sale Option Purchaser
shall have the right, at its option, to arrange to make direct payment to any
third party supplier of a Support Item for such Support Item, and ELI shall
cooperate with the Sale Option Purchaser in that regard.
(d) ELI shall provide all material Support Items hereunder to such point
or points where such Support Items customarily have been delivered or to such
other point or point as the Sale Option Purchaser may from time to time
reasonably request.
Section 2.4 Grant of Permits. Upon the effectiveness of any sale of
----------------
Equipment subject to a Lease Supplement pursuant to the exercise of the Sale
Option under the Lease, ELI shall grant, assign and transfer to the Sale Option
Purchaser sufficient rights to all Governmental Approvals which ELI now has or
may hereafter acquire that are necessary or useful to the ownership, lease,
operation, inspection, repair and replacement of each of the Systems and items
of Equipment subject to such Lease Supplement that any time are, were or may
become subject to the Lease or any other Operative Document.
ARTICLE 3. GENERAL PROVISIONS
------------------
5
<PAGE>
Support Agreement
Section 3.1 Term of Support Agreement and Support Rights. ELI's grant of
--------------------------------------------
rights to a Sale Option Purchaser pursuant to this Support Agreement shall be
effective as of the effective date of the related sale of Equipment and shall
continue in full force and effect, without being impaired, waived or lost in
whole or in part either as a consequence of non-use thereof by the Sale Option
Purchaser or any transferee or for any other reason (other than as otherwise
provided in this Support Agreement), for a term of thirty (30) years from the
date of grant or, if shorter, for such period as ELI has authority or right to
grant; provided, that if ELI thereafter obtains such rights for an additional
--------
period (whether through renewal of any underlying rights by ELI or otherwise),
ELI shall extend the corresponding rights granted to a Sale Option Purchaser
pursuant hereto for such additional period, up to thirty (30) years from the
date of grant.
Section 3.2 Availability of Support Items. None of ELI or its Affiliates
-----------------------------
shall, in contemplation of a default by ELI under the Lease or a decision by ELI
not to repurchase the Systems and Equipment at the expiration of the term of the
Lease, cause any existing right or item granted hereunder to cease to be
available to or obtainable by it if the result of such cessation would be that
such item no longer would be available to any Sale Option Purchaser or
Purchasers pursuant to this Support Agreement.
Section 3.3 Assignability. ELI shall not be obligated to assign any rights
-------------
granted in Article 2, including contract rights, easements, government permits,
---------
franchises or licenses, that are by their terms or by law nonassignable. If ELI
does not have the unilateral right to assign any such rights, ELI shall use its
best efforts to obtain on behalf of any Sale Option Purchaser, or to cooperate
with and assist Certificate Trustee or such Sale Option Purchaser in obtaining,
any such nonassignable rights or permits or rights equivalent thereto.
Section 3.4 Form of Grant or Assignment. All grants, transfers and
---------------------------
assignments of Support Rights to a Sale Option
6
<PAGE>
Support Agreement
Purchaser hereunder shall be in form and substance satisfactory to such Sale
Option Purchaser, including being in recordable form in the case of easements or
other rights or interests that are customarily recorded in the real property
records of applicable jurisdictions.
Section 3.5 Intention of the Parties. It is the intention of the parties
------------------------
hereto that the grant of Support Rights shall be sufficient to enable each Sale
Option Purchaser to operate each System sold pursuant to the exercise of the
Sale Option in Commercial Operation and in compliance with Design Objectives.
ARTICLE 4. COMPENSATION FOR USE.
--------------------
To the extent that a Sale Option Purchaser shall exercise the indefeasible
rights of use granted in Section 2.2, such Sale Option Purchaser shall pay
-----------
compensation to ELI in accordance with the following:
7
<PAGE>
Support Agreement
(a) With respect to Systems that connect to facilities of end users,
such compensation shall equal the amount charged similar end users by ELI
(or its assignee) at the time; provided, that, if the return on the equity
--------
investment of such Sale Option Purchaser in such Systems is less than the
Agreed Return (defined below), then the compensation to be paid to ELI (or
its assignee) shall be reduced, but not below zero, by the amount of the
shortfall between the actual return on equity investment of such Sale
Option Purchaser for the previous calendar quarter and the Agreed Return.
The Agreed Return shall be (i) the return on equity investment authorized
in the most recent rate case for companies rendering telecommunications
services by the regulatory commission in the jurisdiction in which such
System or Systems are located in which such regulatory commission
authorized rates based on tradition utility rate-making concepts of an
allowed rate of return on investment, or (ii) in the absence of a rate case
decided within two (2) years of the determination, an annual rate equal to
the average yield rate on long-term debt obligations of United States
corporate entities having long-term debt ratings, as assigned by Moody's
Investor's Service, Inc. and Standard and Poor's Corporation (or the higher
such rating assigned by such rating agencies, if they do not then assign
corresponding investment ratings to Guarantor) that are the same as those
assigned by such rating agencies at such times to Guarantor, plus 4.0% (400
basis points) as determined for a calendar quarter of such use, with the
relevant average rate determined for any calendar quarter period being
applicable to such use for the following calendar quarter;
(b) With respect to any Systems not described in clause (a) above and
----------
as to which or for which Lessee is to provide Rights to Use, such
compensation shall be in such amount and on such basis as ELI shall charge
to others for similar leasing or shared use arrangements; provided, that if
--------
8
<PAGE>
Support Agreement
ELI then charges different rates for such services, the compensation
required hereunder shall be at the lowest and otherwise most advantageous
(to the user) rate so charged and, if no other similar arrangements
involving ELI then exist, the compensation required hereunder shall be
determined in accordance with then prevailing industry standards; and
(c) With respect to any Systems (or compensation for use thereof) not
described in clauses (a) or (b) above, such compensation shall be
------------------
determined on the basis of ELI's then existing practices and prevailing
industry standards, which shall be applied in such fashion so as to provide
to the Sale Option Purchaser a rate of return, taking into account
reasonably projected usage of such System and other relevant factors, equal
to the Agreed Return.
ARTICLE 5. MAINTENANCE, REPAIR, ETC.
-------------------------
Section 5.1 Compliance with Laws. ELI shall comply with all laws,
--------------------
ordinances, rules and regulations applicable to the Support Rights (including
any easements or other real property interests) and to the exercise of the
rights and the ownership and operation of the items granted pursuant to this
Support Agreement, and with the terms of all contracts relating to such land,
rights and items.
ARTICLE 6. NONEXCLUSIVE.
------------
Certificate Trustee hereby acknowledges that ELI and its successors and
assigns shall retain, subject to this Support Agreement, the following:
(a) The right to amend and modify at any time the terms and provisions
of all or any agreements affecting the
9
<PAGE>
Support Agreement
land on which the Systems and Equipment are located (other than this
Support Agreement and any Operative Document) without notice to or the
consent of Certificate Trustee;
(b) The right to grant third parties interests in the land on which
the Systems and Equipment are located; and
(c) The right to do such other things as shall be necessary or
convenient for the business of ELI;
provided, however, that: (i) so long as a Lease Default has occurred and is
- -------- -------
continuing, ELI shall not take any actions under clause (a), (b) or (c) above
---------- --- ---
that are adverse to the business, property or financial prospects of the Sale
Option Purchaser, (ii) any such right is subject and subordinate to this Support
Agreement and the paramount rights of Certificate Trustee and any Sale Option
Purchasers hereunder, and (iii) the exercise of such right shall not (A) during
the term of this Support Agreement and the term of any Support Rights granted to
a Sale Option Purchaser, whether before or after the exercise of such right,
interfere with or impair the use, marketability, value or operation of the
Systems and Equipment to or by Certificate Trustee or any Sale Option Purchaser
or (B) result in additional costs to any Sale Option Purchaser (unless such
costs are reflected in a reduction of the amounts payable by any Sale Option
Purchaser under this Support Agreement).
10
<PAGE>
Support Agreement
ARTICLE 7. REMEDIES
--------
The failure of Certificate Trustee or any Sale Option Purchaser to insist on
the performance of any one or more covenants provided in this Support Agreement
or to exercise any option herein contained shall not be construed as a waiver or
a relinquishment for the future of such covenant or option. No waiver of any
provision of this Support Agreement shall be deemed to have been made unless
expressed in writing and signed by the party to be changed. Certificate Trustee
and any Sale Option Purchaser shall be entitled to all legal and equitable
remedies available under Applicable Law (including, without limitation, specific
performance and money damages). ELI hereby acknowledges that monetary damages
would not be an adequate remedy for Certificate Trustee or any Sale Option
Purchaser in the event of ELI's default hereunder, and ELI expressly agrees that
Certificate Trustee or any Sale Option Purchaser shall be entitled to the remedy
of specific performance.
If ELI shall at any time fail to perform any act on its part to be performed
under this Support Agreement beyond the expiration of the applicable grace
period, then Certificate Trustee may, but shall not be obligated to, perform any
act on the defaulting party's part to be performed under this Support Agreement,
without further notice or demand upon the defaulting party and without waiving
or releasing the defaulting party from any obligations of the defaulting party
contained in this Support Agreement. Upon performing any of ELI's covenants
pursuant to this Article 7, Certificate Trustee shall promptly give notice
---------
thereof to ELI, but such notice shall not constitute a waiver or release of the
defaulting party from any obligations of the defaulting party contained in this
Support Agreement. All sums paid or payable by Certificate Trustee pursuant to
this Article 7 and all reasonably necessary incidental costs and expenses paid
---------
or incurred in connection with any performance pursuant to this Article 7 shall
---------
be promptly paid by ELI upon demand thereof.
11
<PAGE>
Support Agreement
ARTICLE 8. FURTHER ASSURANCES
------------------
Each party shall promptly and duly execute and deliver to the other party such
documents and take such further action as either party may reasonably request to
carry out more effectively the intent and purpose of this Support Agreement.
ELI shall pay to Certificate Trustee all costs and expenses incurred by
Certificate Trustee in connection with this Article 8. ELI shall acquire and
---------
subject make to this Support Agreement such property so that Certificate Trustee
may be granted such Support Rights as were not initially granted hereby if the
same are reasonably necessary for the use and operation of the Systems and the
Equipment.
12
<PAGE>
Support Agreement
ARTICLE 9. SUCCESSORS AND ASSIGNS
----------------------
Section 9.1 Successor Trustee. If a successor Certificate Trustee or co-
-----------------
trustee, as the case may be, is appointed in accordance with the terms of the
Trust Agreement, such successor Certificate Trustee or co-trustee, as the case
may be, shall, without further act, succeed to all the rights, duties,
immunities and obligations of Certificate Trustee hereunder and the predecessor
Certificate Trustee or co-trustee, as the case may be, shall be released from
all further duties and obligations hereunder, all without the necessity of any
consent or approval by ELI and without in any way altering the terms of this
Support Agreement or ELI's obligations hereunder. ELI shall, at its expense,
upon receipt of written notice of the appointment of a successor Certificate
Trustee or co-trustee, as the case may be, under the Trust Agreement, promptly
make such modifications and changes to reflect such appointment as shall be
reasonably requested by such successor Certificate Trustee or co-trustee, as the
case may be, in such insurance policies, schedules, certificates and other
instruments relating to the Support Agreement as shall be specified by such
successor Certificate Trustee or co-trustee, as the case may be, all in form and
substance satisfactory to such successor Certificate Trustee or co-trustee, as
the case may be.
Section 9.2 Assignment. This Support Agreement shall be binding upon and
----------
shall inure to the benefit of ELI, Certificate Trustee and their respective
successors and assigns. Specifically, Certificate Trustee shall have the right
to grant, reassign and retransfer to other Persons all Support Rights that are
to be granted pursuant to this Support Agreement without the consent of ELI.
Any Person to whom ELI (or a transferee of an ELI transferee) transfers all or
any portion of a System, whether owned or leased, shall agree to be bound by the
terms and conditions of this Support Agreement and to provide to any Sale Option
Purchaser all Support Rights that ELI or its predecessor in interest otherwise
would be obligated to grant; provided, that the
--------
13
<PAGE>
Support Agreement
obligations of such transferee under this Support Agreement shall arise only to
the extent that such obligations relate to the MAN or FCL such transferee
receives in the transfer from ELI or its predecessor.
Section 9.3 ELI's Obligations. To the extent that, upon a transfer of
-----------------
Systems or Equipment, ELI does not transfer to such transferee any right or item
that ELI would be obligated to provide to Certificate Trustee pursuant to this
Support Agreement were ELI to continue as owner of the Systems and Equipment,
then ELI's obligation to provide such right or item to Certificate Trustee shall
not be extinguished by such transfer of Systems or Equipment, but shall instead
continue in full, as if ELI continued to be the owner of the Systems or
Equipment so transferred.
ARTICLE 10. MISCELLANEOUS
-------------
Section 10.1 Severability. If any provision of this Support Agreement or the
------------
application thereof to any person or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Support Agreement, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Support Agreement shall be valid and be enforced to the fullest extent
permitted by law.
Section 10.2 Termination. Notwithstanding anything to the contrary contained
-----------
in this Support Agreement, so long as the Lease is in effect, ELI shall have no
right to terminate this Support Agreement. Upon the expiration or earlier
termination of the Lease, Certificate Trustee shall have the option to terminate
this Support Agreement or the applicability of this Support Agreement to a Lease
Supplement at any time thereafter by notice to ELI, and upon the giving of such
notice this Support Agreement shall terminate as to the Lease Supplement
specified by Certificate Trustee; provided, that no such termination shall apply
--------
to or
14
<PAGE>
Support Agreement
affect any Support Rights theretofore granted to a Sale Option Purchaser.
Section 10.3 Modification. This Support Agreement may not be modified or
------------
terminated except by a writing signed by ELI and Certificate Trustee. Any such
modification or termination made otherwise than as expressly permitted by this
Section 10.3 shall be void.
- ------------
Section 10.4 Headings. The headings preceding the various sections hereof
--------
are for convenience of reference only and shall not be deemed to affect the
meaning or construction hereof.
Section 10.5 Counterparts. This Support Agreement may be executed in any
------------
number of counterparts, each counterpart constituting an original but all
together one and the same instrument and contract.
Section 10.6 GOVERNING LAW. THIS SUPPORT AGREEMENT AND ALL OF THE RIGHTS AND
-------------
OBLIGATIONS HEREUNDER, INCLUDING, WITHOUT LIMITATION, MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF SUCH JURISDICTION.
Section 10.7 Notices. Any notices or consents provided for in this Support
-------
Agreement shall be in writing and shall be given in the manner provided in the
Participation Agreement.
Section 10.8 FINAL AGREEMENT. THIS AGREEMENT REPRESENTS THE ENTIRE FINAL
---------------
AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED
HEREIN AND CANNOT BE MODIFIED, SUPPLEMENTED, AMENDED, RESCINDED OR CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES, EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY THE PARTIES HERETO. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
15
<PAGE>
Support Agreement
Section 10.9 JURY TRIAL. EACH OF ELI AND CERTIFICATE TRUSTEE WAIVES, TO THE
----------
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY
RELATED DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT OR ANY RELATED DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
[signature page follows]
16
<PAGE>
Support Agreement
IN WITNESS WHEREOF, the parties hereto have caused this Support Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
ELECTRIC LIGHTWAVE, INC.
By: _______________________________
Name: Robert J. DeSantis
Title: Chief Financial Officer
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Certificate Trustee
By: _____________________________
Name: Robert L. Reynolds
Title: Vice President
<PAGE>
EXHIBIT 10.7
FORM OF ADMINISTRATIVE SERVICES AGREEMENT
-----------------------------------------
THIS ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is executed as of
__________, 1997, by and between Citizens Utilities Company, a Delaware
corporation ("Citizens"), and Electric Lightwave, Inc., a Delaware corporation
("ELI").
W I T N E S S E T H:
WHEREAS, ELI is in the Telecommunications Business;
WHEREAS, Citizens owns all of the issued and outstanding Class B Common
Stock, par value $.01 per share, of ELI, and, as parent of ELI, Citizens has
been providing ELI certain management, administrative and other services;
WHEREAS, ELI is effecting an initial public offering (the "Offering") of
shares of its Class A Common Stock, par value $.01 per share (the "Class A
Common Stock"), and, upon completion of the Offering, ELI will cease to be a
wholly owned subsidiary of Citizens and Citizens and ELI will be separate public
companies; and
WHEREAS, in order continue to enjoy the benefits of Citizens' experience
and skills after the Offering in the operation of ELI's business which would not
be available to ELI on a cost effective basis, ELI desires to retain Citizens to
continue to provide (or cause to provide) certain Services (as defined herein)
to ELI, and Citizens desires to accept such retention, all on the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
---------
RETENTION OF CITIZENS; LIMITATIONS OF AUTHORITY
-----------------------------------------------
1.1 Retention of Citizens.
---------------------
ELI hereby retains Citizens to provide the Services to ELI, and Citizens
hereby accepts such retention by ELI, all in accordance with the terms and
conditions of this Agreement. Citizens may utilize employees of its Affiliates
or consultants in providing Services hereunder. ELI may request that Citizens
expand, reduce or terminate the Services provided by Citizens to ELI, in which
case the parities will discuss, without obligation, such expansion, reduction or
termination as well as an additional charge or deduction in charges for such
Services. As used in this Agreement:
<PAGE>
(a) "Affiliate" shall mean any person or entity that, directly or
---------
indirectly, alone or through one or more intermediaries, controls, is
controlled by or is under common control with Citizens; provided, that for
the purposes of this Agreement ELI shall not be considered to be an
Affiliate of Citizens.
(b) "Operating Company" shall mean the operating companies,
-----------------
divisions and operational centers of Citizens and its controlled companies
which receive services from Citizens' Stamford Administrative Offices and
other Responsibility Centers. Each Operating Company is allocated an
appropriate portion of the total cost of such services.
(c) "Responsibility Center" shall mean the Stamford Administrative
---------------------
Offices and any other Responsibility Center of Citizens from which services
are rendered to the Operating Companies. The cost of such services are
charged out to each Operating Company in accordance with the Allocation
Formula.
(d) "Services" shall mean the various services provided hereunder
--------
from time to time by Citizens and its Affiliates to ELI, as further
described in Section 2.2 hereof.
(e) "Telecommunications Business" shall mean the business of ELI in
---------------------------
providing telecommunications services as a competitive local exchange
carrier and otherwise.
1.2 Performance of Services. (a) Citizens shall perform the
-----------------------
Services with the same degree of care, skill and prudence customarily exercised
for its own operations. Except as otherwise provided in this Section 1.2, it is
understood and agreed that the Services will be substantially identical in
nature and quality to the Services performed by Citizens for ELI during the
years prior to the execution of this Agreement, except with respect to any
modifications which may be necessary to ELI becoming a public company.
(b) Each party acknowledges that the Services will be provided only with
respect to the Telecommunications Business or as otherwise mutually agreed by
the parties. ELI agrees to use the Services in accordance with all applicable
federal, state and local laws, regulations and tariffs and in accordance with
reasonable conditions, rules, regulations and specifications which are or may be
set forth in any manuals, materials, documents or instructions of Citizens.
Citizens reserves the right to take all actions in order to assure that the
Services are provided in accordance with any applicable laws, regulations and
tariffs.
(c) ELI shall provide any input or information needed by Citizens to
perform the Services pursuant to the provisions of this Agreement in a manner
consistent with the practices employed by the parties during the year prior to
the execution of this Agreement. Should the failure to provide such input or
information render the performance of the Services impossible or unreasonably
difficult, Citizens may, upon reasonable notice to ELI, refuse to provide such
Services.
1.3 Authority of ELI. Citizens understands that discretion and control
----------------
over the Telecommunications Business of ELI shall remain vested in ELI.
Accordingly, operational control and management over the Telecommunications
Business including, without limitation, (i) the oversight of the management of
the Telecommunications Business, (ii) the formulation and
2
<PAGE>
implementation of policy decisions for the Telecommunications Business, (iii)
the supervision of the employment of personnel of ELI, (iv) the payment of all
financial obligations and expenses arising from the operation of the
Telecommunications Business, and (v) the receipt of all monies and profits
derived from the operation of such Telecommunications Business, shall be vested
in ELI.
1.4 LIMITATION OF AUTHORITY. Except as otherwise stated herein, without
-----------------------
the prior written consent of ELI as evidenced by a resolution of its Board of
Directors, Citizens shall not be authorized or required under this Agreement on
behalf of ELI to:
(a) purchase or acquire, or sell, lease, trade, exchange or otherwise
dispose of any assets of ELI;
(b) incur any expense or any obligation which could result in a
liability in excess of $250,000 not set forth in a construction or
operating budget approved by ELI (or otherwise approved by ELI in writing)
nor, upon adoption by ELI of any such budget, incur any expenses in amounts
greater than 110% of approved amounts;
(c) cancel or compromise any claim or debt owed to ELI in excess of
$100,000; or
(d) create or consent to the creation of any lien or charge on any
assets of ELI.
1.5 Powers of Officers and Directors. Nothing herein shall be construed
--------------------------------
to release the officers and directors of ELI from the performance of their
respective duties or limit the exercise of their powers as prescribed by law or
otherwise.
ARTICLE II
----------
THE SERVICES
------------
2.1 Services Provided by Citizens. During the term of this Agreement and
-----------------------------
subject to the terms and provisions hereof, Citizens shall provide, or cause its
Affiliates or consultants to provide, such of the Services as ELI (acting
through its Board of Directors) and Citizens mutually may consider necessary or
desirable or as Citizens determines may be appropriate for the normal operation
of the Telecommunications Business of ELI.
2.2 Description of the Services. The Services to be provided to ELI, as
---------------------------
determined in accordance with Section 2.1 hereof, consist of various services
required in the conduct of ELI's Telecommunications Business, including, by way
of illustration and not limitation, the following:
(a) Financial management, including:
--------------------
(i) Accounting and reporting services - accounting policies and
procedures, billing and time reporting support, fixed asset,
construction
3
<PAGE>
accounting, capital asset recovery and analysis, accounting internal
auditing and internal and external reporting and analysis;
(ii) Taxes including federal, state and local tax filings
compliance and audit, tax research and planning, benefit plan
compliance and tax policy;
(iii) Treasury including cash management and banking, investment
management, corporate finance, risk management and insurance
services;
(iv) Financial Analysis and Planningincluding financial
forecasting assistance, acquisition analysis, actuarial services and
financial analysis; and
(v) Investor Relationincludes assistance with the establishment
of an investor relation program.
.
(b) Information services, including negotiating enterprise-wide
--------------------
purchase agreements, providing access to data bases and enterprise
application systems, procedures and processes relating to customer
satisfaction, enterprise management, deploy solutions and customer surveys.
(c) Legal and contract services, including the representation of
---------------------------
ELI in state and federal regulatory proceedings and before state and
federal courts. (ii) the drafting and review of relevant legislation; (iii)
the provision of advice and counsel regarding telecommunications matters
affecting ELI; (iv) the drafting, negotiation and interpretation of various
contracts; (v) the provision of advice, counsel and assistance regarding
mergers and acquisitions, antitrust, labor and employment matters; and (vi)
the supervision of outside counsel retained by ELI.
(d) Human resources services, including (i) the design of benefit
------------------------
and compensation programs; (ii) the maintenance of human resource systems
(which systems will keep employee information that will be necessary for
benefit and compensation program design, for implementation of such design
and for insuring compliance with the Employee Retirement Income Security
Act of 1974, as amended, the Internal Revenue Service and the Securities
and Exchange Commission); (iii) equal employment opportunity compliance,
management training, union fee avoidance programs and interpretation of
corporate policies.
(e) Corporate Planning Services, including assistance with
---------------------------
corporate budgeting.
ARTICLE III
------------
COMPENSATION
------------
3.1 Service Costs. ELI shall pay Citizens and its Affiliates, as the
-------------
case may be, for all reasonable costs incurred by Citizens or its Affiliates
attributable to the performance by Citizens
4
<PAGE>
or its Affiliates of the Services, including without limitation (a) all costs
incurred by Citizens or its Affiliates to vendors or other third parties in
providing Services and related supplies and goods; (b) the directly allocated
costs of employees of Citizens and its Affiliates (based on the average salary
and all other compensation and costs of the relevant Responsibility Centers)
allocated to ELI in accordance with Citizens' then current practice in
allocating the cost of services to its Operating Companies to the extent that
the same can be based on the time of employees of Citizens and its Affiliates
expended in providing such Services; (c) a portion of the non-directly allocated
costs (including direct costs of employees of Citizens and its Affiliates at the
relevant Responsibility Centers and all other costs and expenses of the relevant
Responsibility Centers), which are not based on time expended, all based on
Citizens' then current procedure (hereinafter referred to as the "Allocation
Formula") used by Citizens for charging unallocated costs of Citizens' relevant
Responsibility Centers to the Citizens Operating Companies as a component of the
cost of services rendered; and (d) an amount equal to 25% of the aggregate of
(b) and (c) above; provided, however, that it is intended that the service costs
-------- -------
paid by ELI shall not exceed comparable payments that would be made if such
services were to be provided by an unaffiliated third party.
3.2 Billing Procedure. Citizens shall submit to ELI a quarterly statement
-----------------
showing in reasonable detail the calculation for the Reimbursable Costs and the
Fee, which amounts shall be due and payable, except as expressly provided
herein, within thirty (30) days of receipt of such statement by ELI.
ARTICLE IV
----------
CONFIDENTIALITY
---------------
Each party hereto may from time to time be provided information that is
confidential and proprietary to the other party hereto. Accordingly, each party
agrees that it will not reveal such information or any of it, which is not
otherwise in the public domain, to a third party without the consent of the
other party except as required by law or as necessary to perform obligations or
enforce rights hereunder; that such information will be distributed only to
those of its own employees and officers who have a reasonable need for it in
order to carry out the purposes of this Agreement; that such information will
not be used in any manner except for the purpose for which provided; and that
upon termination of this Agreement, all documents containing such confidential
and proprietary information upon request will be returned promptly to the party
to which such information belongs. Each party shall take such steps as are
reasonably necessary to protect the confidential or proprietary information of
the other. For purposes hereof, confidential or proprietary information shall
include customer lists and other customer information, and financial, technical
or business information relating to one party and provided by such party to the
other.
5
<PAGE>
ARTICLE V
----------
INDEMNIFICATION
---------------
ELI shall indemnify, defend and hold Citizens and its Affiliates (and their
respective officers, directors, partners, employees and agents) harmless from
any claims, costs, damages (including consequential damages), losses or expenses
(including reasonable attorneys' fees) arising out of or relating to this
Agreement or the performance of Services under this Agreement except where
attributable to the gross negligence or willful misconduct of Citizens or its
Affiliates. Neither Citizens nor any of its Affiliates (nor any of their
respective officers, directors, partners, employees and agents) shall be liable,
in damages or otherwise, to ELI for any error or judgment or other act or
omission performed or omitted by Citizens or any of its Affiliates under or
otherwise in respect of this Agreement, except if such error of judgment or
other act or omission results from willful misconduct or gross negligence of the
party sought to be changed. All of the obligations of Citizens hereunder have
been undertaken by Citizens and its Affiliates solely for the benefit of ELI and
nothing set forth in this Agreement shall (or shall be deemed to) grant to any
other person any interest (whether as a third party beneficiary or otherwise)
herein.
ARTICLE VI
----------
TERM AND TERMINATION
--------------------
6.1 Term. This Agreement shall commence on the date hereof and shall
----
terminate on December 31, 2005, unless earlier extended or terminated in
accordance with the terms of this Agreement.
6.2 Renewal-Termination upon Notice. This Agreement will automatically
-------------------------------
renew for additional terms of two (2) years each, unless either party provides
written notice to the other party not less than six (6) months prior to the end
of the initial term or any such renewal term of its intent to terminate this
Agreement.
6.3 Termination upon Bankruptcy, Etc. Each party shall have the right to
--------------------------------
terminate this Agreement immediately upon written notice to the other party if
the other party: (1) makes an assignment for the benefit of creditors; (2) has
an Order for Relief under Titles 7 or 11 of the United States Code entered by
any United States court against such party; (3) has a trustee or receiver
appointed by any court for a substantial part of such party's assets; or (4)
attempts to make an unauthorized assignment of this Agreement.
6.4 Termination upon Material Breach. In the event of material breach of
--------------------------------
any provision of this Agreement by a party, the non-defaulting party shall give
the defaulting party written notice, and:
(a) If such breach is for ELI's non-payment, ELI shall cure the breach
within thirty (30) calendar days of such notice. If ELI does not cure such
breach by such date, Citizens may, at its sole option, elect to terminate
this Agreement by giving written notice of such election to ELI.
6
<PAGE>
(b) If such breach is for any other material failure to perform in
accordance with this Agreement, the defaulting party shall cure such breach
within ninety (90) calendar days of the date of such notice. If the
defaulting party does not cure such breach within such period (or is not
working diligently in good faith to cure such breach in cases where a
breach cannot reasonably be expected to be cured within ninety (90) days),
the non-defaulting party may, at its sole option, elect to terminate this
Agreement by giving written notice to the breaching party no earlier than
ninety (90) calendar days after the date of its notice of breach to the
defaulting party (or immediately upon such further notice to the defaulting
party if the defaulting party is not working diligently in good faith to
cure such breach in cases where a breach cannot be reasonably be expected
to be cured within ninety (90) days).
6.5 Termination upon Change of Control. Citizens may terminate this
----------------------------------
Agreement by written notice to ELI upon a Change of Control (as defined below)
with respect to ELI. A "Change in Control" shall be deemed to have occurred if:
(i) Citizens or its Affiliates shall own shares representing less than a
majority of the voting power of the then outstanding common stock of ELI; (ii) a
majority of the seats (other than vacant seats) on the Board of Directors of ELI
shall at any time be occupied by persons who were neither (1) nominated by
Citizens or by the Board of Directors of ELI, nor (2) appointed by directors of
ELI so nominated; or (iii) any person or group, other than Citizens or its
Affiliates, shall otherwise directly or indirectly have the power to exercise a
controlling influence over ELI.
6.6 Survival upon Termination. Notwithstanding the foregoing, the
-------------------------
provisions of Article IV (Confidentiality) and Article V (Indemnification) shall
survive the termination or expiration of this Agreement, and shall remain in
full force and effect for a period of three years following termination or
expiration.
6.7 Waiver. The failure of either party to exercise any right to elect
------
to terminate this Agreement shall not constitute a waiver of the rights granted
herein with respect to any subsequent default.
ARTICLE VII
GENERAL
7.1 Relationship; Self-Dealing. Nothing contained in this Agreement
--------------------------
shall be construed as creating a partnership, joint venture or similar
arrangement of or between Citizens and ELI. Citizens and its Affiliates may
engage in, acquire or possess an interest in other business ventures of any
nature or description, independently or with others, whether currently existing
or hereafter created, which may be in direct or indirect competition with ELI,
and ELI shall not have any rights in or to such independent ventures or the
income or profits derived therefrom, or to any opportunities offered or created
thereby. Such activities or arrangements shall not constitute a breach of this
Agreement.
7.2 Entire Agreement. This Agreement constitutes the entire
----------------
understanding between the parties and supersedes any prior understandings
respecting the subject matter thereof.
7
<PAGE>
7.3 Amendment; Waiver. This Agreement shall not be amended, modified,
-----------------
waived, released or discharged except by a writing signed by an officer or
authorized representative of each of the parties.
7.4 Successors and Assigns. No party hereto shall assign its rights and
----------------------
obligations under this Agreement or any part thereof, nor shall any party assign
or delegate any of its rights or duties hereunder without the prior written
consent of the other party, and any assignment made without such consent shall
be void; provided, that the rights and obligations of Citizens hereunder may be
assigned to and assumed by an Affiliate of Citizens without the consent or
approval of ELI.
7.5 Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended or shall
be construed to confer upon any person other than the parties and successors and
assigns permitted by Section 7.4 hereof any right, remedy or claim under or by
reason of this Agreement.
7.6 Further Assurances. The parties shall execute and deliver such
------------------
further instruments and perform such further acts as may reasonably be required
to carry out the intent and purposes of this Agreement.
7.7 Headings. All article, section and paragraph titles or captions
--------
contained in this Agreement are for convenience only and shall not be deemed
part of the text of this Agreement.
7.8 Pronouns. All pronouns and any variations thereof shall be deemed to
--------
refer to the masculine, feminine, neuter, singular or plural as the context may
require.
7.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and each of such counterparts shall for all purposes be deemed to
be an original, but all such counterparts together shall constitute but one
instrument.
7.10 Notices. Any notice, request, instruction or other document to be
-------
given hereunder by any party to the others shall be in writing and shall be
deemed to have been duly given on the next business day after the same is sent,
if delivered personally or sent by telecopy or overnight delivery, or five
calendar days after the same is sent, if sent by registered or certified mail
return receipt requested, postage prepaid, as set forth below, or to such other
persons or addresses as may be designated in writing in accordance with the
terms hereof by the party to receive such notice.
(a) If to Citizens, to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Facsimile No.: (203) 329-4651
Attn: Robert J. DeSantis
8
<PAGE>
(b) If to ELI, to:
Electric Lightwave, Inc.
8100 N.E. Parkway Drive, Suite 150
Vancouver, Washington 98662
Facsimile No.: (360-604-5333)
Attn: David B. Sharkey
7.11 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York without giving effect to the
principles of conflict of laws thereof.
7.12 Force Majeure. In the event that either party hereto shall be
-------------
delayed, hindered in, or prevented from the performance of any act required
hereunder by reason of failure of power, riots, insurrection, war, labor
disputes, Acts of God or other reasons of a similar nature not the fault of the
party delayed in performing the work or doing the acts required under the terms
of this Agreement, then performance of such work or act shall be excused for the
period of said delay and the period for the performance of any such work or act
shall be extended for a period equivalent to the period of such delay. In the
event that either party shall be indefinitely prevented from the performance of
any work or act required hereunder by reason of any such cause, performance of
such work or act shall be indefinitely excused.
7.13 Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if one or more of the provisions of this Agreement is
subsequently declared invalid or unenforceable, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions of this Agreement. In the event of such declaration of
invalidity or unenforceability, this Agreement, as so modified, shall be applied
and construed so as to reflect substantially the intent of the parties and
achieve the same economic effect as originally intended by the terms hereof. In
the event that the scope of any provision to this Agreement is deemed
unenforceable by a court of competent jurisdiction, the parties agree to the
reduction of the scope of such provision as such court shall deem reasonably
necessary to make such provision enforceable under the circumstances.
7.13 No Agency. This Agreement shall not be deemed expressly or by
---------
implication to create an agency, employee, or servant relationship between or
among any of the parties hereto, or any Affiliates of the parties hereto for any
purpose whatsoever.
9
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
hereinabove indicated.
ELECTRIC LIGHTWAVE, INC.
By:
------------------------------------
Name:
Title:
CITIZENS UTILITIES COMPANY
By:
------------------------------------
Robert J. DeSantis
Vice President
10
<PAGE>
EXHIBIT 10.8
FORM OF TAX-SHARING AGREEMENT
THIS AGREEMENT is entered into as of the ______ day of ___________________,
1997, between Citizens Utilities Company, a Delaware corporation ("Citizens"),
and Electric Lightwave, Inc., a Delaware corporation ("Lightwave").
RECITALS
(A) Citizens owns all of the issued and outstanding Class B Common Stock of
Lightwave.
(B) Lightwave is effecting an initial public offering (the "Offering") of
shares of Class A Common Stock of Lightwave (the "Class A Common Stock").
(C) Upon completion of the Offering, Lightwave will cease to be a wholly-
owned subsidiary of Citizens and Lightwave may or may not cease, for United
States federal income tax purposes, to be a member of Citizens' consolidated
group.
(D) For state or local franchise or income tax purposes Lightwave may in
any event continue to be a member of certain unified, combined or consolidated
groups which include Citizens notwithstanding the results of the Offering.
(E) The parties wish to address certain tax matters which may arise as a
result of the Offering.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, and intending to be
legally bound hereby, the parties hereby agree as follows:
1.1 As used in this Agreement, in addition to the terms defined in the
Preamble and Recitals, the following terms will have the following meanings,
applicable to both the singular and plural forms of the terms described:
"CONSOLIDATED PERIODS": shall mean, with respect to Lightwave, the
taxable periods or portions thereof in which Lightwaves will be a member of the
Citizens Federal Consolidated Group.
"COMBINED PERIODS": shall mean, with respect to Lightwave, the taxable
periods or portions thereof in which Lightwaves will be a member of the relevant
Citizens State Group.
"EFFECTIVE DATE": means the date of this Agreement.
"CITIZENS FEDERAL CONSOLIDATED GROUP": means the affiliated group of
corporations as defined in Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), which includes Citizens as the common parent.
<PAGE>
"CITIZENS STATE GROUP": shall mean any unified, combined or consolidated
groups for state or local franchise or income tax purposes which include
Citizens as the common parent.
1.2 INTERNAL REFERENCES. Unless the context indicates otherwise,
-------------------
references to articles, sections and paragraphs shall refer to the corresponding
articles, sections and paragraphs in this Agreement, and references to the
parties shall mean the parties to this Agreement.
2. With respect to the Consolidated Periods and each of the Combined
Periods:
(a) Lightwave shall be responsible for any and all liabilities arising
as a result of federal income tax, or state or local income, franchise, excise,
single business, gross receipts or withholding tax, returns filed by, or on
behalf of, Lightwave on a separate-return basis.
(b) With respect to the portions of the Citizens Federal Consolidated
Group or Citizens State Group tax liabilities that are allocable to Lightwave,
Lightwave shall pay to Citizens an amount equal to the aggregate relevant
federal, state or local income, franchise or similar taxes which Lightwave would
have been required to pay for such period if Lightwave had filed a separate
federal, state or local income or franchise tax return in such jurisdictions at
such time. For purposes of the preceding sentence, Lightwave shall take into
account all items of gain, income, deductions, losses, credits, carryovers of
losses and credits from prior taxable years, and all other tax attributes of
Lightwave, which attributes may be subject to limitations under the Code and
applicable Treasury Regulations or analogous provisions of state or local law,
that would have been taken into account had Lightwave actually filed a separate
return.
(c) Lightwave shall be responsible for any tax liability due any
foreign jurisdiction arising as a result of its business activities and/or
domicile.
(d) Except as set forth below, payments required pursuant to Paragraph
2(b) of this Agreement shall be billed to Lightwave by Citizens based upon
estimated payments made by Citizens to taxing authorities, with final billing
being made after filing of the returns. Such payments will be due within thirty
(30) days of receipt of the bill therefore. If income tax deficiencies or tax
refunds relating to Lightwave or its subsidiaries result from a tax audit,
amended return, claim, final determination by any court or otherwise are related
to the relevant tax returns for the Consolidated or Combined Periods, the
amounts due under Paragraph 2(b) of this Agreement shall be recalculated by
Citizens' Tax Department in accordance with the terms of such Paragraph, and an
appropriate adjustment to payments due under that Paragraph shall be made.
3. Citizens shall be obligated to pay over to Lightwave the amount of any
refund of, or in respect of, taxes to the extent such amount is attributable to
taxes paid (or deemed to have been paid) by Lightwave pursuant to this Agreement
or otherwise.
4. Notwithstanding anything to the contrary herein, neither party shall be
entitled to duplicate payments from the other party hereunder. Citizens' Vice
President of Taxes, in his sole discretion, may net any payments due to Citizens
from Lightwave pursuant to this Agreement against any amount due from Citizens
to Lightwave pursuant to this Agreement or otherwise.
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5. Interest shall accrue on payments due or advances made under this
Agreement at the interest rate then being charged by the Internal Revenue
Service on United States federal income tax deficiencies.
6. Citizens agrees that it will indemnify and hold Lightwave harmless from
and against any federal income tax, or state or local unitary, combined or
consolidated income or franchise tax, liabilities (including interest,
penalties, additions to tax, legal fees, court costs and any other reasonable
costs of defense) with respect to the portion of the Citizens' Federal
Consolidated Group or Citizens' State Group tax liability which is allocable to
members of the Citizens' Federal Consolidated Group or Citizens' State Group,
respectively, other than Lightwave.
7. Lightwave agrees to: (i) provide Citizens access to Lightwave books and
records; (ii) provide Citizens with papers, schedules and any other information
or assistance necessary to prepare tax returns or make computations pursuant to
this Agreement; (iii) maintain and preserve books, records and other information
as may be needed by Citizens pursuant to this Agreement or pursuant to the
preparation of any required tax return or the conduct of any tax audit by a
governmental authority for at least such time as has been customary; (iv)
cooperate in any audit or investigation of tax returns and execute appropriate
powers of attorney in connection therewith in favor of Citizens; and (v) sign
all documents, including settlement agreements, relating to the tax returns for
Consolidated Periods and/or Combined Periods.
8. With respect to all taxable periods during a Consolidated Period or
Combined Period, Citizens shall have sole and exclusive authority and
responsibility for: (i) preparing any federal income tax, or state and local
income, franchise, excise, single business, gross receipts or withholding tax,
returns (including any amended returns or claims for refund) of Lightwave; (ii)
representing Lightwave with respect to any federal income tax, or state and
local income, franchise, excise, single business, gross receipts or withholding
tax, audit or contest (including, without limitation, any litigation regarding
either the relevant taxes or refunds of the same); (iii) engaging outside
counsel and accountants with respect to tax matters regarding Lightwave; and
(iv) performing such other acts and duties with respect to Lightwave tax returns
as Citizens determines is appropriate. Citizens' Vice President of Taxes shall
have the discretion to reasonably determine the intent of, and resolve any
ambiguities under this Agreement. Payments due under this Agreement may, in
Citizens' discretion, be evidenced by A DEMAND PROMISSORY NOTE BEARING INTEREST
AS PROVIDED IN PARAGRAPH 4.
9. This Agreement is entered into by the parties hereto on their own
behalf as well as on behalf of Citizen's other subsidiaries. This Agreement
shall be deemed to have been joined in and consented to by all such
subsidiaries, without further action of them or the parties hereto. The parties
hereto hereby guarantee the performance by such subsidiaries of all the terms of
this Agreement. This Agreement shall also be binding upon, and inure to the
benefit of, the successors and assigns of the parties hereto.
10. This Agreement may be executed in several counterparts, each of which
shall be an original, but all of which shall constitute one document.
3
<PAGE>
11. This Agreement will be governed by, and construed in accordance with,
the laws of the State of Delaware.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
CITIZENS UTILITIES COMPANY
By:
--------------------------------
Name:
Title:
ELECTRIC LIGHTWAVE, INC.
By:
--------------------------------
Name:
Title:
--------------------------------
5
<PAGE>
EXHIBIT 10.9
FORM OF INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered into
this ____ day of November, 1997, by and between Citizens Utilities Company, a
Delaware corporation ("Citizens"), and Electric Lightwave Inc., a Delaware
corporation ("ELI")
RECITALS
A. Citizens owns all of the issued and outstanding Class B Common Stock,
par value $.01 per share, of ELI.
B. ELI is effecting an initial public offering (the "Offering") of shares
of its Class A Common Stock, par value $.01 per share (the "Class A Common
Stock").
C. Upon completion of the Offering, ELI will cease to be a wholly owned
subsidiary of Citizens.
D. In connection with the Offering, ELI has filed a registration statement
with the Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act").
E. Each of Citizens and ELI desires to indemnify the other, and to be
indemnified by the other, against certain liabilities relating to, arising out
of or resulting from their respective businesses, operations and assets and the
above-mentioned registration statement, on the terms set forth in this
Agreement.
NOW, THEREFORE, the parties hereto agree, intending to be legally bound
hereby, as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.01 DEFINITIONS. As used in this Agreement, in addition to the
-----------
terms defined in the Preamble and Recitals hereof, the following terms shall
have the following meanings, applicable to both the singular and plural forms of
the terms described:
"1933 ACT" shall have the meaning ascribed to it in Recital D.
"1934 ACT" means the Securities and Exchange Act of 1934, as amended.
"AGREEMENT" shall have the meaning ascribed to it in the Preamble.
<PAGE>
"BUSINESS DAY" means any calendar day which is not a Saturday, Sunday or
public holiday under the laws of the State of New York.
"CITIZENS" shall have the meaning ascribed to it in the Preamble.
"CITIZENS COMPANIES" means (unless otherwise expressly provided) Citizens
and each of its direct and indirect subsidiaries other than ELI.
"CITIZENS EMPLOYEES" means all employees or former employees of any of the
Citizens Companies other than the current or former ELI Employees.
"CITIZENS GUARANTEE" means any guarantee, surety or performance bond,
letter of credit or other contractual arrangement in effect as of the Closing
pursuant to which any Citizens Company has guaranteed or secured, or caused a
Third-Party to guarantee or secure, any liability or obligation of ELI.
"CITIZENS LIABILITIES" means all Liabilities (other than any Liabilities
for Taxes which are allocated pursuant to the Tax Agreement) relating to,
resulting from or arising out of the businesses or operations conducted or
assets owned by any of the Citizens Companies.
"CITIZENS SECURITIES LIABILITIES" means any Liability under the 1933 Act,
the 1934 Act or any other federal or state securities law or regulation
resulting from or arising out of the Offering, including, without limitation,
any such Liabilities arising out of or based upon: (i) any untrue statement or
alleged untrue statement of a material fact contained in a Registration
Statement or in any Prospectus; or (ii) the omission or alleged omission to
state in a Registration Statement or Prospectus a material fact required to be
stated therein or necessary to make the statements made therein not misleading;
but only to the extent that such Liability arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission concerning the business and operations of any of the Citizens
Companies.
"CLASS A COMMON STOCK" shall have the meaning ascribed to it in Recital B.
"CLOSING" means the consummation of the first purchase and sale of shares
of the Class A Common Stock pursuant to the Offering.
"CLOSING DATE" means the date on which the Closing occurs.
"CODE" means the Internal Revenue Code of 1986.
"EFFECTIVE DATE" means the date on which the purchase and sale of shares of
Class A Common Stock pursuant to the Offering first occurs.
"INDEMNIFIABLE LOSSES" shall have the meaning ascribed to it in Section 2.
"INDEMNIFYING PARTY" shall have the meaning ascribed to it in Section 5(a).
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"INDEMNITEE" shall have the meaning ascribed to it in Section 5(a).
"ELI" shall have the meaning ascribed to it in the Preamble.
"ELI EMPLOYEES" means all employees or former employees of ELI other than
any person who as of the Closing is an employee of any of the Citizens
Companies.
"ELI LIABILITIES" means all Liabilities (other than Liabilities for Taxes
that are allocated pursuant to the Tax Agreement) relating to, resulting from or
arising out of the businesses or operations conducted or formerly conducted or
assets owned or formerly owned by ELI.
"ELI SECURITIES LIABILITIES" means any Liability under the 1933 Act, the
1934 Act, or any other federal or state securities law or regulation resulting
from or arising out of the Offering, including, without limitation, any such
Liability arising out of or based upon: (i) any untrue statement or alleged
untrue statement of a material fact contained in a Registration Statement or in
any Prospectus; or (ii) the omission or alleged omission to state in a
Registration Statement or Prospectus a material fact required to be stated
therein or necessary to make the statements made therein not misleading, but
only to the extent that such Liability arises out of or is based upon any such
untrue statement or alleged untrue statement or any such omission or alleged
omission concerning the businesses and operations of ELI.
"LIABILITIES" means all liabilities and obligations, actual or contingent,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever and
however arising, including all costs and expenses (including reasonable fees and
disbursements of counsel) relating thereto, and including without limitation
liabilities and obligations arising in connection with any actual or threatened
claim, action, suit or proceeding by or before any court or regulatory or
administrative agency or commission or any arbitration panel.
"OFFERING" shall have the meaning ascribed to it in Recital B.
"PROSPECTUS" means any prospectus relating to the Offering or any amendment
or supplement thereto.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement by and between Citizens and ELI dated as of the date hereof.
"REGISTRATION STATEMENT" means any registration statement filed with the
SEC in connection with the Offering or any amendment or supplement thereto.
"SEC" shall have the meaning ascribed to it in Recital D.
"TAX AGREEMENT" means that certain Tax Sharing Agreement between Citizens
and ELI dated as of the date hereof.
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"TAXES" means any and all taxes (including interest, penalties and
additions to tax), fees and charges (including sales, use, excise, value added,
personal property and other taxes) imposed by any federal, state or local or
government tax authority in the United States of America or by any foreign
government or taxing authority.
"THIRD-PARTY CLAIM" shall have the meaning ascribed to it in Section 5(a).
"UNDERWRITING AGREEMENT" means, collectively, that certain U.S.
Underwriting Agreement between and among Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and
Deutsche Morgan Grenfell Inc. (as representatives of the several U.S.
underwriters), Citizens and ELI dated November, __, 1997, and that certain
International Underwriting Agreement between and among Lehman Brothers
International (Europe), Merrill Lynch International, Morgan Stanley & Co.
International Limited and Morgan Grenfell & Co. Limited, Citizens and ELI dated
November __, 1997.
Section 1.02 INTERNAL REFERENCES.
-------------------
Unless the context indicates otherwise, references to Articles, Sections and
paragraphs shall refer to the corresponding articles, sections and paragraphs in
this Agreement, and references to the parties shall mean the parties to this
Agreement.
ARTICLE II
INDEMNIFICATION BY ELI
----------------------
Section 2.01 INDEMNIFICATION BY ELI. ELI shall indemnify, defend and
----------------------
hold harmless the Citizens Companies and the respective past, present and future
directors, officers, partners, employees, agents and representatives thereof
(regardless in each case of whether any such person serves in one or more
similar capacities for ELI) from and against any and all losses, claims,
damages, liabilities, demands, suits and actions, including all reasonable
attorneys' fees and disbursements and other costs and expenses incurred in
connection therewith (collectively, "Indemnifiable Losses"), relating to,
resulting from or arising out of: (a) any ELI Liabilities; (b) any ELI
Securities Liabilities; or (c) any misrepresentation or material breach by ELI
of any covenant of ELI or any failure by ELI to satisfy any condition required
to be satisfied by ELI or any liability of ELI for taxes arising prior to the
Offering determined to be owing by ELI for which Citizens or its consolidated
Affiliates may have a secondary liability, contained in this Agreement, the
Underwriting Agreement or any other agreement executed by ELI in connection with
the Offering, including, without limitation, the Registration Rights Agreement
and the Tax Agreement, and in addition to and notwithstanding any other
indemnification between the parties hereto as provided in any such agreement,
except to the extent that such misrepresentation, breach or failure was caused
by or resulted from any statement, act or omission within the exclusive
knowledge or control of Citizens.
4
<PAGE>
ARTICLE III
INDEMNIFICATION BY CITIZENS
---------------------------
Section 3.01 INDEMNIFICATION BY CITIZENS. Citizens shall indemnify,
---------------------------
defend and hold harmless ELI and the respective past, present and future
directors, officers, employees, partners, agents and representatives thereof
(regardless in each case of whether any such person serves in one or more
similar capacities for the Citizens Companies) from and against any and all
Indemnifiable Losses relating to, resulting from or arising out of: (a) any
Citizens Liabilities; (b) any Citizens Securities Liabilities; or (c) any
misrepresentation or material breach by Citizens of any covenant of Citizens or
any failure of Citizens to satisfy any condition required to be satisfied by
Citizens or any liability of Citizens for taxes arising prior to the Offering
determined to be owing by Citizens for which ELI may have a secondary liability,
contained in this Agreement, the Underwriting Agreement, or any other agreement
executed by Citizens in connection with the Offering, including, without
limitation, the Registration Rights Agreement and the Tax Agreement, and in
addition to and notwithstanding any other indemnification between the parties
hereto as provided in any such agreement, except to the extent that such
misrepresentation, breach or failure was caused by or resulted from any
statement, act or omission within the exclusive knowledge or control of ELI.
ARTICLE IV
GUARANTEE.
----------
Section 4.01 GUARANTEE. ELI shall indemnify, defend and hold harmless
---------
the Citizens Companies, and their respective directors, officers, employees,
agents and representatives, from and against any Indemnifiable Losses relating
to, resulting from, or arising out of any Citizens Guarantee, except as
prohibited by, or would conflict with, the terms of the Guaranty dated as of
April 28, 1995, of Citizens in favor of Shawmut Bank Connecticut, National
Association, BA Leasing & Capital Corporation and other Beneficiaries. Citizens
shall not terminate unilaterally or withdraw any Citizens Guarantee and shall
abide by the terms of the Citizens Guarantee. ELI shall reimburse each Citizens
Company for its direct costs (or, in the case of any Citizens Guarantee that
relates to both liabilities or obligations of ELI and one or more third parties,
a pro rata share of such direct costs), if any, of maintaining the Citizens
Guarantee.
ARTICLE V
THIRD-PARTY CLAIMS
------------------
Section 5.01 THIRD-PARTY CLAIMS. (a) If any person entitled to
------------------
indemnification under this Agreement (an "Indemnitee") receives notice of the
assertion of any claim or of the commencement of any action or proceeding by any
person that is not a party to this Agreement or a subsidiary of any such party
(a "Third-Party Claim") against such Indemnitee, the Indemnitee shall promptly
provide written notice thereof
5
<PAGE>
(including a description of the Third-Party Claim and an estimate of any
Indemnifiable Losses (which estimate shall not be conclusive as to the final
amount of such Indemnifiable Losses) to the party required to provide
indemnification under this Agreement (the "Indemnifying Party") within ten (10)
Business Days after the Indemnitee's receipt of notice of such Third-Party
Claim. Any delay by the Indemnitee in providing such written notice shall not
relieve the Indemnifying Party of any liability for indemnification hereunder
except to the extent that the rights of the Indemnifying Party are materially
prejudiced by such delay.
(b) The Indemnifying Party shall have the right to participate in or,
by giving written notice to the Indemnitee, to assume the defense of any Third-
Party Claim at such Indemnifying Party's expense and by such Indemnifying
Party's own counsel (which shall be reasonably satisfactory to the Indemnitee),
and the Indemnitee will cooperate in good faith in such defense. The
Indemnifying Party shall not be liable for any legal expenses incurred by the
Indemnitee after the Indemnitee has received notice of the Indemnifying Party's
intent to assume the defense of a Third-Party Claim; provided, however, that if
the Indemnifying Party fails to take steps reasonably necessary to diligently
pursue the defense of such Third-Party Claim within ten (10) Business Days of
receipt of notice from the Indemnitee that such steps are not being taken, the
Indemnitee may assume its own defense and the Indemnifying Party shall be liable
for the reasonable costs thereof.
(c) The Indemnifying Party may settle any Third-Party Claim which it
has elected to defend so long as the written consent of the Indemnitee to such
settlement is first obtained (which consent shall not be unreasonably withheld).
The Indemnitee shall not settle any Third-Party Claim without the written
consent of the Indemnifying Party (which consent shall not be unreasonably
withheld).
(d) In the event that a Third-Party Claim involves a proceeding as to
which both Citizens and ELI may be Indemnifying Parties, the parties hereto
agree to cooperate in good faith in a joint defense of such Third-Party Claim.
ARTICLE VI
CONTRIBUTION
------------
Section 6.01 CONTRIBUTION. If the indemnification provided for in this
------------
Agreement with respect to ELI Securities Liabilities or Citizens Securities
Liabilities is for any reason held by a court or other tribunal to be
unavailable on policy grounds or otherwise, Citizens and ELI shall contribute to
any Indemnifiable Losses relating to, resulting from or arising out of the ELI
Securities Liabilities or the Citizens Securities Liabilities in such proportion
as to reflect each party's relative fault in connection with such Indemnifiable
Losses. The relative fault of the parties shall be determined by reference to,
among other things, whether the conduct or information giving rise to the
Indemnifiable Losses is attributable to Citizens or ELI and each party's
relative intent, access to information and opportunity to prevent or correct the
Indemnifiable Losses. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the
6
<PAGE>
1933 Act) shall be entitled to contribution from any person who is not guilty of
fraudulent misrepresentation.
ARTICLE VII
COOPERATION
-----------
Section 7.01 COOPERATION. So long as any books, records and files
-----------
retained after the Closing Date by Citizens (or any of the other Citizens
Companies), on the one hand, or ELI on the other hand, relating to the
businesses, operations or assets of the other party and its subsidiaries
(including any books, records and files retained by ELI relating to the conduct
of its businesses or operations or the ownership of its assets prior to the
Closing) remain in existence and are available, such other party shall have the
right upon prior written notice to inspect and copy the same at any time during
business hours for any proper purpose, provided that such right will not extend
to any books, records or files the disclosure of which in accordance herewith
would result in a waiver of the attorney-client, work-product or other
privileges which permit non-disclosure of otherwise relevant material in
litigation or other proceedings, or which are subject on the date hereof and at
the time inspection is requested to a non-disclosure agreement with a Third-
Party and a waiver cannot reasonably be obtained. Citizens and ELI agree that
neither they nor any of their subsidiaries shall destroy any such books, records
or files without reasonable notice to the other party or if such party receives
within ten (10) Business Days of such notice any reasonable objection from the
other party to such destruction. Except in the case of dispute between the
parties hereto, Citizens and ELI shall cooperate with one another in a timely
manner in any administrative or judicial proceeding involving any matter
affecting the actual or potential liability of either party hereunder. Such
cooperation shall include, without limitation, making available to the other
party during normal business hours all books, records and information, and
officers and employees (without substantial disruption of operations or
employment) necessary or useful in connection with any inquiry, audit,
investigation or dispute, any litigation or any other matter requiring any such
books, records, information, officers or employees for any reasonable business
purpose. The party requesting or otherwise entitled to any books, records,
information, officers or employees pursuant to this Section 7 shall bear all
reasonable out-of-pocket costs and expenses (except for salaries, employee
benefits and general overhead) incurred in connection with providing such books,
records, information, officers or employees.
ARTICLE VIII
EFFECTIVENESS
-------------
Section 8.01 EFFECTIVENESS. This Agreement shall become effective at
-------------
Closing.
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ARTICLE IX
SUCCESSORS AND ASSIGNS
----------------------
Section 9.01 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
----------------------
upon the parties hereto and their respective successors and permitted assigns
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned by either
party hereto to any other person without the prior written consent of the other
party hereto.
ARTICLE X
NO THIRD-PARTY BENEFICIARIES
----------------------------
Section 10.01 NO THIRD-PARTY BENEFICIARIES. Except for the persons
----------------------------
entitled to indemnification pursuant to Section 2 or Section 3 hereof, each of
whom is an intended third-party beneficiary hereunder, nothing expressed or
implied in this Agreement shall be construed to give any person or entity other
than the parties hereto any legal or equitable rights hereunder.
ARTICLE XI
ENTIRE AGREEMENT
----------------
Section 11.01 ENTIRE AGREEMENT. This Agreement constitutes the entire
----------------
agreement among the parties with respect to the subject matter hereof.
ARTICLE XII
AMENDMENT
---------
Section 12.01 AMENDMENT. This Agreement may not be amended except by an
---------
instrument signed by the parties hereto.
ARTICLE XIII
WAIVERS
-------
Section 13.01 WAIVERS.
-------
No waiver of any term shall be construed as a subsequent waiver of the same
term, or a waiver of any other term, of this Agreement. The failure of any party
to assert any of its rights hereunder will not constitute a waiver of any such
rights.
8
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ARTICLE XIV
SEVERABILITY
------------
Section 14.01 SEVERABILITY. If any provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law or public
policy, such provision shall be deemed severable and all other provisions of
this Agreement shall nevertheless remain in full force and effect.
ARTICLE XV
HEADINGS
--------
Section 15.01 HEADINGS. Section headings in this Agreement are included
--------
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
ARTICLE XVI
NOTICES
-------
Section 16.01 NOTICES. All notices given in connection with this
-------
Agreement shall be in writing. Service of such notices shall be deemed complete:
(i) if hand delivered, on the date of delivery; (ii) if by mail, on the
fourth business day following the day of deposit in the United States mail,
by certified or registered mail, first-class postage prepaid; (iii) if sent
by Federal Express or equivalent courier service, on the next business day;
or (iv) if by telecopier, upon receipt by the sender of confirmation of
successful transmission. Such notices shall be addressed to the parties at
the following addresses or at such other address for a party as shall be
specified by like notice (except that notices of change of address shall be
effective upon receipt):
IF TO CITIZENS:
Citizens Utilities Company
High Ridge Park
P. O. Box 3801
Stamford, Connecticut 06905
Attn: Robert J. DeSantis
Fax No.: (203) 329-4625
IF TO ELI:
Electric Lightwave Inc.
8100 N.E. Parkway Drive, Suite 200
Vancouver, Washington 98662
Attn: David Sharkey
Fax No.: (360) 243-4425
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ARTICLE XVII
GOVERNING LAW
-------------
Section 17.01 GOVERNING LAW. This Agreement shall be governed by and
-------------
construed in accordance with, the laws of the State of New York, without giving
effect to the principles of conflict of laws of such State or any other
jurisdiction.
ARTICLE XVIII
COUNTERPARTS
------------
Section 18.01 COUNTERPARTS. This Agreement may be executed in
------------
counterparts, each of which shall be an original, but all of which together
shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Indemnification
Agreement as of the date first above written.
. ELECTRIC LIGHTWAVE INC.
By ___________________________
Name:
Title:
CITIZENS UTILITIES COMPANY
By ___________________________
Name:
Title:
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<PAGE>
EXHIBIT 10.10
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered into
this ______ day of November, 1997, by and between Citizens Utilities Company, a
Delaware corporation ("Citizens"), and Electric Lightwave Inc., a Delaware
corporation ("ELI").
RECITALS
A. Citizens owns all of the issued and outstanding Class B Common Stock,
par value $0.01 per share, of ELI ("Class B Common Stock").
B. ELI is effecting an initial public offering (the "Initial Public
Offering") of its shares of Class A Common Stock, par value $.01 per share
("Class A Common Stock").
C. Upon completion of the Initial Public Offering, ELI will cease to be a
wholly-owned subsidiary of Citizens.
D. The parties desire to enter into this Agreement to set forth their
agreement regarding (i) certain registration rights with respect to Class A
Common Stock and Class B Common Stock (and any other securities issued in
respect thereof or in exchange therefor); and (ii) certain representations,
warranties, covenants and agreements applicable to ELI and Citizens.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, Citizens and ELI, for themselves, their successors and assigns, hereby
agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 DEFINITIONS. As used in this Agreement, the following terms
-----------
will have the following meanings, applicable both to the singular and the plural
forms of the terms described:
"AFFILIATE" means, with respect to any Person, any Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to vote a majority of the securities having voting power for the election of
directors of such Person or otherwise to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise; provided,
<PAGE>
however, that for the purposes of this Agreement, ELI shall not be deemed to be
an Affiliate of Citizens, and Citizens and its subsidiaries (other than ELI)
shall not be deemed to be an Affiliate of ELI.
"AGREEMENT" has the meaning ascribed hereto in the preamble, as such
agreement may be amended and supplemented from time to time in accordance with
its terms.
"CITIZENS" has the meaning ascribed thereto in the preamble hereto.
"CITIZENS TRANSFEREE" has the meaning ascribed thereto in Section 2.9.
"CLASS A COMMON STOCK" has the meaning ascribed thereto in the recitals to
this Agreement.
"CLASS B COMMON STOCK" has the meaning ascribed thereto in the recitals to
this Agreement.
"COMMON STOCK" means the Class B Common Stock, the Class A Common Stock,
any other class of ELI capital stock having the right to vote generally for the
election of directors.
"COMPANY SECURITIES" has the meaning ascribed thereto in Section 2.2(b).
"DISADVANTAGEOUS CONDITION" has the meaning ascribed thereto in Section
1.1(a).
"ELI" has the meaning ascribed thereto in the preamble hereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any successor statute.
"HOLDER" means Citizens and any Transferee.
"HOLDER SECURITIES" has the meaning ascribed thereto in Section 2.2(b).
"INITIAL PUBLIC OFFERING" has the meaning ascribed thereto in the recitals
to this Agreement.
"INITIAL PUBLIC OFFERING DATE" means the date of completion of the sale of
Class A Common Stock in the Initial Public Offering.
"OTHER HOLDERS" has the meaning ascribed thereto in Section 2.2(c).
"OTHER SECURITIES" has the meaning ascribed thereto in Section 2.2.
"PERSON" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization, government (and
any department or agency thereof) or other entity.
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"REGISTRABLE SECURITIES" means Class A Common Stock, Class B Common Stock,
and any stock or other securities into which or for which such Class A Common
Stock or Class B Common Stock may hereafter be changed, converted or exchanged
and any other shares or securities issued to Holders of such Class A Common
Stock or Class B Common Stock (or such shares or other securities into which or
for which such shares are so changed, converted or exchanged) upon any
reclassification, share combination, share subdivision, share dividend, share
exchange, merger, consolidation or similar transaction or event. As to any
particular Registrable Securities, such Registrable Securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale by the Holder thereof shall have been declared effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement; (ii) they shall have been distributed to the
public in accordance with Rule 144; (iii) they shall have been otherwise
transferred, new certificates for them not bearing a legend restricting further
transfer shall have been delivered by ELI and subsequent disposition of them
shall not require registration or qualification of them under the Securities Act
or any state securities or blue sky law then in effect; or (iv) they shall have
ceased to be outstanding.
"REGISTRATION EXPENSES" means any and all expenses incident to performance
of or compliance with any registration of securities pursuant to Article II,
including, without limitation: (i) the fees, disbursements and expenses of
ELI's counsel and accountants and the reasonable fees and expenses of counsel
selected by the Holders in accordance with this Agreement in connection with the
registration of the securities to be disposed of; (ii) all expenses, including
filing fees, in connection with the preparation, printing and filing of the
registration statement, any preliminary prospectus or final prospectus, any
other offering document and amendments and supplements thereto and the mailing
and delivering of copies thereof to any underwriters and dealers; (iii) the cost
of printing or producing any agreements among underwriters, underwriting
agreements, and blue sky or legal investment memoranda, any selling agreements
and any other documents in connection with the offering, sale or delivery of the
securities to be disposed of; (iv) all expenses in connection with the
qualification of the securities to be disposed of for offering and sale under
state securities laws, including the fees and disbursements of counsel for the
underwriters or the Holders of securities in connection with such qualification
and in connection with any blue sky and legal investment surveys; (v) the filing
fees incident to securing any required review of the terms of the sale of the
securities to be disposed of by each securities exchange and automated inter-
dealer quotation system which a class of common equity securities of ELI is
listed; (vi) transfer agents' and registrars' fees and expenses and the fees and
expenses of any other agent or trustee appointed in connection with such
offering; (vii) all security engraving and security printing expenses; (viii)
all fees and expenses payable in connection with the listing of the securities
on any securities exchange or automated inter-dealer quotation system or the
rating of such securities; (ix) any other fees and disbursements of underwriters
customarily paid by the issuers of securities, but excluding underwriting
discounts and commissions and transfer taxes, if any; and (x) other reasonable
out-of-pocket expenses of Holders other than legal fees and expenses referred to
in clause (i) and (iv) above.
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"RULE 144" means Rule 144 (or any successor rule to similar effect)
promulgated under the Securities Act.
"RULE 415 OFFERING" means an offering on a delayed or continuous basis
pursuant to Rule 415 (or any successor rule to similar effect) promulgated under
the Securities Act.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor statute.
"SELLING HOLDER" has the meaning ascribed thereto in Section 2.4(e).
"TRANSFEREE" has the meaning ascribed thereto in Section 2.9.
Section 1.2 INTERNAL REFERENCES.
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Unless the context indicates otherwise, references to articles, sections
and paragraphs shall refer to the corresponding articles, sections and
paragraphs in this Agreement, and references to the parties shall mean the
parties to this Agreement.
ARTICLE II
REGISTRATION RIGHTS
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Section 2.1 DEMAND REGISTRATION/REGISTRABLE SECURITIES.
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(a) Upon written notice provided at any time after the Initial Public
Offering Date from any Holder of Registrable Securities requesting that ELI
effect the registration under the Securities Act of any or all of the
Registrable Securities held by such Holder, which notice shall specify the
intended method or methods of disposition of such Registrable Securities, ELI
shall use its best efforts to effect the registration under the Securities Act
and applicable state securities laws of such Registrable Securities for
disposition in accordance with the intended method or methods of disposition
stated in such request (including in a Rule 415 Offering, if ELI is then
eligible to register such Registrable Securities on Form S-3 (or a successor
form) for such offering); provided that:
(i) With respect to any registration statement filed, or to be
filed, pursuant to this Section 2.1, if ELI shall furnish to the Holders of
Registrable Securities that have made such request a certified resolution
of the board of directors of ELI (adopted by the affirmative vote of a
majority of the directors) stating that in the board of directors' good
faith judgment it would, because of the existence of, or in anticipation
of, any acquisition or financing activity, or the unavailability for
reasons beyond ELI's reasonable control of any required financial
statements, or any other event or condition of similar significance to ELI,
be significantly disadvantageous (a "Disadvantageous Condition") to ELI for
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such a registration statement to be maintained effective, or to be filed
and become effective, and setting forth the general reasons for such
judgment, ELI shall be entitled to cause such registration statement not to
be filed or to be withdrawn and the effectiveness of such registration
statement terminated. In the event no registration statement has yet been
filed, ELI shall be entitled not to file any such registration statement,
until such Disadvantageous Condition no longer exists (notice of which ELI
shall promptly deliver to such Holders). Upon receipt of any such notice of
a Disadvantageous Condition, such Holders shall forthwith discontinue use
of the prospectus contained in such registration statement and, if so
directed by ELI, each such Holder will deliver to ELI all copies, other
than permanent file copies then in such Holder's possession, of the
prospectus then covering such Registrable Securities current at the time of
receipt of such notice; provided, that the filing of any such registration
statement may not be delayed for a period in excess of two (2) months due
to the occurrence of any particular Disadvantageous Condition;
(ii) After Citizens ceases to beneficially own (within the
meaning of Rule 13d-3 of the Exchange Act or any successor provision) less
than 40% of the outstanding Common Stock, the Holders of Registrable
Securities may collectively exercise their rights under this Section 2.1 on
not more than three (3) occasions (it being acknowledged that prior thereto
there shall be no limit to the number of occasions on which such Holders
(other than any of the Citizens Transferees and their Affiliates (and any
subsequent direct or indirect Transferees of Registrable Securities from
such Citizens Transferee and any of its Affiliates)) may exercise such
rights);
(iii) The Holders of Registrable Securities shall not have the
right to exercise registration rights pursuant to this Section 2.1 in any
six-month period following the registration and sale of Registrable
Securities effected pursuant to a prior exercise of the registration rights
provided in this Section 2.1; and
(iv) ELI shall be under no obligation to include any
Registrable Securities in a registration statement unless ELI shall have
received from the Holders of Registrable Securities a request for inclusion
of not less than 75,000 Registrable Securities.
(b) Notwithstanding any other provision of this Agreement to the
contrary, a registration requested by a Holder of Registrable Securities
pursuant to this Section 2.1 shall not be deemed to have been effected (and,
therefore, not requested for purposes of paragraph (a), above): (i) unless it
has become effective; (ii) if after it has become effective such registration is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court for any reason other than a
misrepresentation or an omission by such Holder and, as a result thereof, the
Registrable Securities requested to be registered cannot be completely
distributed in accordance with the plan of distribution set forth in the related
registration statement; or (iii) if the conditions to closing specified in the
purchase agreement or underwriting
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agreement entered into in connection with such registration are not satisfied or
waived other than by reason of some act or omission by such Holder of
Registrable Securities.
(c) In the event that any registration pursuant to this Section 2.1
shall involve, in whole or in part, an underwritten offering, the Holders of a
majority of the Registrable Securities to be registered shall have the right to
designate an underwriter or underwriters, reasonably acceptable to ELI, as the
lead or managing underwriters of such underwritten offering and, in connection
with each registration pursuant to this Section 2.1, such Holders may select one
legal counsel to represent all such Holders.
(d) ELI shall have the right to cause the registration of additional
equity securities for sale for the account of any Person (including, without
limitation, ELI and any existing or former directors, officers or employees of
ELI) in any registration of Registrable Securities requested by the Holders
pursuant to paragraph (a), above; provided, that if such Holders are advised in
writing (with a copy to ELI) by a nationally recognized investment banking firm
selected by such Holders reasonably acceptable to ELI (which shall be the lead
underwriter or a managing underwriter in the case of an underwritten offering)
that, in such firm's good faith view, all or a part of such additional equity
securities cannot be sold and the inclusion of such additional equity securities
in such registration would be likely to have an adverse effect on the price,
timing or distribution of the offering and sale of the Registrable Securities
then contemplated by any Holder, the registration of such additional equity
securities or part thereof shall not be permitted. The Holders of the
Registrable Securities to be offered may require that any such additional equity
securities be included in the offering proposed by such Holders on the same
conditions as the Registrable Securities that are included therein. In the
event that the number of Registrable Securities requested to be included in a
registration statement by the Holders thereof exceeds the number which, in the
good faith view of such investment banking firm, can be sold without adversely
affecting the price, timing, distribution or sale of securities in the offering,
the number shall be allocated pro rata among the requesting Holders on the basis
of the relative number of Registrable Securities then held by each such Holder
(provided that any number in excess of a Holder's request may be reallocated
among the remaining requesting Holders in a like manner).
Section 2.2 PIGGYBACK REGISTRATION. In the event that ELI at any time
----------------------
after the Initial Public Offering Date proposes to register any of its Common
Stock, any other of its equity securities or securities convertible into or
exchangeable for its equity securities (collectively, including Common Stock,
"Other Securities") under the Securities Act, whether or not for sale for its
own account, in a manner that would permit registration of Registrable
Securities for sale for cash to the public under the Securities Act, it shall at
each such time give prompt written notice to each Holder of Registrable
Securities of its intention to do so and of the rights of such Holder under this
Section 2.2. Subject to the terms and conditions hereof, such notice shall offer
each such Holder the opportunity to include in such registration statement such
number of Registrable Securities as such Holder may request. Upon the written
request of any such Holder made within 15 days after the receipt of ELI's notice
(which request shall specify the number of Registrable Securities intended to be
disposed of and the intended method of
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disposition thereof), ELI shall use its best efforts to effect, in connection
with the registration of the Other Securities, the registration under the
Securities Act of all Registrable Securities which ELI has been so requested to
register, to the extent required to permit the disposition (in accordance with
such intended methods thereof) of the Registrable Securities so requested to be
registered; provided, that:
(a) If, at any time after giving such written notice of its intention
to register any Other Securities and prior to the effective date of the
registration statement filed in connection with such registration, ELI shall
determine for any reason not to register the Other Securities, ELI may, at its
election, give written notice of such determination to such Holders and
thereupon ELI shall be relieved of its obligation to register such Registrable
Securities in connection with the registration of such Other Securities, without
prejudice, however, to the rights of the Holders of Registrable Securities
immediately to request that such registration be effected as a registration
under Section 2.1 to the extent permitted thereunder;
(b) If the registration referred to in the first sentence of this
Section 2.2 is to be an underwritten registration on behalf of ELI, and a
nationally recognized investment banking firm selected by ELI advises ELI in
writing that, in such firm's good faith view, the inclusion of all or a part of
such Registrable Securities in such registration would be likely to have an
adverse effect upon the price, timing or distribution of the offering and sale
of the Other Securities then contemplated, ELI shall include in such
registration:
(i) first, all Other Securities which ELI proposes to sell for
its own account ("Company Securities");
(ii) second, up to the full number of Registrable Securities
held by Citizens or its Affiliates that are requested to be included in
such registration (Registrable Securities that are so held being sometimes
referred to herein as "Holder Securities") in excess of the number of
Company Securities to be sold in such offering which, in the good faith
view of such investment banking firm, can be sold without adversely
affecting such offering and the sale of the Other Securities then
contemplated (and (x) if such number is less than the full number of such
Holder Securities, such number shall be allocated by Citizens or (y) in the
event that such investment banking firm advises that less than all of such
Holder Securities may be included in such offering, Citizens and its
Affiliates may withdraw its or their request for registration of their
Registrable Securities under this Section 2.2 and 90 days subsequent to the
effective date of the registration statement for the registration of such
Other Securities request that such registration be effected as a
registration under Section 2.1 to the extent permitted thereunder);
(iii) third, up to the full number of the Other Securities
(other than Company Securities), if any, in excess of the number of Company
Securities and Registrable Securities to be sold in such offering which, in
the good faith view of such investment banking firm, can be so sold without
so adversely affecting such
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offering (and, if such number is less than the full number of such Other
Securities, such number shall be allocated pro rata among the holders of
such Other Securities (other than Company Securities) on the basis of the
number of securities requested to be included therein by each such holder);
(c) If the registration referred to in the first sentence of this
Section 2.2 is to be an underwritten secondary registration on behalf of holders
of Other Securities (the "Other Holders"), and the lead underwriter or managing
underwriter advises ELI in writing that in their good faith view, all or a part
of such additional securities cannot be sold and the inclusion of such
additional securities in such registration would be likely to have an adverse
effect on the price, timing or distribution of the offering and sale of the
Other Securities then contemplated, ELI shall include in such registration the
number of securities (including Registrable Securities) that such underwriters
advise can be so sold without adversely affecting such offering, allocated pro
rata among the Other Holders and the Holders of Registrable Securities on the
basis of the number of securities (including Registrable Securities) requested
to be included therein by each Other Holder and each Holder of Registrable
Securities; provided, that if such registration statement is to be filed at any
time after Citizens ceases to beneficially own less than 40% of the outstanding
Common Stock, and if such Other Holders have requested that such registration
statement be filed pursuant to demand registration rights granted to them by
ELI, ELI shall include in such registration:
(i) first, Other Securities sought to be included therein by
the Other Holders pursuant to the exercise of such demand registration
rights; and
(ii) second, the number of Holder Securities sought to be
included in such registration in excess of the number of Other Securities
sought to be included in such registration by the Other Holders which in
the good faith view of such investment banking firm, can be so sold without
so adversely affecting such offering (and (x) if such number is less than
the full number of such Holder Securities, such number shall be allocated
by Citizens or (y) in the event that such investment banking firm advises
that less than all of such Holder Securities may be included in such
offering, Citizens and its Affiliates may withdraw its or their request for
registration of their Registrable Securities under this Section 2.2 and 90
days subsequent to the effective date of the registration statement for the
registration of such Other Securities request that such registration be
effected as a registration under Section 2.1 to the extent permitted
thereunder).
(d) ELI shall not be required to effect any registration of
Registrable Securities under this Section 2.2 incidental to the
registration of any of its securities in connection with mergers,
acquisitions, exchange offers, subscription offers, dividend reinvestment
plans or stock option or other executive or employee benefit or
compensation plans;
(e) ELI shall be under no obligation to include any Registrable
Securities in a registration statement unless ELI shall have received from
the Holders of
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Registrable Securities a request for inclusion of not less than 75,000
Registrable Securities; and
(f) No registration of Registrable Securities effected under this
Section 2.2 shall relieve ELI of its obligation to effect a registration of
Registrable Securities pursuant to Section 2.1.
Section 2.3 EXPENSES. Except as provided herein, ELI shall pay all
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Registration Expenses with respect to a particular offering (or proposed
offering). Notwithstanding the foregoing, each Holder and ELI shall be
responsible for its own internal administrative and similar costs, which shall
not constitute Registration Expenses.
Section 2.4 REGISTRATION AND QUALIFICATION. If and whenever ELI is
------------------------------
required to effect the registration of any Registrable Securities under the
Securities Act as provided in Section 2.1 or 2.2, and subject to Section
2.1(a)(i), as applicable, ELI shall as promptly as practicable:
(a) Prepare, file and use its best efforts to cause to become
effective a registration statement under the Securities Act relating to the
Registrable Securities to be offered;
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
Registrable Securities until the earlier of: (A) such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition set forth in such registration statement; (B) the
expiration of six-months after such registration statement becomes effective;
provided, that such six-month period shall be extended for such number of days
that equals the number of days elapsing from (x) the date the written notice
contemplated by paragraph (f) below is given by ELI to (y) the date on which ELI
delivers to the Holders of Registrable Securities the supplement or amendment
contemplated by paragraph (f) below;
(c) Furnish to the Holders of Registrable Securities and to any
underwriter of such Registrable Securities such number of conformed copies of
such registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the
Securities Act, such documents incorporated by reference in such registration
statement or prospectus, and such other documents, as the Holders of Registrable
Securities or such underwriter may reasonably request, and a copy of any and all
transmittal letters or other correspondence to or received from, the SEC or any
other governmental agency or self-regulatory body or other body having
jurisdiction (including any domestic or foreign securities exchange) relating to
such offering;
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(d) Use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under the securities or blue
sky laws of such jurisdictions as the Holders of such Registrable Securities or
any underwriter of such Registrable Securities shall request, and use its best
efforts to obtain all appropriate registrations, permits and consents in
connection therewith, and do any and all other acts and things which may be
necessary or advisable to enable the Holders of Registrable Securities or any
such underwriter to consummate the disposition in such jurisdictions of its
Registrable Securities covered by such registration statement; provided, that
ELI shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any such jurisdiction wherein it is not so
qualified or to consent to general service of process in any such jurisdiction;
(e) Use its best efforts to: (i) furnish to each Holder of Registrable
Securities included in such registration (each, a "Selling Holder") and to any
underwriter of such Registrable Securities an opinion of counsel for ELI
addressed to each Selling Holder and dated the date of the closing under the
underwriting agreement (if any) (or if such offering is not underwritten, dated
the effective date of the registration statement); and (ii) furnish to each
Selling Holder a "cold comfort" letter addressed to each Selling Holder and
signed by the independent public accountants who have audited the financial
statements of ELI included in such registration statement; in each such case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and such other
matters as the Selling Holders may reasonably request and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements;
(f) As promptly as practicable, notify the Selling Holders in writing:
(i) at any time when a prospectus relating to a registration pursuant to Section
2.1 and 2.2 is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; and (ii) of any request by the SEC or any
other regulatory body or other body having jurisdiction for any amendment of or
supplement to any registration statement or other document relating to such
offering, and in either such case, at the request of the Selling Holders prepare
and furnish to the Selling Holders a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading;
(g) If reasonably requested by the lead or managing underwriters, use
its best efforts to list all such Registrable Securities covered by such
registration on each
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securities exchange and automated inter-dealer quotation system on which the
Common Stock of ELI is then listed;
(h) To the extent reasonably requested by the lead or managing
underwriters, send appropriate officers of ELI to attend any "road shows"
scheduled in connection with any such registration, with all out-of-pocket costs
and expense incurred by ELI or such officers in connection with such attendance
to be paid by ELI;
(i) Furnish for delivery in connection with the closing of any
offering of Registrable Securities pursuant to a registration effected pursuant
to Section 2.1 or 2.2 unlegended certificates representing ownership of the
Registrable Securities being sold in such denominations as shall be requested by
the Selling Holders or the underwriters; and
(j) ELI may require each Selling Holder of Registrable Securities as
to which any registration is being effected to furnish ELI with such information
regarding such seller and pertinent to the disclosure requirements relating to
the registration and the distribution of such securities as ELI may from time to
time reasonably request in writing.
Section 2.5 CONVERSION OF OTHER SECURITIES, ETC. In the event that any
-----------------------------------
Holder offers any options, rights, warrants or other securities issued by it or
any other Person that are offered with, convertible into or exercisable or
exchangeable for any Registrable Securities, the Registrable Securities
underlying such options, rights, warrants or other securities shall continue to
be eligible for registration pursuant to Sections 2.1 and 2.2.
Section 2.6 UNDERWRITING; DUE DILIGENCE.
---------------------------
(a) If requested by the underwriters for any underwritten offering of
Registrable Securities pursuant to a registration requested under this Article
II, ELI shall enter into an underwriting agreement with such underwriters for
such offering, which agreement will contain such representations and warranties
by ELI and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnification and contribution provisions substantially to
the effect and to the extent provided in Section 2.7, and agreements as to the
provision of opinions of counsel and accountants' letters to the effect and to
the extent provided in Section 2.4(e). The Selling Holders on whose behalf the
Registrable Securities are to be distributed by such underwriters shall be
parties to any such underwriting agreement and the representations and
warranties by, and the other agreements on the part of, ELI to and for the
benefit of such underwriters, shall also be made to and for the benefit of such
Selling Holders. Such underwriting agreement shall also contain such
representations and warranties by such Selling Holders and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, indemnification and
contribution provisions substantially to the effect and to the extent provided
in Section 2.7 .
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(b) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Act pursuant
to this Article II, ELI shall give the Holders of such Registrable Securities
and the underwriters, if any, and their respective counsel and accountants, such
reasonable and customary access to its books and records and such opportunities
to discuss the business of ELI with its officers and the independent public
accountants who have certified the financial statements of ELI as shall be
necessary, in the opinion of such Holders and such underwriters or their
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act; provided, that such Holders and the underwriters and their
respective counsel and accountants shall use their reasonable best efforts to
coordinate any such investigation of the books and records of ELI and any such
discussions with ELI's officers and accountants so that all such investigations
occur at the same time and all such discussions occur at the same time.
Section 2.7 INDEMNIFICATION AND CONTRIBUTION. (a) In the case of each
--------------------------------
offering of Registrable Securities made pursuant to this Article II, ELI agrees
to indemnify and hold harmless, to the extent permitted by law, each Selling
Holder, each underwriter of Registrable Securities so offered and each Person,
if any, who controls any of the foregoing Persons within the meaning of the
Securities Act and the officers, directors, affiliates, employees and agents of
each of the foregoing, against any and all losses, liabilities, costs (including
reasonable attorney's fees and disbursements), claims and damages, joint or
several, to which they or any of them may become subject, under the Securities
Act or otherwise, including any amount paid in settlement of any litigation
commenced or threatened, insofar as such losses, liabilities, costs, claims and
damages (or actions or proceedings in respect thereof, whether or not such
indemnified Person is a party thereto) arise out of or are based upon any untrue
statement by ELI or alleged untrue statement by ELI of a material fact contained
in the registration statement (or in any preliminary or final prospectus
included therein) or in any offering memorandum or other offering document
relating to the offering and sale of such Registrable Securities prepared by ELI
or at its direction, or any amendment thereof or supplement thereto, or in any
document incorporated by reference therein, or any omission by ELI or alleged
omission by ELI to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, that ELI
shall not be liable to any Person in any such case to the extent that any such
loss, liability, cost, claim or damage arises out of or relates to any untrue
statement or alleged untrue statement, or any omission, if such statement or
omission shall have been made in reliance upon and in conformity with
information relating to a Selling Holder or another holder of securities
included in such registration statement and furnished to ELI by or on behalf of
such Selling Holder, other holder or underwriter, as the case may be,
specifically for use in the registration statement (or in any preliminary or
final prospectus included therein), offering memorandum or other offering
document, or any amendment thereof or supplement thereto. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of any Selling Holder or any other holder and shall survive the transfer
of such securities. The foregoing indemnity agreement is in addition to any
liability that ELI may otherwise have to each Selling Holder, other holder or
underwriter of the Registrable Securities or any controlling person of the
foregoing and the officers, directors, affiliates, employees and agents of each
of the foregoing;
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provided, further, that, in the case of an offering with respect to which a
Selling Holder has designated the lead or managing underwriters (or a Selling
Holder is offering Registrable Securities directly, without an underwriter),
this indemnity does not apply to any loss, liability, cost, claim or damage
arising out of or relating to any untrue statement or alleged untrue statement
or omission or alleged omission in any preliminary prospectus or offering
memorandum if a copy of a final prospectus or offering memorandum was not sent
or given by or on behalf of any underwriter (or such Selling Holder or other
holder, as the case may be) to such Person asserting such loss, liability, cost,
claim or damage at or prior to the written confirmation of the sale of the
Registrable Securities as required by the Securities Act and such untrue
statement or omission had been corrected in such final prospectus or offering
memorandum.
(b) In the case of each offering made pursuant to this Agreement, each
Selling Holder, by exercising its registration rights hereunder, agrees to
indemnify and hold harmless, and to cause each underwriter of Registrable
Securities included in such offering (in the same manner and to the same extent
as set forth in Section 2.7(a)) to agree to indemnify and hold harmless as
follows: (i) each Selling Holder agrees to indemnify and hold harmless ELI,
each underwriter who participates in such offering, each other Selling Holder or
other holder with securities included in such offering; and, , (ii) each
underwriter agrees to indemnify and hold harmless ELI, each Selling Holder or
other holder with securities included in such offering. The foregoing
indemnified parties shall include, and each Selling Holder and each underwriter
shall indemnify and hold harmless, each Person, if any, who controls any of the
foregoing within the meaning of the Securities Act and the officers, directors,
affiliates, employees and agents of each of the foregoing, against any and all
losses, liabilities, costs (including reasonable attorneys' fees and
disbursements), claims and damages to which they or any of them may become
subject, under the Securities Act or otherwise, including any amount paid in
settlement of any litigation commenced or threatened, insofar as such losses,
liabilities, costs, claims and damages (or actions or proceedings in respect
thereof, whether or not such indemnified Person is a party thereto) arise out of
or are based upon any untrue statement or alleged untrue statement by such
Selling Holder or underwriter, as the case may be, of a material fact contained
in the registration statement (or in any preliminary or final prospectus
included therein) or in any offering memorandum or other offering document
relating to the offering and sale of such Registrable Securities prepared by
ELI, or at its direction, or any amendment thereof or supplement thereto, or any
omission by such Selling Holder or underwriter, as the case may be, or alleged
omission by such Selling Holder or underwriter, as the case may be, of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement of a material fact is contained in, or such material fact is omitted
from, information relating to such Selling Holder or underwriter, as the case
may be, and was furnished to ELI by or on behalf of such Selling Holder or
underwriter, as the case may be, specifically for use in such registration
statement (or in any preliminary or final prospectus included therein), offering
memorandum or other offering document. The foregoing indemnity is in addition to
any liability which such Selling Holder or underwriter, as the case may be, may
otherwise have to ELI, or controlling persons or the officers, directors,
affiliates, employees, and agents of each of the foregoing; provided, that, in
the case of an offering made pursuant to the Agreement with respect to which ELI
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has designated the lead or managing underwriters (or ELI is offering securities
directly, without an underwriter), this indemnity does not apply to any loss,
liability, cost, claim, or damage arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission in any
preliminary prospectus or offering memorandum if a copy of a final prospectus or
offering memorandum was not sent or given by or on behalf of any underwriter (or
ELI, as the case may be ) to such Person asserting such loss, liability, cost,
claim or damage at or prior to the written confirmation of the sale of the
Registrable Securities as required by the Securities Act and such untrue
statement or omission had been corrected in such final prospectus or offering
memorandum.
(c) Each party indemnified under paragraph (a) or (b), above, shall,
promptly after receipt of notice of a claim or action against such indemnified
party in respect of which indemnity may be sought hereunder, notify the
indemnifying party in writing of the claim or action; provided, that the failure
to notify the indemnifying party shall not relieve it from any liability that it
may have to an indemnified party on account of the indemnity agreement contained
in paragraph (a) or (b), above, except to the extent that the indemnifying party
was actually prejudiced by such failure, and in no event shall such failure
relieve the indemnifying party from any other liability that it may have to such
indemnified party. If any such claim or action shall be brought against an
indemnified party, and it shall have notified the indemnifying party thereof,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified party and indemnifying parties may exist in respect of
such claim, the indemnifying party shall be entitled to participate therein,
and, to the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel satisfactory to
the indemnified party. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or action,
the indemnifying party shall not be liable to the indemnified party under this
Section 2.7 for any legal or other expenses of the defense subsequently incurred
by the indemnified party in connection with the defense thereof other than (i)
if a conflict of interest between the indemnifying party and an indemnified
party exists, in which case, the indemnifying party shall pay the costs of one
legal counsel to the indemnified party and (ii) the reasonable costs of
investigation. Any indemnifying party against whom indemnity may be sought under
this Section 2.7 shall not be liable to indemnify an indemnified party if such
indemnified party settles such claim or action without the consent of the
indemnifying party. The indemnifying party may not agree to any settlement of
any such claim or action, other than solely for monetary damages for which the
indemnifying party shall be responsible hereunder, the result of which any
remedy or relief shall be applied to or against the indemnified party, without
the prior written consent of the indemnified party, which consent shall not be
unreasonably withheld. In any action hereunder as to which the indemnifying
party has assumed the defense thereof with counsel satisfactory to the
indemnified party, the indemnified party shall continue to be entitled to
participate in the defense thereof, with counsel of its own choice, but the
indemnifying party shall not be obligated hereunder to reimburse the indemnified
party for the costs thereof.
(d) If the indemnification provided for in this Section 2.7 shall for
any reason be unavailable (other than in accordance with its terms) to an
indemnified party in
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respect of any loss, liability, cost, claim or damage referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, liability, cost, claim or damage (i) as between ELI and the
Selling Holders on the one hand and the underwriters on the other, in such
proportion as shall be appropriate to reflect the relative benefits received by
ELI and the Selling Holders on the one hand and the underwriters on the other
hand or, if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of ELI and the Selling Holders on the one had and the
underwriters on the other with respect to the statements or omissions which
resulted in such loss, liability, cost, claim or damage as well as any other
relevant equitable considerations; and (ii) as between ELI on the one hand and
each Selling Holder on the other, in such proportion as is appropriate to
reflect the relative fault of ELI and of each Selling Holder in connection with
such statements or omissions as well as any other relevant equitable
considerations. The relative benefits received by ELI and the Selling Holders on
the one hand and the underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by ELI and the
Selling Holders bear to the total underwriting discounts and commissions
received by the underwriters, in each case as set forth in the table on the
cover page of the prospectus. The relative fault of ELI and the Selling Holders
on the one hand and of the underwriters on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by ELI and the Selling Holders or by the underwriters. The
relative fault of ELI on the one hand and of each Selling Holder on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, but not by reference to any
indemnified party's stock ownership in ELI. The amount paid or payable by an
indemnified party as a result of the loss, cost, claim, damage or liability, or
action in respect thereof, referred to above in this paragraph (d) shall be
deemed to include, for purposes of this paragraph (d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. ELI and the Selling Holders
agree that it would not be just and equitable if contribution pursuant to this
Section 2.7 were determined by pro rata allocation (even if the underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in this paragraph. Notwithstanding any other provision of this Section 2.7,
no Selling Holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities of such
Selling Holder were offered to the public exceeds the amount of any damages
which such Selling Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. Each Selling
Holder's obligations to contribute pursuant to this Section 2.7 are several in
proportion to the proceeds of the offering received by such Selling Holder bears
to the total proceeds of the offering received by all the Selling Holders and
not joint. No person guilty of fraudulent
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<PAGE>
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) Indemnification and contribution similar to that specified in the
preceding paragraphs of this Section 2.7 (with appropriate modifications) shall
be given by ELI, the Selling Holders and underwriters with respect to any
required registration or other qualification of securities under any state law
or regulation or governmental authority.
(f) The obligations of the parties under this Section 2.7 shall be in
addition to any liability which any party may otherwise have to any other party.
Section 2.8 RULE 144 AND FORM S-3. Commencing 90 days after the Initial
---------------------
Public Offering Date, ELI shall use its best efforts to ensure that the
conditions to the availability of Rule 144 set forth in paragraph (c) thereof
shall be satisfied. Upon the request of any Holder of Registrable Securities,
ELI will deliver to such Holder a written statement as to whether it has
complied with such requirements. ELI further agrees to use its reasonable
efforts to cause all conditions to the availability of Form S-3 (or any
successor form) under the Securities Act for the filing of registration
statements under this Agreement to be met as soon as practicable after the
Initial Public Offering Date. Notwithstanding anything contained in this Section
2.8, ELI may deregister under Section 12 of the Exchange Act, if it then is
permitted to do so pursuant to the Exchange Act and the rules and regulations
thereunder.
Section 2.9 TRANSFER OF REGISTRATION RIGHTS. Any Holder may transfer,
-------------------------------
sell or assign all or any portion of its registration rights under Article II to
any transferee of a number of Registrable Securities owned by such Holder
exceeding three percent (3%) of the outstanding class or series of such
securities at the time of transfer (each transferee that receives such minimum
number of Registrable Securities, a "Transferee"); provided, that each
Transferee of Registrable Securities to which Registrable Securities are
transferred, sold or assigned directly by Citizens or its Affiliates (such
Transferee, a "Citizens Transferee"), together with any Affiliate of such
Citizens Transferee (and any subsequent direct or indirect Transferees of
Registrable Securities from such Citizens Transferee and any of its Affiliates
(other than Citizens or its Affiliates) thereof), shall be entitled to request
the registration of Registrable Securities pursuant to Section 2.1 only once.
Any transfer of registration rights pursuant to this Section 2.9 shall be
effective upon receipt by ELI of (i) written notice from such Holder stating the
name and address of any Transferee and identifying the number of Registrable
Securities with respect to which the rights under this Agreement are being
transferred and the nature of the rights so transferred; and (ii) a written
agreement from such Transferee to be bound by the terms of this Article II and
Article IV of this Agreement as if an original party hereto. The Holders may
exercise their rights hereunder in such priority as they shall agree upon among
themselves.
Section 2.10 HOLDBACK AGREEMENT. If any registration pursuant to this
------------------
Article II shall be in connection with an underwritten public offering of
Registrable
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Securities, each Selling Holder agrees not to effect any public sale or
distribution, including any sale under rule 144, of any equity security of ELI
(otherwise than through the registered public offering then being made), within
seven (7) days prior to or 180 days (or such lesser period as the lead or
managing underwriters may permit) after the effective date of the registration
statement (or the commencement of the offering to the public of such Registrable
Securities in the case of Rule 415 offerings). ELI hereby also so agrees and
agrees to cause each other holder of equity securities or securities convertible
into or exchangeable or exercisable for such securities (other than in the case
of equity securities, under dividend reinvestment plans or employee stock plans)
purchased from ELI otherwise than in a public offering to so agree.
ARTICLE III
CERTAIN COVENANTS AND AGREEMENTS
--------------------------------
Section 3.1 NO VIOLATIONS.
-------------
(a) Until Citizens beneficially owns less than 40% of the outstanding
Common Stock, ELI covenants and agrees that it will not take any action or enter
into any commitment or agreement which may reasonably be anticipated to result,
with or without notice and with or without lapse of time or otherwise, in a
contravention or event of default by Citizens of: (i) any provisions of
applicable law or regulation, including but not limited to provisions pertaining
to the Internal Revenue Code of 1986, as amended, or the Employee Retirement
Income Security Act of 1974, as amended; (ii) any provision of Citizens'
Articles of Incorporation or By-Laws; (iii) any credit agreement or other
material instrument binding upon Citizens; or (iv) any judgment, order or decree
of any governmental body, agency or court having jurisdiction over Citizens or
any of its Affiliates or any of their respective assets.
(b) ELI and Citizens agree to provide to the other any information and
documentation requested by the other for the purpose of evaluating and ensuring
compliance with Section 3.1(a) hereof.
(c) Notwithstanding the foregoing Sections 3.1(a) and 3.1(b), nothing
in this Agreement is intended to limit or restrict in any way the ability of
Citizens to effect, restrict or limit any action or proposed action of ELI,
including, but not limited to, the incurrence by ELI of indebtedness, based upon
Citizens' internal policies or other factors.
ARTICLE IV
MISCELLANEOUS
-------------
Section 4.1 LIMITATION OF LIABILITY. Neither Citizens nor ELI shall be
-----------------------
liable to the other for any special, indirect, incidental or consequential
damages of the other arising in connection with this Agreement.
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Section 4.2 AMENDMENTS. This Agreement may not be amended or terminated
----------
orally, but only by a writing duly executed by or on behalf of the parties
hereto. Any such amendment shall be validly and sufficiently authorized for
purposes of this Agreement if it is signed on behalf of Citizens and ELI.
Section 4.3 TERM. This Agreement shall remain in effect until all
----
Registrable Securities held by Holders have been transferred by them to Persons
other than Transferees; provided, that the provisions of Section 2.7 shall
survive any such expiration.
Section 4.4 SEVERABILITY. If any provision of this Agreement or the
------------
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid, illegal or
unenforceable to any extent, the remainder of this Agreement or such provision
of the application of such provision to such party or circumstances, other than
those to which it is so determined to be invalid, illegal or unenforceable,
shall remain in full force and effect to the fullest extent permitted by law and
shall not be affected thereby, unless such a construction would be unreasonable.
Section 4.5 NOTICES. All notices and other communications required or
-------
permitted hereunder shall be in writing, shall be deemed duly given upon actual
receipt, and shall be delivered: (a) in person; (b) by registered or certified
mail, postage prepaid, return receipt requested; or (c) by facsimile or other
generally accepted means of electronic transmission (provided that a copy of any
notice delivered pursuant to this clause (c) shall also be sent pursuant to
clause (b)), addressed as follows:
(a) IF TO ELI:
Electric Lightwave, Inc.
8100 N.E. Parkway Drive, Suite 150
Vancouver, Washington 98662
Attn: David B. Sharkey
Fax: (360) 243-4425
(b) IF TO CITIZENS:
Citizens Utilities Company.
High Ridge Park
Stamford, Connecticut 06905
Attn: Robert J. DeSantis
Fax: (203) 329-4625
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
Section 4.6 FURTHER ASSURANCES. Citizens and ELI shall execute,
------------------
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
such instruments and take such other action as may be necessary or advisable to
carry out their
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obligations under this Agreement and under any exhibit, document or other
instrument delivered pursuant hereto.
Section 4.7 COUNTERPARTS. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed an original instrument, but all
of which together shall constitute but one and the same agreement.
Section 4.8 GOVERNING LAW. This Agreement and the transactions
-------------
contemplated hereby shall be construed in accordance with, and governed by, the
laws of the State of New York without regard to the conflict of laws provisions
of any jurisdiction.
Section 4.9 ENTIRE AGREEMENT. This Agreement constitutes the entire
----------------
understanding of the parties hereto with respect to the subject matter hereof.
Section 4.10 SUCCESSORS. This Agreement shall be binding upon, and shall
----------
inure to the benefit of, the parties hereto and their respective successors and
assigns. Nothing contained in this Agreement, express or implied, is intended to
confer upon any other person or entity any benefits, rights or remedies.
Section 4.11 SPECIFIC PERFORMANCE. The parties hereto acknowledge and
--------------------
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, it is agreed that they
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United States or
any state thereof, in addition to any other remedy to which they may be entitled
at law or equity.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
CITIZENS UTILITIES COMPANY
By:
---------------------------------
Name:
Title:
ELECTRIC LIGHTWAVE, INC.
By:
---------------------------------
Name:
Title:
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<PAGE>
EXHIBIT 10.11
FORM OF CUSTOMERS AND SERVICE AGREEMENT
---------------------------------------
THIS CUSTOMERS AND SERVICE AGREEMENT (this "Agreement") is made as of
the ____ day of November, 1997, between Citizens Utilities Company, a Delaware
corporation ("Citizens"), and Electric Lightwave Inc., a Delaware corporation
("ELI").
RECITALS
A. Citizens owns all of the issued and outstanding Class B Common Stock
of ELI.
B. ELI is effecting an initial public offering (the "Offering") of
shares of its Class A Common Stock (the "Class A Common Stock").
C. In order to preserve and continue to maximize the business
opportunities available to both ELI and Citizens after the Offering,
ELI and Citizens desire to execute and deliver this Agreement.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in consideration of their
mutual promises and obligations herein contained and intending to be legally
bound hereby, the parties do hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, in addition to the terms
defined in the Preamble and Recitals, the following terms will have the
following meanings, applicable to both the singular and plural forms of the
terms described.
"Affiliate" means any company, firm or person ("person") which directly
or indirectly controls, is controlled by, or is under common control with a
person. A person is regarded in control of another person if it owns, or
directly or indirectly controls, at least 50% of the voting power or other
ownership interest of the other person, or if it directly or indirectly
possesses the power to direct or cause the direction of the management and
policies of the other person by any means whatsoever; provided, however, that
for the purposes of this Agreement, ELI and its subsidiaries shall not be
Affiliates of Citizens, and Citizens and its subsidiaries (other than persons
which are subsidiaries of ELI) shall not be Affiliates of ELI.
"Citizens" shall include Citizens Affiliates.
<PAGE>
"Citizens Area" means a geographic area (designated by telephone
exchange or otherwise) in which Citizens is the Incumbent Local Exchange Carrier
(as defined by the Telecommunications Act of 1996).
"Citizens Retail Customer" as of any time means a retail customer of
Citizens at that time.
"Citizens Potential Retail Customer" means a potential Citizens Retail
Customer with a place of business or residence in a Citizens Area.
"Citizens Services" means telecommunications services offered or
rendered by Citizens.
Citizens Wholesale Customer" as of any time means a wholesale customer
of Citizens at that time.
"Effective Date" means the date on which the first purchase and sale of
shares of Class A Common Stock by the Company pursuant to the Offering occurs.
"ELI" shall include ELI Affiliates.
"ELI Retail Customer" as of any time means a retail customer of ELI at
that time.
"ELI Location" means a geographic location in which ELI is offering or
rendering telecommunications services and where, if a franchise, certificate,
permit or other governmental authorization is required by law, regulation or
order, the same shall have been obtained.
"ELI Potential Retail Customer" means a potential ELI Retail Customer
with a place of business or residence in an ELI Location.
"ELI Services" means telecommunications services offered or rendered by
ELI.
"ELI Wholesale Customer" as of any time means a wholesale customer of
ELI at that time.
"Less Dense Area" shall mean the portion or portions of a Citizens Area,
which may be the entire Citizens Area, (a) that was not an ELI Location or
Citizens Area on the Effective Date and (b) that is, or is a part of, or
includes, a city, town, village or other metropolitan area with a population of
less than 50,000. If a Citizens Area acquired after the Effective Date is
predominately comprised of cities, towns, villages or other metropolitan areas
with a population of less than 50,000, the entire Citizens Area shall be deemed
to be a Less Dense Area. In addition, if a Citizens Area acquired after the
Effective Date is or is a part of, or includes, a city, town, village or other
metropolitan area with a population of 50,000 or more, the territory which is
within the city, town, village or other metropolitan area with a population of
more than 50,000 shall be included in the term Less Dense Area if such territory
was acquired by Citizens in a
2
<PAGE>
transaction ("Transaction") in which the consideration allocated to such
territories was less than 50% of the total consideration paid in the
Transaction.
"More Dense Area" shall mean a service territory that is not an ELI
Location or Citizens Area on the Effective Date and that is not a Less Dense
Area.
1.2 INTERNAL REFERENCES. Unless the context indicates otherwise,
references to articles, sections and paragraphs shall refer to the corresponding
articles, sections and paragraphs in this Agreement, and references to the
parties shall mean the parties to this Agreement.
ARTICLE 2
COMPETITION AND BUSINESS OPPORTUNITIES
2.1 SERVICES OF ELI. ELI agrees that, during the term of this
Agreement, ELI will not offer or sell ELI Services to a Citizens Retail Customer
or Citizens Potential Retail Customer located in (a) a Citizens Area that
existed on the Effective Date; or (b) a Less Dense Area which has become a
Citizens Area after the Effective Date and before it becomes an ELI Location,
provided that ELI may continue to provide ELI Services to any ELI Retail
Customer existing on the Effective Date pursuant to then existing contracts or
other customer agreements and any renewals or extensions thereof.
2.2 SERVICES OF CITIZENS. Citizens agrees that, during the term of
this Agreement, Citizens will not offer or sell Citizens Services to an ELI
Retail Customer or ELI Potential Retail Customer located in (a) an ELI Location
that existed on the Effective Date, or (b) a More Dense Area which has become an
ELI Location after the Effective Date and before it becomes a Citizens
Area,provided that Citizens may continue to provide Citizens Services to any
Citizens Retail Customer existing on the Effective Date pursuant to then
existing contracts or other customer agreements and any renewals or extensions
thereof.
2.3 OTHER AREAS. ELI may offer and sell ELI Services to a Citizens
possible future retail customer (but not to a then current retail customer or
retail customer under contract to Citizens) in any area not restricted by
Section 2.1. Citizens may offer and sell Citizens Services to an ELI possible
future retail customer (but not to a then current retail customer or retail
customer under contract to ELI) in any area not restricted by Section 2.2.
2.4 WHOLESALE CUSTOMERS. (a) During the term of this Agreement, ELI
may not offer or sell to a Citizens Wholesale Customer ELI Services of the same
nature and serving the same geographic area as the services which the customer
is then currently receiving under contract from Citizens.
(b) During the term of this Agreement, Citizens may not offer or sell to
an ELI Wholesale Customer Citizens Services of the same nature and serving the
same geographic area as the services which the customer is then currently
receiving under contract from ELI.
3
<PAGE>
2.5 WAIVER. The foregoing limitations on ELI's and Citizen's offering
or selling telecommunications services apply only to the extent that both ELI
and Citizens are offering or selling telecommunications service of the same
nature to the same customers or potential customers. Such limitations shall not
apply to the extent that both Citizens and ELI agree in writing to waive such
limitations in the case of specific customers, services or geographic areas.
ARTICLE 3
TERM AND TERMINATION
3.1 TERM. The term of this Agreement shall commence on the Effective
Date and, unless terminated earlier pursuant to Section 3.2, shall continue
until the first to occur of (a) the date on which Citizens and its Affiliates
own shares representing less than a majority of the ordinary voting power of the
outstanding capital stock of ELI, or (b) the date on which the designees or
representatives of Citizens cease to constitute a majority of the board of
directors of ELI.
3.2 TERMINATION. Citizens shall have the right to terminate this
Agreement upon the occurrence of any material breach of this Agreement by ELI or
any of its Affiliates that is not cured within thirty (30) days after receipt of
written notice of such breach from Citizens.
ARTICLE 4
RESOLUTION OF DISPUTES
4.1 ARBITRATION. Any dispute, controversy or claim between Citizens
and ELI arising out of or relating to this Agreement or any agreements or
instruments relating hereto or delivered in connection herewith, will be
resolved by arbitration conducted in Stamford, Connecticut under the auspices
and according to the Commercial Arbitration Rules of the American Arbitration
Association. The arbitration shall be conducted in accordance with the United
States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement.
ARTICLE 5
MISCELLANEOUS PROVISIONS
5.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York without regard to principles of
conflicts of laws of any jurisdiction.
5.2 NOTICES. Any notice permitted or required by this Agreement shall
be deemed given when sent by personal service, by certified or registered mail
return receipt requested, postage prepaid, by facsimile transmission or by
overnight delivery by a nationally recognized courier and addressed as follows:
IF TO CITIZENS: Citizens Utilities Company
4
<PAGE>
High Ridge Park
Stamford, Connecticut 06905
Attn: Robert J. DeSantis
Fax No.: (203) 329-4651
IF TO ELI: Electric Lightwave Inc.
8100 N.E. Parkway Drive, Suite 150
Vancouver, Washington 98662
Attn: David B. Sharkey
Fax No.: (360) 243-4425
Actual receipt of notice or other communication shall overcome any deficiency in
manner of delivery thereof.
5.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed by both parties to this Agreement,
shall be deemed to be an original, and all of which counterparts together shall
constitute one and the same instrument.
5.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to its subject matter, superseding all prior oral
and written communications, proposals, negotiations, representations,
understandings, courses of dealing, agreements, contracts, and the like between
the parties.
5.5 AMENDMENTS. This Agreement may be changed, amended, modified, or
rescinded only by an instrument in writing signed by the party against which
enforcement of such change, amendment, modification or rescission is sought.
5.6 WAIVERS. No waiver by any party of any condition, or breach of any
provision of this Agreement, in any one or more instances, shall be deemed to be
or construed as a waiver of any other condition or of the breach of any other
provision of this Agreement.
5.7 RELATIONSHIP. Nothing in this Agreement shall be deemed to create
a partnership, joint venture or agency relationship between the parties. Both
parties are independent contractors and neither party is to be considered the
agent or legal representative of the other for any purpose whatsoever under this
Agreement.
5.8 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties and their respective successors and assigns, except that
no obligation under this Agreement may be delegated, nor may any rights under
this Agreement be assigned by either party, without the prior written consent of
the other party, except by operation of law. Any such purported assignment of
this Agreement by either party without the prior written consent of the other
party shall be void and without effect. Except as expressly provided in this
Agreement, the parties hereto intend that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person other than the
parties hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CITIZENS UTILITIES COMPANY
By: _____________________________
Name:
Title:
ELECTRIC LIGHTWAVE, INC.
By ________________________________
Name:
Title:
6
<PAGE>
EXHIBIT 10.12
================================================================================
$400,000,000
CREDIT AGREEMENT
Dated as of November __, 1997
Among
ELECTRIC LIGHTWAVE, INC.
as Borrower
CITIZENS UTILITIES COMPANY
as Parent Guarantor
and
THE LENDERS NAMED HEREIN
as Lenders
and
CITIBANK, N.A.
as Administrative Agent
================================================================================
<PAGE>
T A B L E O F C O N T E N T S
- - - - - - - - - - - - - - -
Section Page
- ------- ----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms........................................ 1
SECTION 1.02. Computation of Time Periods.................................. 14
SECTION 1.03. Accounting Terms............................................. 14
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The A Advances............................................... 14
SECTION 2.02. Making the A Advances........................................ 15
SECTION 2.03. The B Advances............................................... 16
SECTION 2.04. Certain Fees................................................. 21
SECTION 2.05. Changes in and Extensions of the
Commitments.......................................... 21
SECTION 2.06. Repayment of A Advances...................................... 23
SECTION 2.07. Interest..................................................... 23
SECTION 2.08. Additional Interest on Eurodollar Rate
Advances............................................. 24
SECTION 2.09. Interest Rate Determinations; Changes in
Rating Systems....................................... 25
SECTION 2.10. Voluntary Conversion and Continuation of
A Advances........................................... 27
SECTION 2.11. Prepayments of A Advances.................................... 28
SECTION 2.12. Increased Costs.............................................. 28
SECTION 2.13. Illegality................................................... 29
SECTION 2.14. Payments and Computations.................................... 30
SECTION 2.15. Taxes........................................................ 32
SECTION 2.16. Sharing of Payments, Etc..................................... 34
SECTION 2.17. Replacement of Lenders....................................... 35
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. All Borrowings............................................... 36
SECTION 3.02. First Borrowing.............................................. 36
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Organization; Powers; Governmental
Approvals............................................ 38
SECTION 4.02. Financial Statements. ...................................... 38
SECTION 4.03. No Material Adverse Change................................... 39
SECTION 4.04. Title to Properties; Possession Under
Leases............................................... 39
(i)
<PAGE>
Section Page
- ------- ----
SECTION 4.05. Ownership of Subsidiaries.................................... 40
SECTION 4.06. Litigation; Compliance with Laws............................. 40
SECTION 4.07. Agreements................................................... 40
SECTION 4.08. Federal Reserve Regulations.................................. 40
SECTION 4.09. Investment Company Act; Public Utility
Holding Company Act.................................. 40
SECTION 4.10. Use of Proceeds.............................................. 41
SECTION 4.11. Tax Returns.................................................. 41
SECTION 4.12. No Material Misstatements.................................... 41
SECTION 4.13. Employee Benefit Plans....................................... 41
SECTION 4.14. Insurance.................................................... 42
ARTICLE V
AFFIRMATIVE COVENANTS
SECTION 5.01. Existence, Businesses and Properties......................... 42
SECTION 5.02. Financial Statements, Reports, etc........................... 43
SECTION 5.03. Litigation and other Notices................................. 44
SECTION 5.04. Maintaining Records.......................................... 45
SECTION 5.05. Use of Proceeds.............................................. 45
ARTICLE VI
NEGATIVE COVENANTS
SECTION 6.01. Liens........................................................ 46
SECTION 6.02. Ownership of the Principal Subsidiaries...................... 46
SECTION 6.03. Asset Sales.................................................. 46
SECTION 6.04. Mergers...................................................... 47
SECTION 6.05. Restrictions on Dividends.................................... 47
SECTION 6.06. Transactions with Affiliates................................. 48
SECTION 6.07. Minimum Consolidated Net Worth............................... 48
ARTICLE VII
EVENTS OF DEFAULT
ARTICLE VIII
THE ADMINISTRATIVE AGENT
SECTION 8.01. Authorization and Action..................................... 51
SECTION 8.02. Administrative Agent's Reliance, Etc......................... 52
SECTION 8.03. Citibank and Affiliates...................................... 52
SECTION 8.04. Lender Credit Decision....................................... 53
SECTION 8.05. Indemnification.............................................. 53
SECTION 8.06. Successor Administrative Agent............................... 53
(ii)
<PAGE>
Section Page
- ------- ----
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc.............................................. 54
SECTION 9.02. Notices, Etc................................................. 55
SECTION 9.03. No Waiver; Remedies.......................................... 55
SECTION 9.04. Costs, Expenses and Indemnification.......................... 56
SECTION 9.05. Right of Set-off............................................. 57
SECTION 9.06. Binding Effect............................................... 58
SECTION 9.07. Assignments, Designations and
Participations....................................... 58
SECTION 9.08. Governing Law; Submission to
Jurisdiction......................................... 63
SECTION 9.09. Severability................................................. 63
SECTION 9.10. Execution in Counterparts.................................... 63
SECTION 9.11. Survival..................................................... 63
SECTION 9.12. Waiver of Jury Trial......................................... 64
SECTION 9.13. Substitution of Lender....................................... 64
SECTION 9.14. Confidentiality.............................................. 65
ARTICLE X
GUARANTEE
SECTION 10.01 The Guarantee................................................ 65
SECTION 10.02 Obligations Unconditional.................................... 66
SECTION 10.03 Reinstatement................................................ 67
SECTION 10.04 Subrogation.................................................. 67
SECTION 10.05 Remedies..................................................... 67
SECTION 10.07 Continuing Guarantee......................................... 68
SECTION 10.08 General Limitation on Guarantee
Obligations.......................................... 68
SECTION 10.09 Effectiveness of Guarantee................................... 68
ARTICLE XI
SUBORDINATION OF CERTAIN INTERCOMPANY OBLIGATIONS
SECTION 11.01. Certain Definitions
SECTION 11.02 Subordination of Subordinated
Obligations.......................................... 69
SECTION 11.03 Payment of Proceeds Upon Dissolution......................... 69
SECTION 11.04 No Prepayment................................................ 71
SECTION 11.05 Subrogation.................................................. 72
SECTION 11.06 Provisions Solely to Define Relative
Rights............................................... 72
SECTION 11.07 No Waiver of Subordination Provisions........................ 72
SECTION 11.08 Termination.................................................. 73
(iii)
<PAGE>
EXHIBITS
--------
Exhibit A-1 - Form of A Note
Exhibit A-2 - Form of B Note
Exhibit B-1 - Form of Notice of A Borrowing
Exhibit B-2 - Form of Notice of B Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Designation Agreement
Exhibit E - Form of Opinion of Assistant General
Counsel of the Borrower
Exhibit F - Form of Opinion of Special New York
Counsel to the Administrative Agent
(iv)
<PAGE>
CREDIT AGREEMENT, dated as of November __, 1997, among ELECTRIC
LIGHTWAVE, INC., a Delaware corporation (the "Borrower"), CITIZENS UTILITIES
--------
COMPANY, a Delaware corporation (the "Parent Guarantor"), the subsidiaries of
----------------
the Parent Guarantor (the "Subsidiary Guarantors" and, together with the Parent
---------------------
Guarantor, the "Guarantors") listed on the signature pages hereof under the
----------
caption the "SUBSIDIARY GUARANTORS", the banks (the "Banks") listed on the
-----
signature pages hereof under the caption "BANKS", and CITIBANK, N.A., a national
banking corporation, as administrative agent (in such capacity, the
"Administrative Agent").
- ---------------------
The Borrower and the Parent Guarantor have requested the Banks to
extend credit to the Borrower in order to enable the Borrower to borrow on a
revolving credit basis, on and after the date hereof and at any time and from
time to time prior to the Commitment Termination Date (as hereinafter defined) a
principal amount not in excess of $400,000,000 at any time outstanding. The
Borrower and the Parent Guarantor have also requested the Banks to provide a
procedure pursuant to which the Borrower may invite the Banks to bid on an
uncommitted basis on short-term borrowings by the Borrower. The proceeds of
such borrowings are to be used to repay certain intercompany indebtedness owing
to the Parent Guarantor, to provide working capital and for other general
corporate purposes of the Borrower. The Subsidiary Guarantors have agreed to
guarantee the Borrower's obligations hereunder until such time as the Parent
Guarantor receives regulatory approval to guarantee such obligations, at which
time the obligations of the Parent Guarantor hereunder shall become effective
and the Subsidiary Guarantors' obligations hereunder shall terminate. The Banks
are willing to extend such credit to the Borrower on the terms and subject to
the conditions herein set forth.
Accordingly, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"A Advance" means an advance by a Lender to the Borrower as part of an
---------
A Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance,
each of which shall be a "Type" of A Advance.
----
Credit Agreement
----------------
<PAGE>
- 2 -
"A Borrowing" means (a) a borrowing consisting of simultaneous A
-----------
Advances of the same Type having the same Interest Period and (b) other
than for purposes of Sections 2.02 and 3.02, (i) the simultaneous
Conversion of A Advances of one Type to A Advances of the other Type
(having, in the case of Conversions into Eurodollar Rate Advances, the same
Interest Period) and (ii) the simultaneous Continuation of Eurodollar Rate
Advances as Eurodollar Rate Advances having the same Interest Period.
"A Note" means a promissory note of the Borrower payable to the order
------
of any Lender, in substantially the form of Exhibit A-1 hereto, evidencing
the aggregate indebtedness of the Borrower to such Lender resulting from
the A Advances made by such Lender.
"Advance" means an A Advance or a B Advance.
-------
"Administrative Fees" has the meaning assigned to such term in Section
-------------------
2.04(b).
"Administrative Questionnaire" means an administrative questionnaire
----------------------------
furnished by each Bank to the Administrative Agent in connection with the
execution and delivery of this Agreement.
"Affiliate" means, when used with respect to a specified person,
---------
another person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled or is under common Control with
the person specified.
"Applicable Facility Fee Rate" means:
----------------------------
(i) 5 basis points per annum at such times as (A) the Senior Debt of
the Parent Guarantor shall be rated at least Aa3 by Moody's or at least AA-
by S&P, or (B) the Parent Guarantor's outstanding commercial paper shall be
rated at least P1 by Moody's and at least A1 by S&P;
(ii) 8 basis points per annum at such time as (A) the Senior Debt of
the Parent Guarantor shall be rated less than Aa3 by Moody's and less than
AA- by S&P but at least Baa3 by Moody's and at least BBB- by S&P, and (B)
the Parent Guarantor's outstanding commercial paper shall be rated P2 by
Moody's or A2 by S&P; and
(iii) 22.5 basis points per annum at all other times.
Credit Agreement
----------------
<PAGE>
- 3 -
Any change in the Applicable Facility Fee Rate shall be effective on the
date on which the applicable rating agency announces the applicable change
in rating.
"Applicable Lending Office" means, with respect to each Lender, such
-------------------------
Lender's Domestic Lending Office in the case of a Base Rate Advance and
such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance and, in the case of a B Advance, the office of such Lender notified
by such Lender to the Administrative Agent as its Applicable Lending Office
with respect to such B Advance.
"Applicable Margin" means:
-----------------
(i) 13 basis points per annum with respect to Eurodollar Rate
Advances at such times as (A) the Senior Debt of the Parent Guarantor shall
be rated at least Aa3 by Moody's or at least AA- by S&P, or (B) the Parent
Guarantor's outstanding commercial paper shall be rated at least Pl by
Moody's and at least Al by S&P;
(ii) 17 basis points per annum with respect to Eurodollar Rate
Advances at such times as (A) the Senior Debt of the Parent Guarantor shall
be rated less than Aa3 by Moody's and less than AA- by S&P but shall be
rated at least Baa3 by Moody's and at least BBB- by S&P, and (B) the Parent
Guarantor's outstanding commercial paper shall be rated P2 by Moody's or A2
by S&P; and
(iii) 52.5 basis points per annum with respect to Eurodollar Rate
Advances at all other times.
Any change in the Applicable Margin shall be effective on the date on which
the applicable rating agency announces the applicable change in rating.
"Approval Date" means the date on which the Parent Guarantor delivers
-------------
to the Administrative Agent evidence reasonably satisfactory to the
Administrative Agent that the Parent Guarantor has received the FERC
Approval and the VPSB Approval.
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C hereto.
"B Advance" means an advance by a Lender to the Borrower as part of a
---------
B Borrowing resulting from the auction bidding procedure described in
Section 2.03.
Credit Agreement
----------------
<PAGE>
- 4 -
"B Borrowing" means a borrowing consisting of simultaneous B Advances
-----------
from each of the Lenders whose offer to make one or more B Advances as part of
such borrowing has been accepted by the Borrower under the auction bidding
procedure described in Section 2.03.
"B Note" means a promissory note of the Borrower payable to the order
------
of any Lender, in substantially the form of Exhibit A-2 hereto, evidencing
the indebtedness of the Borrower to such Lender resulting from a B Advance
made by such Lender.
"B Reduction" has the meaning specified in Section 2.01.
-----------
"Base Rate" means, for any period, a fluctuating interest rate per
---------
annum in effect from time to time which rate per annum shall at all times
be equal to the higher of:
(a) the rate of interest announced publicly by Citibank in New
York, New York from time to time as Citibank's base rate; and
(b) 1/2 of one percent per annum above the Federal Funds Rate
for such period.
"Base Rate Advance" means an A Advance which bears interest as
-----------------
provided in Section 2.07(a)(i) or 2.07(b)(i)(x).
"Board" means the Board of Governors of the Federal Reserve System of
-----
the United States.
"Borrowing" means an A Borrowing or a B Borrowing.
---------
"Business Day" means a day of the year on which banks are not required
------------
or authorized to close in New York City and, if the applicable Business Day
relates to any Eurodollar Rate Advance, on which dealings are carried on in
the London interbank market.
"Capital Lease Obligations" of any person means the obligations of
-------------------------
such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under
GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such
time determined in accordance with GAAP.
Credit Agreement
----------------
<PAGE>
- 5 -
A "Change in Control" shall be deemed to have occurred if (a) any
-----------------
person or group (within the meaning of Rule 13d-5 of the Securities and
Exchange Commission as in effect on the date hereof) shall own directly or
indirectly, beneficially or of record, shares representing more than 49% of
the aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Parent Guarantor; or (b) a majority of the
seats (other than vacant seats) on the board of directors of the Parent
Guarantor shall at any time have been occupied by persons who were neither
(i) nominated by the management of the Parent Guarantor nor (ii) appointed
by directors so nominated; or (c) any person or group shall otherwise
directly or indirectly Control the Parent Guarantor.
"Closing Date" means the date of the first Borrowing hereunder or such
------------
earlier date as the parties may agree.
"Code" means the Internal Revenue Code of 1986, as the same may be
----
amended from time to time.
"Commitment" has the meaning specified in Section 2.01.
----------
"Commitment Termination Date" means the fifth anniversary of the date
---------------------------
hereof or such later date to which the Commitment Termination Date is
extended pursuant to Section 2.05(c), provided in each case that if such
--------
date is not a Business Day, then the Commitment Termination Date shall be
the immediately preceding Business Day.
"Consolidated Net Worth" means, as at any date of determination, the
----------------------
consolidated stockholders' equity of the Parent Guarantor and its
consolidated Subsidiaries, as determined on a consolidated basis in
conformity with GAAP consistently applied.
"Consolidated Tangible Assets" of any person means total assets of
----------------------------
such person and its consolidated Subsidiaries, determined on a consolidated
basis, less goodwill, patents, trademarks and other assets classified as
intangible assets in accordance with GAAP.
"Continuation", "Continue" and "Continued" each refers to a
------------ -------- ---------
continuation of Eurodollar Rate Advances from one Interest Period to the
next Interest Period pursuant to Section 2.10.
"Control" means the possession, directly or indirectly, of the power
-------
to direct or cause the direction of the management or policies of a person,
whether through the ownership of voting securities, by contract or
otherwise,
Credit Agreement
----------------
<PAGE>
- 6 -
and "Controlling" and "Controlled" shall have meanings correlative thereto.
"Convert", "Conversion" and "Converted" each refers to a conversion of
------- ---------- ---------
Advances of one Type into Advances of the other Type pursuant to Section
2.09 or 2.10.
"Default" means any event or condition which upon notice, lapse of
-------
time, or both would constitute an Event of Default.
"Designated Bidder" means (a) an Eligible Assignee or (b) a special
-----------------
purpose corporation which is engaged in making, purchasing or otherwise
investing in commercial loans in the ordinary course of its business and
that issues (or the parent of which issues) commercial paper rated at least
P-1 by Moody's or A-1 by S&P (or a comparable rating from a successor of
either of them), that, in either case, (i) is organized under the laws of
the United States or any State thereof, (ii) shall have become a party
hereto pursuant to Section 9.07(d), (e) and (f), and (iii) is not otherwise
a Lender.
"Designation Agreement" means a designation agreement entered into by
---------------------
a Lender (other than a Designated Bidder) and a Designated Bidder, and
accepted by the Administrative Agent, in substantially the form of Exhibit
D hereto.
"Domestic Lending Office" means, with respect to any Lender, the
-----------------------
office of such Lender specified as its "Domestic Lending Office" in the
Administrative Questionnaire of such Lender or in the Assignment and
Acceptance pursuant to which it became a Lender, or such other office of
such Lender as such Lender may from time to time specify to the Borrower
and the Administrative Agent.
"Effective Date" means the earliest date as of which the conditions
--------------
precedent to effectiveness set forth in Section 3.01 shall have been
satisfied or waived.
"Eligible Assignee" means:
-----------------
(a) a commercial bank organized under the laws of the United States,
or any State thereof, and having total assets in excess of $100,000,000;
(b) a savings and loan association or savings bank organized under
the laws of the United States, or any State thereof, and having total
assets in excess of $100,000,000;
Credit Agreement
----------------
<PAGE>
- 7 -
(c) a commercial bank organized under the laws of any other country
which is a member of the OECD or has concluded special lending arrangements
with the International Monetary Fund associated with its General
Arrangements to Borrow or of the Cayman Islands, or a political subdivision
of any such country, and having total assets in excess of $100,000,000,
provided that such bank is acting through a branch or agency located in the
--------
United States;
(d) the central bank of any country which is a member of the OECD;
(e) a finance company, insurance company or other financial
institution or fund (whether a corporation, partnership or other entity)
which is engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business, and having total assets in
excess of $100,000,000;
(f) a Lender; and
(g) an Affiliate of a Lender;
provided that neither the Borrower nor any Affiliate of the Borrower shall
--------
qualify as an Eligible Assignee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
the same may be amended from time to time, and the regulations promulgated
and the rulings issued thereunder.
"ERISA Affiliate" means each trade or business (whether or not
---------------
incorporated) which together with the Parent Guarantor or a Subsidiary of
the Parent Guarantor would be deemed to be a "single employer" within the
meaning of Section 4001(b)(1) of ERISA.
"ERISA Termination Event" means (i) a "Reportable Event" described in
-----------------------
Section 4043 of ERISA (other than a "Reportable Event" not subject to the
provision for 30-day notice to the PBGC under such regulations), or (ii)
the withdrawal of the Parent Guarantor or any of its ERISA Affiliates from
a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of
intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (iv) the institution of
proceeding to terminate a Plan by the PBGC or (v) any other event or
condition which might constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any
Plan.
Credit Agreement
----------------
<PAGE>
- 8 -
"Eurocurrency Liabilities" has the meaning assigned to that term in
------------------------
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender, the
-------------------------
office of such Lender specified as its "Eurodollar Lending Office" in the
Administrative Questionnaire of such Lender or in the Assignment and
Acceptance pursuant to which it became a Lender (or, if no such office is
specified, its Domestic Lending Office), or such other office of such
Lender as such Lender may from time to time specify to the Borrower and the
Administrative Agent.
"Eurodollar Rate" means, with respect to any Eurodollar Rate Advance
---------------
for any Interest Period, the rate (rounded upward to the nearest 1/16 of
1%) appearing on Page 3750 of the Dow Jones Markets Service (or on any
successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations
of interest rates applicable to dollar deposits in the London interbank
market) at approximately 11:00 a.m., London time, two Business Days prior
to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event
that such rate is not available at such time for any reason, then the
"Eurodollar Rate" with respect to such Eurodollar Rate Advance for such
----------------
Interest Period shall be the average (rounded upward to the nearest 1/16 of
1%) of the rates at which dollar deposits of $5,000,000 and for a maturity
comparable to such Interest Period are offered by the principal London
offices of the Reference Banks in immediately available funds in the London
interbank market at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period.
"Eurodollar Rate Advance" means an A Advance which bears interest as
-----------------------
provided in Section 2.07(a)(ii) or 2.07(b)(i)(y).
"Eurodollar Rate Reserve Percentage" of any Lender for any Interest
----------------------------------
Period for any Eurodollar Rate Advance means the effective rate (expressed
as a percentage) at which reserve requirements (including, without
limitation, emergency, supplemental and other marginal reserve
requirements) are imposed on such Lender during such Interest Period (or if
more than one such percentage shall be so applicable, the daily average of
such percentages for
Credit Agreement
----------------
<PAGE>
- 9 -
those days in such Interest Period during which any such percentage shall
be so applicable) under regulations issued from time to time by the Board
of Governors of the Federal Reserve System (or any successor) with respect
to liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.
"Event of Default" has the meaning assigned to such term in Article
----------------
VII.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time.
"Excluded Period" means, with respect to any additional amount payable
---------------
under Section 2.12, the period falling prior to the applicable Lender's
delivery of a certificate referenced in Section 2.12(a) or 2.12(b), as
applicable, with respect to such additional amount.
"Facility Fee" has the meaning assigned to such term in Section
------------
2.04(a).
"Federal Funds Rate" means, for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized
standing selected by it.
"Fees" means the Facility Fee and the Administrative Fees.
----
"FERC Approval" means the approval by the Federal Energy Regulatory
-------------
Commission required for the obligations of the Parent Guarantor's
obligations under Article X to be effective.
"Financial Officer" of any corporation shall mean the President, Chief
-----------------
Financial Officer, Chief Executive Officer or Treasurer of such
corporation.
"First Mortgage Bond Indentures" means (i) the First Mortgage and
------------------------------
Collateral Trust Indenture, dated as of March 1, 1947, from the Parent
Guarantor to The Marine Midland
Credit Agreement
----------------
<PAGE>
- 10 -
Trust Company of New York, as Trustee, [and (ii) the Mortgage and Deed of
Trust Indenture, dated as of June 1, 1962, from the Parent Guarantor to
Manufacturers Hanover Trust Company, as Trustee,] as the same have been and
may from time to time be amended or supplemented and in effect.
"GAAP" means generally accepted accounting principles, applied on a
----
consistent basis.
"Governmental Approval" means any authorization, consent, approval,
---------------------
license, franchise, lease, ruling, tariff, rate, permit, certificate,
exemption of, or filing or registration with, any Governmental Authority
required in connection with the execution, delivery or performance by any
Obligor of this Agreement or the Notes.
"Governmental Authority" means any Federal, state, local or foreign
----------------------
court or governmental agency, authority, instrumentality or regulatory
body.
"Indebtedness" of any person means, without duplication, (a) all
------------
obligations of such person for borrowed money or with respect to deposits
or advances of any kind, (b) all obligations of such person evidenced by
bonds, debentures, notes or similar instruments, (c) all obligations of
such person upon which interest charges are customarily paid, (d) all
obligations of such person under conditional sale or other title retention
agreements relating to property or assets purchased by such person, (e) all
obligations of such person issued or assumed as the deferred purchase price
of property or services, (f) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
person, whether or not the obligations secured thereby have been assumed,
(g) all Capital Lease Obligations of such person, (h) all obligations of
such person in respect of interest rate protection agreements, foreign
currency exchange agreements or other interest or exchange rate hedging
arrangements, (i) all obligations of such person as an account party in
respect of letters of credit and bankers' acceptances and (j) any
obligation, contingent or otherwise, of such person guaranteeing or having
the economic effect of guaranteeing any Indebtedness of any other person
(the "primary obligor") in any manner, whether directly or indirectly, and
including any obligation of such person, direct or indirect (i) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or to purchase (or to advance or supply funds for the purchase
of) any security for the payment of such Indebtedness, (ii) to purchase
property, securities or
Credit Agreement
----------------
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services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness or (iii) to maintain working capital, equity
capital or other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Indebtedness;
provided, however, that the term Indebtedness shall not include
endorsements for collection or deposit, in either case in the ordinary
course of business.
"Interest Period" means, with respect to any Eurodollar Rate Advance,
---------------
the period beginning on the date such Eurodollar Rate Advance is made or
Continued, or Converted from a Base Rate Advance, and ending on the last
day of the period selected by the Borrower pursuant to the provisions
below. The duration of each such Interest Period shall be one, two, three
or six or (with the consent of all of the Lenders) nine or twelve months,
as the Borrower may, upon notice received by the Administrative Agent not
later than 11:00 A.M. (New York City time) on the third Business Day prior
to the first day of such Interest Period, select; provided, however, that:
-------- -------
(i) the Borrower may not select any Interest Period that ends
after the Termination Date;
(ii) each Interest Period that begins on the last Business Day of
a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall
end on the last Business Day of the appropriate subsequent calendar
month; and
(iii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding
Business Day, provided that, if such extension would cause the last
--------
day of such Interest Period to occur in the next following calendar
month, the last day of such Interest Period shall occur on the next
preceding Business Day.
"Lenders" means the Banks listed on the signature pages hereof, each
-------
person that shall become a party hereto pursuant to Section 9.07(a), (b)
and (c), and, except when used in reference to an A Advance, an A
Borrowing, an A Note, a Commitment or a related term, each Designated
Bidder.
"Lien" means, with respect to any asset (a) any mortgage, deed of
----
trust, lien, pledge, encumbrance, charge, or security interest in or on
such asset, (b) the interest
Credit Agreement
----------------
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of a vendor or a lessor under any conditional sale agreement, capital
lease, or title retention agreement relating to such asset and (c) in the
case of securities, any purchase option, call, or similar right of a third
party with respect to such securities.
"Loan Documents" shall mean this Agreement and the Notes.
--------------
"Majority Lenders" means at any time Lenders holding more than 50% of
----------------
the then aggregate unpaid principal amount of the A Advances held by
Lenders, or, if no such principal amount is then outstanding, Lenders
having more than 50% of the Commitments.
"Margin Regulations" means Regulations G, U and X of the Board.
------------------
"Material Adverse Effect" means a materially adverse effect on the
-----------------------
business, assets, operations, condition, financial or otherwise, or results
of operations of (i) prior to the Approval Date, the Obligors taken as a
whole or (ii) on and after the Approval Date, the Parent Guarantor and the
Subsidiaries taken as a whole.
"Moody's" means Moody's Investors Service, Inc., or any successor
-------
thereto.
"Note" means an A Note or a B Note.
----
"Notice of A Borrowing" has the meaning specified in Section 2.02(a).
---------------------
"Notice of B Borrowing" has the meaning specified in Section 2.03(a).
---------------------
"Obligors" means the Borrower and the Guarantors.
--------
"OECD" means the Organization for Economic Cooperation and
----
Development.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA.
"person" means any natural person, corporation, business, trust, joint
------
venture, association, company, partnership, or government, or any agency or
political subdivision thereof.
"Plan" means any pension plan (including a multiemployer plan) subject
----
to the provisions of Title IV of
Credit Agreement
----------------
<PAGE>
- 13 -
ERISA or Section 412 of the Code which is maintained for or to which
contributions are made for employees of the Parent Guarantor or any ERISA
Affiliate.
"Principal Subsidiaries" means any Subsidiary of the Parent Guarantor
----------------------
whose Consolidated Tangible Assets comprise in excess of 40% of the
Consolidated Tangible Assets of the Parent Guarantor and its consolidated
Subsidiaries as of the date hereof or at any time hereafter. In any event,
the term "Principal Subsidiaries" includes (a) the Borrower and (b) prior
to the Approval Date, the Subsidiary Guarantors.
"Rating Agencies" means S&P, Moody's and, if either or both of the
---------------
foregoing rating agencies shall not rate any long-term senior indebtedness
of any Principal Subsidiary, a nationally-recognized securities rating
agency or agencies selected by the Parent Guarantor and approved by the
Lenders.
"Reference Banks" means Citibank, ________ and ________.
---------------
"Register" has the meaning specified in Section 9.07(g).
--------
"S&P" means Standard & Poor's Ratings Services or any successor
---
thereto.
"Senior Debt" means so long as any bonds issued pursuant to the First
-----------
Mortgage Bond Indentures shall be outstanding and rated by a Rating Agency,
such bonds, and at all other times, the most senior, unsecured, non-credit
enhanced, long-term Indebtedness of the Parent Guarantor then outstanding.
"subsidiary" means, with respect to any person (herein referred to as
----------
the "parent"), any corporation, partnership, association, or other business
entity (a) of which securities or other ownership interests representing
more than 50% of the equity or more than 50% of the ordinary voting power
or more than 50% of the general partnership interests are, at the time any
determination is being made, owned, Controlled, or held, or (b) which is,
at the time any determination is made, otherwise Controlled by the parent
or one or more subsidiaries of the parent or by the parent and one or more
subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Parent Guarantor.
----------
Credit Agreement
----------------
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"Termination Date" means the Commitment Termination Date or the
----------------
earlier date of termination in whole of the Commitments pursuant to Section
2.05(a) or Article VII.
"VPSB Approval" means the approval by the Vermont Public Service Board
-------------
required for the obligations of the Parent Guarantor's obligations under
Article X to be effective.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".
SECTION 1.03. Accounting Terms. Except as otherwise expressly
----------------
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided,
however, that, for purposes of determining compliance with any covenant set
forth in Article V, such terms shall be construed in accordance with GAAP as in
effect on the date of this Agreement applied on a basis consistent with the
application used in preparing the Parent Guarantor's audited financial
statements referred to in Section 4.02.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The A Advances.
--------------
(a) Each Lender severally agrees, on the terms and conditions
hereinafter set forth, to make A Advances to the Borrower from time to time on
any Business Day during the period from the date hereof until the Termination
Date in an aggregate amount not to exceed at any time outstanding the amount set
opposite such Lender's name on the signature pages hereof or, if such Lender has
entered into any Assignment and Acceptance, set forth for such Lender in the
Register, as such amount may be reduced pursuant to Section 2.05(a) (such
Lender's "Commitment"), provided that the aggregate amount of the Commitments of
---------- --------
the Lenders shall be deemed used from time to time to the extent of the
aggregate amount of the B Advances then outstanding and such deemed use of the
aggregate amount of the Commitments shall be deemed applied to the Lenders
ratably according to their respective Commitments (such deemed use of the
aggregate amount of the Commitments being a "B Reduction").
-----------
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<PAGE>
- 15 -
(b) Each A Borrowing (i) shall (except as otherwise provided in
Sections 2.09(f) and (g)) be in an aggregate amount not less than $10,000,000 or
an integral multiple of $1,000,000 in excess thereof and (ii) shall consist of A
Advances of the same Type (and, if such Advances are Eurodollar Rate Advances,
having the same Interest Period) made, Continued or Converted on the same day by
the Lenders ratably according to their respective Commitments. Within the
limits of each Lender's Commitment, the Borrower may from time to time borrow,
prepay pursuant to Section 2.11(b) and reborrow under this Section 2.01.
SECTION 2.02. Making the A Advances.
---------------------
(a) Each A Borrowing shall be made on notice, given not later than
11:00 A.M. (New York City time) on the third Business Day prior to the date of
the proposed A Borrowing (in the case of an A Borrowing consisting of Eurodollar
Rate Advances) or given not later than 11:00 A.M. (New York City time) on the
Business Day of the proposed A Borrowing (in the case of an A Borrowing
consisting of Base Rate Advances), by the Borrower to the Administrative Agent,
which shall give to each Lender prompt notice thereof by telecopier, telex or
cable. Each such notice of an A Borrowing (a "Notice of A Borrowing") shall be
---------------------
by telecopier, telex or cable, in substantially the form of Exhibit B-1 hereto,
specifying therein the requested (i) date of such A Borrowing, (ii) Type of A
Advances comprising such A Borrowing, (iii) aggregate amount of such A
Borrowing, and (iv) in the case of an A Borrowing consisting of Eurodollar Rate
Advances, initial Interest Period for each such A Advance. Each Lender shall,
before 1:00 P.M. (New York City time) on the date of such A Borrowing, make
available for the account of its Applicable Lending Office to the Administrative
Agent at its address referred to in Section 9.02, in same day funds, such
Lender's ratable portion of such A Borrowing. After the Administrative Agent's
receipt of such funds and upon fulfillment of the applicable conditions set
forth in Article III, the Administrative Agent will make such funds available to
the Borrower at the Administrative Agent's aforesaid address.
(b) Anything in subsection (a) above to the contrary notwithstanding,
the Borrower may not select Eurodollar Rate Advances for any A Borrowing unless
the aggregate principal amount of such is $10,000,000 or an integral multiple of
$1,000,000 in excess thereof.
(c) Each Notice of A Borrowing shall be irrevocable and binding on
the Borrower. In the case of any A Borrowing which the related Notice of A
Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower
shall indemnify each Lender against any loss, cost or expense incurred by such
Lender as a result of any failure to fulfill, on or
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----------------
<PAGE>
- 16 -
before the date specified in such Notice of A Borrowing, the applicable
conditions set forth in Article III, including, without limitation, any loss
(excluding loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the A Advance to be made by such Lender as part of such A
Borrowing. The Borrower shall pay amounts owing to any Lender pursuant to this
Section 2.02(c) within 30 days after receipt from such Lender of a certificate
setting forth in reasonable detail the calculation of the amount such Lender is
entitled to claim under this Section 2.02(c) (which certificate shall be
conclusive and binding for all purposes, absent manifest error).
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any A Borrowing that such Lender will not make
available to the Administrative Agent such Lender's ratable portion of such A
Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such A Borrowing in
accordance with subsection (a) of this Section 2.02 and the Administrative Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender shall not
have so made such ratable portion available to the Administrative Agent, such
Lender and the Borrower severally agree to repay to the Administrative Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to the Borrower until
the date such amount is repaid to the Administrative Agent, at (i) in the case
of the Borrower, the interest rate applicable at the time to A Advances
comprising such A Borrowing and (ii) in the case of such Lender, the Federal
Funds Rate. If such Lender shall repay to the Administrative Agent such
corresponding amount, such amount so repaid shall constitute such Lender's A
Advance as part of such A Borrowing for purposes of this Agreement (and such A
Advance shall be deemed to have been made by such Lender on the date on which
such amount is so repaid to the Administrative Agent).
(e) The failure of any Lender to make the A Advance to be made by it
as part of any A Borrowing shall not relieve any other Lender of its obligation,
if any, hereunder to make its A Advance on the date of such A Borrowing, but no
Lender shall be responsible for the failure of any other Lender to make the A
Advance to be made by such other Lender on the date of any A Borrowing.
SECTION 2.03. The B Advances.
--------------
Credit Agreement
----------------
<PAGE>
- 17 -
(a) Each Lender severally agrees that the Borrower may request B
Borrowings under this Section 2.03 from time to time on any Business Day during
the period from the date hereof until the date occurring 30 days prior to the
Termination Date in the manner set forth below; provided that, following the
--------
making of each B Borrowing, the aggregate amount of the Advances then
outstanding shall not exceed the aggregate amount of the Commitments of the
Lenders (computed without regard to any B Reduction). The following procedures
shall apply:
(i) The Borrower may request a B Borrowing under this Section 2.03 by
delivering to the Administrative Agent, by telecopier, telex or cable, a
notice of a B Borrowing (a "Notice of B Borrowing"), in substantially the
---------------------
form of Exhibit B-2 hereto, specifying the date and aggregate amount of the
proposed B Borrowing, the maturity date for repayment of each B Advance to
be made as part of such B Borrowing (which maturity date may not be earlier
than the date occurring 30 days after the date of such B Borrowing or later
than the Termination Date), the interest payment date or dates relating
thereto, and any other terms to be applicable to such B Borrowing, not
later than 10:00 A.M. (New York City time):
(A) at least one Business Day prior to the date of the proposed
B Borrowing, if the Borrower shall specify in the Notice of B
Borrowing that the rates of interest to be offered by the Lenders
shall be fixed rates per annum (such Borrowing, a "Fixed Rate B
------------
Borrowing") and
---------
(B) at least four Business Days prior to the date of the
proposed B Borrowing, if the Borrower shall instead specify in the
Notice of B Borrowing the basis to be used by the Lenders in
determining the rates of interest to be offered by them (such
Borrowing, a "Specified Basis B Borrowing").
---------------------------
Simultaneously with each such request, the Borrower shall pay to the
Administrative Agent, for the Administrative Agent's account, a non-
refundable fee in the amount heretofore agreed between the Borrower and the
Administrative Agent. Promptly following the Administrative Agent's
receipt of such request and the fee referred to in the preceding sentence,
the Administrative Agent shall notify each Lender of such request for a B
Borrowing received by it from the Borrower by sending such Lender a copy of
the related Notice of B Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects to do so,
irrevocably offer to make one or more
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B Advances to the Borrower as part of such proposed B Borrowing at a rate
or rates of interest specified by such Lender in its sole discretion, by
notifying the Administrative Agent (which shall give prompt notice thereof
to the Borrower), before 10:00 A.M. (New York City time) (A) on the date of
such proposed B Borrowing (in the case of a Fixed Rate B Borrowing) and (B)
three Business Days before the date of such proposed B Borrowing (in the
case of a Specified Basis B Borrowing), of the minimum amount and maximum
amount of each B Advance which such Lender would be willing to make as part
of such proposed B Borrowing (which amounts may, subject to the proviso to
the first sentence of this Section 2.03(a), exceed such Lender's
Commitment, if any), the rate or rates of interest therefor and such
Lender's Applicable Lending Office with respect to such B Advance; provided
--------
that if the Administrative Agent in its capacity as a Lender shall, in its
sole discretion, elect to make any such offer, it shall notify the Borrower
of such offer before 9:30 A.M. (New York City time) on the date on which
notice of such election is to be given to the Administrative Agent by the
other Lenders. If any Lender shall elect not to make such an offer, such
Lender shall so notify the Administrative Agent, before 10:00 A.M. (New
York City time) on the date on which notice of such election is to be given
to the Administrative Agent by the other Lenders, and such Lender shall not
be obligated to, and shall not, make any B Advance as part of such B
Borrowing; provided that the failure by any Lender to give such notice
--------
shall not cause such Lender to be obligated to make any B Advance as part
of such proposed B Borrowing.
(iii) The Borrower shall, in turn, (A) before 11:00 A.M. (New York City
time) on the date of such proposed B Borrowing (in the case of a Fixed Rate
B Borrowing) and (B) before 1:00 P.M. (New York City time) three Business
Days before the date of such proposed B Borrowing (in the case of a
Specified Basis B Borrowing), either:
(x) cancel such B Borrowing by giving the Administrative Agent
notice to that effect, or
(y) in its sole discretion, (1) accept one or more of the offers
made by any Lender or Lenders pursuant to paragraph (ii) above by
giving notice to the Administrative Agent of the amount of each B
Advance to be made by each Lender as part of such B Borrowing
(provided that (I) the amount of each such B Advance shall be equal to
---------
or greater than the minimum amount, and equal to or less than the
maximum amount, notified to the Borrower by the Administrative Agent
on behalf of such Lender for such B Advance pursuant to
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----------------
<PAGE>
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paragraph (ii) above and (II) such offers, if accepted, must be
accepted in ascending order of the rates of interest specified by the
offering Lenders in their respective notices delivered pursuant to
paragraph (ii) above (in each case beginning with the lowest rate so
offered) and, if offers are made by two or more Lenders with the same
rates of interest for a greater aggregate principal amount than the
amount in respect of which offers are accepted, then the principal
amount of B Advances in respect of which such offers are accepted
shall be allocated by the Borrower among such Lenders as nearly as
possible (in integral multiples of $1,000,000) in proportion to the
aggregate maximum principal amount of such offers by such Lenders),
and (2) reject any remaining offers made by Lenders pursuant to
paragraph (ii) above by giving the Administrative Agent notice to that
effect.
(iv) If the Borrower notifies the Administrative Agent that such B
Borrowing is canceled pursuant to paragraph (iii)(x) above, the
Administrative Agent shall give prompt notice thereof to the Lenders and
such B Borrowing shall not be made.
(v) If the Borrower accepts one or more of the offers made by any
Lender or Lenders pursuant to paragraph (iii)(y) above, the Administrative
Agent shall in turn promptly notify (A) each Lender that has made an offer
as described in paragraph (ii) above, of the date and aggregate amount of
such B Borrowing and whether or not any offer or offers made by such Lender
pursuant to paragraph (ii) above have been accepted by the Borrower, (B)
each Lender that is to make a B Advance as part of such B Borrowing, of the
amount of each B Advance to be made by such Lender as part of such B
Borrowing, and (C) each Lender that is to make a B Advance as part of such
B Borrowing, upon receipt, that the Administrative Agent has received forms
of documents appearing to fulfill the applicable conditions set forth in
Article III. Each Lender that is to make a B Advance as part of such B
Borrowing shall, before 12:00 noon (New York City time) on the date of such
B Borrowing specified in the notice received from the Administrative Agent
pursuant to clause (A) of the preceding sentence or any later time when
such Lender shall have received notice from the Administrative Agent
pursuant to clause (C) of the preceding sentence, make available for the
account of its Applicable Lending Office to the Administrative Agent at its
address referred to in Section 9.02 such Lender's portion of such B
Borrowing, in same day funds. Upon fulfillment of the applicable
conditions set forth in Article III and after receipt by the Administrative
Agent of such funds, the
Credit Agreement
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<PAGE>
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Administrative Agent will make such funds available to the Borrower at the
Administrative Agent's aforesaid address. Promptly after each B Borrowing
the Administrative Agent will notify each Lender of the amount of the B
Borrowing, the consequent B Reduction and the dates upon which such B
Reduction commenced and will terminate.
(b) On or before the date of (but prior to) such B Borrowing (in the
case of a Specified Basis B Borrowing) or as promptly as practicable after the
date of such B Borrowing (in the case of a Fixed Rate B Borrowing), the Borrower
shall execute and deliver to the Administrative Agent a B Note payable to the
order of each Lender participating in such Borrowing for each of the B Advances
to be made by such Lender as part of such B Borrowing, in a principal amount
equal to the principal amount of the B Advance to be evidenced thereby and
otherwise on such terms as were agreed to for such B Advance in accordance with
this Section 2.03. The indebtedness of the Borrower resulting from each B
Advance made to the Borrower as part of a B Borrowing shall be evidenced by a
separate B Note of the Borrower payable to the order of the Lender making such B
Advance.
(c) Each B Borrowing shall be in an aggregate amount not less than
$10,000,000 or an integral multiple of $1,000,000 in excess thereof, but no B
Borrowing shall be made if, following the making of such B Borrowing, the
Borrower would not be in compliance with the limitation set forth in the proviso
to the first sentence of subsection (a) above.
(d) Within the limits and on the conditions set forth in this Section
2.03, the Borrower may from time to time borrow under this Section 2.03, repay
pursuant to subsection (e) below, and reborrow under this Section 2.03.
(e) The Borrower shall repay to the Administrative Agent for the
account of each Lender which has made a B Advance, or each other holder of a B
Note, on the maturity date of each B Advance (such maturity date being that
specified by the Borrower for repayment of such B Advance in the related Notice
of B Borrowing delivered pursuant to subsection (a)(i) above and provided in the
B Note evidencing such B Advance), the then unpaid principal amount of such B
Advance. The Borrower shall have no right to prepay any principal amount of any
B Advance.
(f) The Borrower shall pay interest on the unpaid principal amount of
each B Advance from the date of such B Advance to the date the principal amount
of such B Advance is repaid in full, at the rate of interest for such B Advance
specified by the Lender making such B Advance in its notice with respect thereto
delivered pursuant to subsection (a)(ii) above, payable on the interest payment
date or dates specified by the
Credit Agreement
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Borrower for such B Advance in the related Notice of B Borrowing delivered
pursuant to subsection (a)(i) above, as provided in the B Note evidencing such B
Advance.
SECTION 2.04. Certain Fees.
------------
(a) Facility Fee. The Borrower agrees to pay to the Administrative
------------
Agent for the account of each Lender (other than the Designated Bidders) a
facility fee (the "Facility Fee") on the average daily amount (whether used or
------------
unused) of such Lender's Commitment from the date on which the Borrower signs
this Agreement (in the case of each Bank) and from the effective date specified
in the Assignment and Acceptance pursuant to which it became a Lender (in the
case of each such Lender) until the Termination Date at a rate per annum equal
to the Applicable Facility Fee Rate as in effect from time to time. Accrued
Facility Fee shall be paid on the last Business Day of each March, June,
September and December and on the Termination Date.
(b) Administrative Agent's Fee. The Borrower acknowledges its
--------------------------
agreement to pay to the Administrative Agent, for the Administrative Agent's own
account, administrative fees (the "Administrative Fees") at the times and in the
-------------------
amounts heretofore agreed between the Borrower and the Administrative Agent.
SECTION 2.05. Changes in and Extensions of the Commitments.
--------------------------------------------
(a) Commitment Reductions. The Borrower shall have the right, upon
---------------------
at least three Business Days' notice to the Administrative Agent, to terminate
in whole or reduce ratably in part the unused portions of the respective
Commitments of the Lenders, provided that the aggregate amount of the
--------
Commitments of the Lenders shall not be reduced to an amount which is less than
the aggregate principal amount of the Advances then outstanding, and provided
--------
further that each partial reduction shall be in an aggregate amount of
- -------
$10,000,000 or an integral multiple of $1,000,000 in excess thereof.
(b) The Borrower shall have the right from time to time, without the
consent of the Lenders, to effect an increase in the aggregate Commitments
hereunder by adding as parties to this Agreement one or more other banks
satisfactory to the Administrative Agent (each such added bank being herein
called an "Additional Lender") and/or by allowing one or more Lenders to
-----------------
increase their Commitments hereunder (so that such added and increased
Commitments shall in the aggregate equal the aggregate amount of the increase in
Commitments effected pursuant hereto). Notwithstanding the foregoing, no
increase in the aggregate
Credit Agreement
----------------
<PAGE>
- 22 -
Commitments hereunder pursuant to this paragraph (b) shall be effective unless:
(i) each Additional Lender shall have entered into an agreement
in form and substance satisfactory to the Borrower and the Administrative
Agent pursuant to which such Additional Lender undertakes a Commitment and,
upon the effectiveness of such agreement (the date of the effectiveness of
any such agreement being hereinafter referred to as the "Increased
---------
Commitment Date"), such Additional Lender shall be a "Lender" for all
---------------
purposes of this Agreement;
(ii) the Borrower shall have given the Administrative Agent
notice of such increase at least five Business Days prior to the relevant
Increased Commitment Date;
(iii) any increase in the Commitments hereunder, and any
Commitment of an Additional Lender, shall be in a minimum amount of
$25,000,000 or an integral multiple of $25,000,000 in excess thereof;
(iv) no increase in the Commitments hereunder shall result in
the aggregate amount of the Commitments exceeding $400,000,000;
(v) no Lender's Commitment shall be increased without the prior
express written consent of such Lender;
(vi) on such Increased Commitment Date, either (i) no A Advances
shall be outstanding hereunder and no Notice of A Borrowing shall be
pending or (ii) any outstanding A Advances shall be converted to B Advances
and no notice of borrowing of A Advances shall be pending;
(vii) no Event of Default shall have occurred and be continuing
on and as of the date of the notice referred to in clause (ii) above or on
such Increased Commitment Date;
(viii) no Lender may increase its Commitment hereunder unless
all of the Lenders shall have been given the same opportunity to increase
their Commitments, and the aggregate amount of the increase offered to all
of the Lenders shall be allocated among them pro rata according to the
respective increases that they have agreed to accept; and
Credit Agreement
----------------
<PAGE>
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(ix) there shall not have occurred any ratable reduction of the
Commitments pursuant to Section 2.05(a) hereof on or prior to such
Increased Commitment Date.
(c) Commitment Extensions. The Borrower may, by notice to the
---------------------
Administrative Agent (which shall promptly notify the Lenders) not less than 60
days and not more than 180 days prior to each anniversary of the Effective Date,
request that the Lenders (other than the Designated Bidders) extend the
Commitment Termination Date for an additional one-year period from the
Commitment Termination Date then in effect hereunder (the "Existing Commitment
-------------------
Termination Date"). Each such Lender, acting in its sole discretion, shall, by
- ----------------
notice to the Borrower and the Administrative Agent given no later than the date
(herein, the "Consent Date") that is 20 days after the date of such extension
------------
request (or, if such date is not a Business Day, the next succeeding Business
Day), advise the Borrower and the Administrative Agent whether or not such
Lender agrees to such extension; provided that each Lender that determines not
--------
to extend the Commitment Termination Date (a "Non-Extending Lender") shall
--------------------
notify the Administrative Agent (which shall notify the Lenders) of such fact
promptly after such determination (but in any event no later than the Consent
Date) and any Lender that does not advise the Borrower on or before the Consent
Date shall be deemed to be a Non-Extending Lender. The election of any Lender
to agree to such extension shall not obligate any other Lender to so agree. If
and only if each of the Lenders has advised the Borrower and the Administrative
Agent of its agreement to extend the Commitment Termination Date as aforesaid on
or prior to the Consent Date, then the Commitment Termination Date shall be
extended automatically, without any other action by any person, to the date that
is one year after the Existing Commitment Termination Date. The Administrative
Agent will promptly notify the Borrower and the Lenders of each extension of the
Commitment Termination Date pursuant to this Section 2.05(b).
SECTION 2.06. Repayment of A Advances. The Borrower hereby promises
-----------------------
to pay to the Administrative Agent for account of each Lender the entire
outstanding principal amount of such Lender's A Advances, and each A Advance
shall mature, on the Termination Date.
SECTION 2.07. Interest.
--------
(a) Ordinary Interest. The Borrower shall pay interest on the unpaid
-----------------
principal amount of each A Advance made by each Lender, from the date of such A
Advance until such principal amount shall be paid in full, at the following
rates per annum:
(i) Base Rate Advances. If such A Advance is a Base Rate Advance, a
------------------
rate per annum equal to the Base Rate in
Credit Agreement
----------------
<PAGE>
- 24 -
effect from time to time, payable quarterly in arrears on the last Business
Day of each March, June, September and December and on the date such Base
Rate Advance shall be Converted or paid in full.
(ii) Eurodollar Rate Advances. If such A Advance is a Eurodollar Rate
------------------------
Advance, a rate per annum for each Interest Period for such A Advance equal
to the sum of the Eurodollar Rate for such Interest Period plus the
----
Applicable Margin for Eurodollar Rate Advances as in effect from time to
time, payable on the last day of such Interest Period and, if such Interest
Period has a duration of more than three months, on the day which occurs
three months after the first day of such Interest Period, and on the date
such Eurodollar Rate Advance shall be Continued, Converted or paid in full.
(b) Default Interest. The Borrower shall pay interest on the unpaid
----------------
principal amount of each A Advance and B Advance that is not paid when due
(whether at stated maturity, by acceleration or otherwise), and on the unpaid
amount of any interest, fee or other amount payable hereunder that is not paid
when due, payable on demand, at a rate per annum during the period from the due
date thereof to the date on which such amount is paid in full equal to:
(i) in the case of any amount of principal of such Advance:
(x) in the case of any Base Rate Advance, 2% plus the rate which
----
would otherwise be applicable to such Advance, and
(y) in the case of any Eurodollar Rate Advance, for the balance
of the then current Interest Period, 2% plus the rate which would
----
otherwise be applicable to such Advance for such Interest Period and,
thereafter, 2% plus the Base Rate as in effect from time to time, and
----
(ii) in the case of all other amounts, 2% plus the Base Rate as in
----
effect from time to time.
SECTION 2.08. Additional Interest on Eurodollar Rate Advances. The
-----------------------------------------------
Borrower shall pay to each Lender, so long as such Lender shall be required
under regulations of the Board to maintain reserves with respect to liabilities
or assets consisting of or including Eurocurrency Liabilities (or the
equivalent), additional interest on the unpaid principal amount of each
Eurodollar Rate Advance of such Lender, from the date of such Eurodollar Rate
Advance until such principal amount is paid in full, at an interest rate per
annum equal at all times to the
Credit Agreement
----------------
<PAGE>
- 25 -
remainder obtained by subtracting (i) the Eurodollar Rate for the then-current
Interest Period for such Eurodollar Rate Advance from (ii) the rate obtained by
dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar
-----
Rate Reserve Percentage of such Lender for such Interest Period, payable on each
date on which interest is payable on such Eurodollar Rate Advance. Any Lender
wishing to require payment of such additional interest shall so notify the
Borrower and the Administrative Agent and shall furnish to the Borrower at least
five Business Days prior to each date on which interest is payable on the
Eurodollar Rate Advances of such Lender a certificate (which certificate shall
be conclusive and binding for all purposes, absent manifest error) setting forth
the basis for such assertion and the amount to which such Lender is then
entitled under this Section (which shall be consistent with such Lender's good
faith estimate of the level at which the related reserves are being maintained
by it).
SECTION 2.09. Interest Rate Determinations; Changes in Rating
-----------------------------------------------
Systems.
- -------
(a) If the second sentence of the definition of "Eurodollar Rate" in
Section 1.01 is applicable, each Reference Bank agrees to furnish to the
Administrative Agent timely information for the purpose of determining each
Eurodollar Rate. If any one or more of the Reference Banks shall not furnish
such timely information to the Administrative Agent for the purpose of
determining any such interest rate, the Administrative Agent shall determine
such interest rate on the basis of timely information furnished by the remaining
Reference Banks (subject to clause (c) below).
(b) The Administrative Agent shall give prompt notice to the Borrower
and the Lenders of the applicable interest rate determined by the Administrative
Agent for the purpose of Section 2.07 and the applicable rate, if any, furnished
by each Reference Bank for the purpose of determining the applicable interest
rate under Section 2.07(a)(ii).
(c) If the second sentence of the definition of "Eurodollar Rate" in
Section 1.01 is applicable and fewer than two Reference Banks furnish timely
information to the Administrative Agent for determining the Eurodollar Rate for
any Interest Period for any Eurodollar Rate Advances,
(i) the Administrative Agent shall forthwith notify the Borrower and
the Lenders that the interest rate cannot be determined for such Eurodollar
Rate Advances for such Interest Period,
Credit Agreement
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<PAGE>
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(ii) each Eurodollar Rate Advance will automatically, on the last day
of the then existing Interest Period therefor, Convert into a Base Rate
Advance, and
(iii) the obligation of the Lenders to make or Continue, or to Convert
A Advances into, Eurodollar Rate Advances shall be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
(d) If, with respect to any Eurodollar Rate Advances, the Majority
Lenders notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Majority Lenders of making, funding or maintaining their respective Eurodollar
Rate Advances for such Interest Period, the Administrative Agent shall forthwith
so notify the Borrower and the Lenders, whereupon
(i) each Eurodollar Rate Advance will automatically, on the last day
of the then existing Interest Period therefor, Convert into a Base Rate
Advance, and
(ii) the obligation of the Lenders to make or Continue, or to Convert
A Advances into, Eurodollar Rate Advances shall be suspended until the
Administrative Agent shall notify the Borrower and such Lenders that the
circumstances causing such suspension no longer exist.
(e) If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify the Borrower and the Lenders and
such Advances will automatically, on the last day of the then existing Interest
Period therefor, Convert into Base Rate Advances.
(f) On the date on which the aggregate unpaid principal amount of
Eurodollar Rate Advances comprising any A Borrowing shall be reduced, by
prepayment or otherwise, to less than $5,000,000, such A Advances shall
automatically Convert into Base Rate Advances.
(g) Upon the occurrence and during the continuance of any Event of
Default and upon notice from the Administrative Agent to the Borrower at the
request of the Majority Lenders, (x) each Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance and (y) the obligation of the Lenders to make
or Continue, or to Convert Advances into, Eurodollar Rate Advances shall be
suspended.
Credit Agreement
----------------
<PAGE>
- 27 -
(h) If the rating system of either Moody's or S&P shall change, or if
either such rating agency shall cease to be in the business of rating corporate
debt obligations, the Borrower and the Administrative Agent (on behalf of the
Lenders) shall negotiate in good faith to amend the references to specific
ratings in this Agreement to reflect such changed rating system or the non-
availability of ratings from such rating agency (provided that any such
--------
amendment to such specific ratings shall in no event be effective without the
approval of the Majority Lenders).
SECTION 2.10. Voluntary Conversion and Continuation of A Advances.
---------------------------------------------------
(a) Optional Conversion. The Borrower may on any Business Day, upon
-------------------
notice given to the Administrative Agent not later than 11:00 A.M. (New York
City time) on the third Business Day prior to the date of the proposed
Conversion and subject to the provisions of Sections 2.09 and 2.13, Convert all
or any portion of the outstanding A Advances of one Type comprising part of the
same A Borrowing into A Advances of the other Type; provided that (i) any
--------
Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an
amount not less than the minimum amount specified in Section 2.02(b) and (ii) in
the case of any such Conversion of a Eurodollar Rate Advance into a Base Rate
Advance on a day other than the last day of an Interest Period therefor, the
Borrower shall reimburse the Lenders in respect thereof pursuant to Section
9.04(c). Each such notice of a Conversion shall, within the restrictions
specified above, specify (x) the date of such Conversion, (y) the A Advances to
be Converted, and (z) if such Conversion is into Eurodollar Rate Advances, the
duration of the initial Interest Period for each such A Advance. Each notice of
Conversion shall be irrevocable and binding on the Borrower.
(b) Continuations. The Borrower may, on any Business Day, upon
-------------
notice given to the Administrative Agent not later than 11:00 A.M. (New York
City time) on the third Business Day prior to the date of the proposed
Continuation and subject to the provisions of Sections 2.09 and 2.13, Continue
all or any portion of the outstanding Eurodollar Rate Advances comprising part
of the same A Borrowing for one or more Interest Periods; provided that (i)
--------
Eurodollar Rate Advances so Continued and having the same Interest Period shall
be in an amount not less than the minimum amount specified in Section 2.02(b)
and (ii) in the case of any such Continuation on a day other than the last day
of an Interest Period therefor, the Borrower shall reimburse the Lenders in
respect thereof pursuant to Section 9.04(c). Each such notice of a Continuation
shall, within the restrictions specified above, specify (x) the date of such
Continuation, (y) the Eurodollar Rate Advances to be Continued and (y) the
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----------------
<PAGE>
- 28 -
duration of the initial Interest Period (or Interest Periods) for the Eurodollar
Rate Advances subject to such Continuation. Each notice of Continuation shall
be irrevocable and binding on the Borrower.
SECTION 2.11. Prepayments of A Advances.
-------------------------
(a) The Borrower shall have no right to prepay any principal amount
of any A Advances other than as provided in subsection (b) below.
(b) The Borrower may, upon at least one Business Day's notice to the
Administrative Agent stating the proposed date and aggregate principal amount of
the prepayment, and if such notice is given the Borrower shall, prepay the
outstanding principal amounts of the Advances comprising part of the same A
Borrowing in whole or ratably in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid; provided, however, that
-------- -------
(x) each partial prepayment shall be in an aggregate principal amount not less
than $10,000,000 or integral multiples of $1,000,000 in excess thereof and (y)
in the case of any such prepayment of a Eurodollar Rate Advance on a day other
than the last day of an Interest Period therefor, the Borrower shall reimburse
the Lenders in respect thereof pursuant to Section 9.04(c).
SECTION 2.12. Increased Costs.
---------------
(a) If, due to either (i) the introduction of or any change (other
than any change by way of imposition or increase of reserve requirements
included in the Eurodollar Rate Reserve Percentage) in or in the interpretation
of (to the extent any such introduction or change occurs after the date hereof)
any law or regulation or (ii) the compliance with any guideline or request of
any central bank or other governmental authority adopted or made after the date
hereof (whether or not having the force of law), there shall be any increase in
the cost to any Lender of agreeing to make or making, funding or maintaining
Eurodollar Rate Advances, the Borrower shall from time to time, within 30 days
after delivery by such Lender to the Borrower (with a copy to the Administrative
Agent) of a certificate as to the amount of (and specifying in reasonable detail
the basis for) such increased cost, pay (subject to Section 2.12(c)) to the
Administrative Agent for the account of such Lender the amount of the increased
costs set forth in such certificate (which certificate shall be conclusive and
binding for all purposes, absent manifest error); provided that, before making
--------
any such demand, each Lender agrees to use reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions) to designate a
different Applicable Lending Office if the making of such a designation would
avoid the need for, or reduce the
Credit Agreement
----------------
<PAGE>
- 29 -
amount of, such increased cost and would not, in the reasonable judgment of such
Lender, be otherwise disadvantageous to such Lender.
(b) If any Lender (other than a Designated Bidder) determines that
compliance with any law or regulation enacted or introduced after the date
hereof or any guideline or request of any central bank or other governmental
authority adopted or made after the date hereof (whether or not having the force
of law) affects or would affect the amount of capital required or expected to be
maintained by such Lender or any corporation controlling such Lender and that
the amount of such capital is increased by or based upon the existence of such
Lender's commitment to lend hereunder and other commitments of this type, then,
within 30 days after delivery by such Lender to the Borrower (with a copy to the
Administrative Agent) of a certificate as to (and specifying in reasonable
detail the basis for) the Additional Amounts (as hereinafter defined) requested
by such Lender, the Borrower shall pay (subject to Section 2.12(c)) to the
Administrative Agent for the account of such Lender, from time to time as
specified by such Lender, the amount specified in such certificate (which
certificate shall be conclusive and binding for all purposes, absent manifest
error). For purposes hereof, the "Additional Amounts" that may be requested by
------------------
any Lender under this Section 2.12(b) means such amounts as such Lender shall
reasonably determine to be sufficient to compensate such Lender or any
corporation controlling such Lender for any costs that such Lender reasonably
determines are attributable to the maintenance by such Lender (or such
corporation) of capital in respect of its commitments to lend hereunder (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of such Lender (or such corporation) to a
level below that which such Lender (or such corporation) could have achieved but
for the enactment or introduction of such law or regulation or the adoption or
making of such guideline or request).
(c) The Borrower shall not be obligated to pay any additional amounts
arising pursuant to clauses (a) and (b) of this Section 2.12 that are
attributable to the Excluded Period with respect to such additional amount;
provided, that if an applicable law, rule, regulation, guideline or request
- --------
shall be adopted or made on any date and shall be applicable to the period (a
"Retroactive Period") prior to the date on which such law, rule, regulation,
- -------------------
guideline or request is adopted or made, the limitation on the Borrower's
obligations to pay such additional amounts hereunder shall not apply to the
additional amounts payable in respect of such Retroactive Period.
SECTION 2.13. Illegality. (a) Notwithstanding any other provision
----------
herein, if any change in any law or regulation or
Credit Agreement
----------------
<PAGE>
- 30 -
in the interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Rate Advance or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Rate Advance,
then, by written notice to the Borrower and to the Administrative Agent, such
Lender may:
(i) declare that Eurodollar Rate Advances will not thereafter be
made by such Lender hereunder, whereupon any request by the Borrower for
a Eurodollar Rate Advance shall, as to such Lender only, be deemed a
request for a Base Rate Advance (or for a Conversion thereto pursuant to
Section 2.10(a)) unless such declaration shall be subsequently
withdrawn; and
(ii) require that all outstanding Eurodollar Rate Advances made by
it be Converted to Base Rate Loans, in which event all such Eurodollar
Rate Advances shall be automatically Converted to Base Rate Loans as of
the effective date of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurodollar Rate Advances that would have been made by such Lender or
the Converted Eurodollar Rate Advances of such Lender shall instead be applied
to repay the Base Rate Loans made by such Lender in lieu of, or resulting from
the Conversion of, such Eurodollar Rate Advances.
(b) For purposes of this Section 2.13, a notice to the Borrower by any
Lender shall be effective as to each Eurodollar Rate Advance, if lawful on the
last day of the Interest Period currently applicable to such Eurodollar Rate
Advance; in all other cases such notice shall be effective on the date of
receipt by the Borrower.
SECTION 2.14. Payments and Computations.
-------------------------
(a) The Borrower shall make each payment hereunder and under the Notes
without set-off or counterclaim not later than 11:00 A.M. (New York City time)
on the day when due in U.S. dollars to the Administrative Agent at its address
referred to in Section 9.02 in same day funds. The Administrative Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal, interest or Facility Fees ratably (other than amounts payable
pursuant to Section 2.03, 2.08, 2.12 or 2.15) to the Lenders for the account of
their respective Applicable Lending Offices, and like funds relating to the
payment of any other amount payable to any Lender to such Lender
Credit Agreement
----------------
<PAGE>
- 31 -
for the account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its acceptance of an
Assignment and Acceptance and recording of the information contained therein in
the Register pursuant to Section 9.07(c), from and after the effective date
specified in such Assignment and Acceptance, the Administrative Agent shall make
all payments hereunder and under the Notes in respect of the interest assigned
thereby to the Lender assignee thereunder, and the parties to such Assignment
and Acceptance shall make all appropriate adjustments in such payments for
periods prior to such effective date directly between themselves.
(b) All computations of interest based on Citibank's base rate and of
Facility Fees shall be made by the Administrative Agent on the basis of a year
of 365 or 366 days, as the case may be, and all computations of interest based
on the Eurodollar Rate or the Federal Funds Rate shall be made by the
Administrative Agent, and all computations of interest pursuant to Section 2.08
shall be made by a Lender, on the basis of a year of 360 days, in each case for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or Facility Fees are payable.
Each determination by the Administrative Agent of an interest rate hereunder
shall be conclusive and binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Notes would be due on a
day other than a Business Day, such due date shall be extended to the next
succeeding Business Day, and any such extension of such due date shall in such
case be included in the computation of payment of interest or Facility Fee, as
the case may be; provided, however, if such extension would cause payment of
-------- -------
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(d) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Lenders hereunder
that the Borrower will not make such payment in full, the Administrative Agent
may assume that the Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Lender on such due date an amount
equal to the amount then due such Lender. If and to the extent that the
Borrower shall not have so made such payment in full to the Administrative
Agent, each Lender shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Lender together with interest thereon, for each
day from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Administrative Agent, at the Federal Funds
Rate.
Credit Agreement
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<PAGE>
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SECTION 2.15. Taxes.
-----
(a) Any and all payments by the Borrower hereunder or under the Notes
shall be made, in accordance with Section 2.14, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding, in
---------
the case of each Lender and the Administrative Agent, taxes imposed on its
income, and franchise taxes imposed on it, by the jurisdiction under the laws of
which such Lender or the Administrative Agent (as the case may be) is organized
or any political subdivision thereof and, in the case of each Lender, taxes
imposed on its income, and franchise taxes imposed on it, by the jurisdiction of
such Lender's Applicable Lending Office or any political subdivision thereof
(all such non-excluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities being hereinafter referred to as "Taxes"). If the Borrower
-----
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder or under any Note to any Lender or the Administrative Agent,
(i) the sum payable shall be increased as may be necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.15) such Lender or the Administrative Agent (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law. Each Lender
represents and warrants that no Taxes will be incurred on the date hereof in
connection with the execution and delivery of the Loan Documents.
(b) In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under the Notes or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or the Notes (hereinafter referred to as "Other Taxes"). Each Lender
-----------
represents and warrants that no Other Taxes will be incurred on the date hereof
in connection with the execution and delivery of the Loan Documents.
(c) The Borrower will indemnify each Lender and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes and Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.15) paid by such Lender or the Administrative Agent
(as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. Such Lender will use
reasonable efforts to contest such a Tax or
Credit Agreement
----------------
<PAGE>
- 33 -
Other Tax that is, in its opinion, incorrectly asserted. This indemnification
shall be made within 30 days from the date such Lender or the Administrative
Agent (as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
will furnish to the Administrative Agent, at its address referred to in Section
9.02, the original or a certified copy of a receipt evidencing payment thereof.
(e) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement (in the case of each Bank) and on the date of the Assignment and
Acceptance pursuant to which it becomes a Lender (in the case of each other
Lender), and from time to time thereafter if requested in writing by the
[Administrative Agent] (but only so long as such Lender remains lawfully able to
do so), shall provide the [Administrative Agent] with Internal Revenue Service
form 1001 or 4224, as appropriate, or any successor form prescribed by the
Internal Revenue Service, certifying that such Lender is entitled to benefits
under an income tax treaty to which the United States is a party which reduces
the rate of withholding tax on payments of interest or certifying that the
income receivable pursuant to this Agreement is effectively connected with the
conduct of a trade or business in the United States. If the form provided by a
Lender at the time such Lender first becomes a party to this Agreement indicates
a United States interest withholding tax rate in excess of zero, withholding tax
at such rate shall be considered excluded from "Taxes" as defined in Section
2.15(a).
(f) For any period with respect to which a Lender has failed to provide
the [Administrative Agent] with the appropriate form described in Section
2.15(e) (other than if such failure is due to a change in law occurring
subsequent to the date on which a form originally was required to be provided,
or if such form otherwise is not required under the first sentence of subsection
(e) above), such Lender shall not be entitled to indemnification under Section
2.15(a) with respect to Taxes imposed by the United States; provided, however,
-------- -------
that should a Lender become subject to Taxes because of its failure to deliver a
form required hereunder, the Borrower shall take such steps as the Lender shall
reasonably request to assist the Lender to recover such Taxes.
(g) Any Lender claiming any additional amounts payable pursuant to this
Section 2.15 shall use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions) to change the jurisdiction of its
Applicable Lending Office(s) if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts
Credit Agreement
----------------
<PAGE>
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that may thereafter accrue and would not, in the reasonable judgment of such
Lender, be otherwise disadvantageous to such Lender.
(h) If a Lender or the Administrative Agent (as the case may be) shall
become aware that it is entitled to claim a Refund (as hereinafter defined) from
a taxing authority, such Lender or the Administrative Agent shall promptly
notify the Borrower of the availability of such Refund and shall, within 30 days
after receipt of a written request by the Borrower, make a claim to such taxing
authority for such Refund at the Borrower's expense if, in the judgment of such
Lender or the Administrative Agent (as the case may be), the making such claim
will not be otherwise disadvantageous to it; provided that nothing in this
--------
Section 2.15(h) shall require any Lender or the Administrative Agent to
institute any administrative, judicial or other proceeding (other than the
filing of a claim for any such Refund) to obtain any such Refund. If a Lender
or the Administrative Agent (as the case may be) receives a Refund from a taxing
authority, it shall promptly pay to the Borrower the amount so received (but
only to the extent of indemnity payments made, or additional amounts paid, by
the Borrower under this Section 2.15 with respect to the Taxes or Other Taxes
giving rise to such Refund), net of all reasonable out-of-pocket expenses
(including the net amount of taxes, if any, imposed on such Lender or the
Administrative Agent with respect to such Refund) of such Lender or
Administrative Agent, and without interest (other than interest paid by the
relevant taxing authority with respect to such Refund); provided, however, that
-------- -------
the Borrower, upon the request of such Lender or the Administrative Agent, shall
repay the amount paid over to the Borrower (plus penalties, interest and other
charges) to such Lender or the Administrative Agent in the event such Lender or
the Administrative Agent is required to repay such Refund to such taxing
authority. Nothing contained in this Section 2.15 shall require any Lender or
the Administrative Agent to make available any of its tax returns (or any other
information that it deems to be confidential or proprietary). For purposes of
this Section 2.15(h), a "Refund" means a refund of Taxes or Other Taxes (other
------
than any such refund in the form of a tax credit) for which a Lender or the
Administrative Agent, as the case may be, has been indemnified by the Borrower
(or with respect to which the Borrower has paid additional amounts) pursuant to
this Section 2.15, provided that the entitlement to such refund arises solely
--------
from a manifest error in the amount of such Taxes or Other Taxes so paid.
SECTION 2.16. Sharing of Payments, Etc. If any Lender shall obtain any
-------------------------
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the A Advances made by it (other than
pursuant to Section 2.08, 2.12 or 2.15) in excess of its ratable share of
payments on
Credit Agreement
----------------
<PAGE>
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account of the A Advances obtained by all the Lenders, such Lender shall
forthwith purchase from the other Lenders such participations in the A Advances
made by them as shall be necessary to cause such purchasing Lender to share the
excess payment ratably with each of them, provided, however, that if all or any
-------- -------
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to the
proportion of (i) the amount of such Lender's required repayment to (ii) the
total amount so recovered from the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 2.16 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
ARTICLE III
CONDITIONS OF LENDING
The obligations of the Lenders to make Advances hereunder are subject to
the satisfaction of the following conditions:
SECTION 3.01. All Borrowings. On the date of each Borrowing:
(a) The Administrative Agent shall have received a notice of such
Borrowing as required by Section 2.02 or 2.03, as applicable;
(b) The representations and warranties set forth in Article IV shall be
true and correct in all material respects on and as of the date of such
Borrowing with the same effect as though made on and as of such date,
except to the extent such representations and warranties expressly relate
to an earlier date;
(c) The Borrower shall be in compliance with all of the terms and
provisions set forth herein and in each other Loan Document on its part to
be observed or performed, and at the time of, and immediately after such
Borrowing, no Event of Default or Default shall have occurred and be
continuing; and
(d) Each Lender that shall not have previously received an appropriate
Note shall have received a duly executed B Note or A Note, as applicable,
payable to its order.
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Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 3.01.
SECTION 3.02. First Borrowing. On the Closing Date:
(a) Each Lender shall have received a duly executed B Note and A Note;
(b) The Administrative Agent shall have received a favorable written
opinion of either the general counsel or the corporate secretary (provided
that such corporate secretary is an attorney admitted to practice law, and
is in good standing, in a jurisdiction within the United States of America)
of the Parent Guarantor, dated the Closing Date and addressed to the
Lenders, to the effect set forth in Exhibit E hereto, and the Parent
Guarantor hereby instructs such counsel to deliver such opinion to the
Administrative Agent;
(c) The Administrative Agent shall have received a favorable written
opinion of Milbank, Tweed, Hadley & McCloy, counsel to the Administrative
Agent, to the effect set forth in Exhibit F hereto;
(d) All legal matters incident to this Agreement and the borrowings
hereunder shall be satisfactory to the Administrative Agent and the
Lenders;
(e) The Administrative Agent shall have received (i) a copy of the
certificate or articles of incorporation, including all amendments thereto,
of each Obligor, certified as of a recent date by the Secretary of State of
the state of its organization, and a certificate as to the good standing of
each Obligor as of a recent date, from such Secretary of State; (ii) a
certificate of the Secretary or Assistant Secretary of each Obligor dated
the Closing Date and certifying (A) that attached thereto is a true and
complete copy of the by-laws of such Obligor as in effect on the Closing
Date and at all times since a date prior to the date of the resolutions
described in clause (B) below, (B) that attached thereto is a true and
complete copy of resolutions duly adopted by the Board of Directors of such
Obligor authorizing the execution, delivery and performance of the Loan
Documents to which it is a party and (in the case of the Borrower) the
borrowings hereunder, and that such resolutions have not been modified,
rescinded, or amended and are in full force and effect, (C) that the
certificate or articles of incorporation of such Obligor have not been
amended since the date of the last amendment thereto shown on the
certificate of good standing furnished pursuant to clause (i) above, and
(D) as to the incumbency
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and specimen signature of each officer executing any Loan Document or any
other document delivered in connection herewith on behalf of such Obligor;
(iii) a certificate of another officer as to the incumbency and specimen
signature of the Secretary or Assistant Secretary executing the certificate
pursuant to (ii) above; and (iv) such other documents as the Administrative
Agent or the Lenders may reasonably request;
(f) The Administrative Agent shall have received a certificate, dated
the Closing Date and signed by a Financial Officer of the Parent Guarantor,
confirming compliance with the conditions precedent set forth in paragraphs
(b) and (c) of Section 3.01; and
(g) The Administrative Agent shall have received all Fees and other
amounts due and payable on or prior to the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Parent Guarantor represents and warrants to each of the Lenders that:
SECTION 4.01. Organization; Powers; Governmental Approvals. (a) The
--------------------------------------------
Parent Guarantor and each Principal Subsidiary (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (ii) has all requisite power and authority to
own its property and assets and to carry on its business as now conducted and
(iii) is qualified to do business in every jurisdiction where such qualification
is required, except where the failure so to qualify would not have a material
adverse effect on the condition, financial condition or otherwise, results of
operations, business, assets, operations, or prospects of the Parent Guarantor
and its Subsidiaries taken as a whole. Each Obligor's execution, delivery and
performance of this Agreement are within its corporate powers, have been duly
authorized by all necessary action and do not violate or create a default under
law, its constituent documents, or any contractual provision binding upon it.
This Agreement and (in the case of the Borrower) the Notes constitute legal,
valid and binding obligations of each Obligor enforceable against it in
accordance with their respective terms (except as such enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium and
other laws affecting the rights of creditors generally and general principles of
equity).
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(b) All Governmental Approvals (other than, until the Approval Date, the
FERC Approval and the VPSB Approval) have been duly obtained, are in full force
and effect without having been amended or modified in any manner that may impair
the ability of any Obligor to perform its obligations under this Agreement or
the Notes, and are not the subject of any pending or overtly threatened appeal,
stay or other challenge. No Interest Period requested with respect to any
Borrowing extends beyond the latest date permitted for Borrowings by any
Governmental Approval then in effect.
SECTION 4.02. Financial Statements. The Parent Guarantor has furnished
--------------------
to the Lenders, for itself and its Principal Subsidiaries, their most recent
filings with the Securities and Exchange Commission on Forms 10-K and 10-Q.
Such Forms 10-K and 10-Q, taken together with any subsequent filings by the
Parent Guarantor and its Principal Subsidiaries with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, furnished to
each Lender prior to the date hereof, do not contain any untrue statement of a
material fact or omit to state a material fact necessary to make any statement
therein, in light of the circumstances under which it was made, not misleading.
Each of the financial statements in such Forms 10-K and 10-Q, and each such
subsequent filing, has been, and each of the financial statements to be
furnished pursuant to Section 5.02 will be, prepared in accordance with GAAP
applied consistently with prior periods, except as therein noted, and fairly
presents or will fairly present in all material respects the consolidated
financial position of the Parent Guarantor or Principal Subsidiary, as the case
may be, as of the date thereof and the results of the operations of the Parent
Guarantor and the Subsidiaries or Principal Subsidiary, as the case may be, for
the period then ended.
SECTION 4.03. No Material Adverse Change. From the date of the Parent
--------------------------
Guarantor's most recent financial statements contained in its Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 furnished to the Lenders
pursuant to Section 4.02 through the date of the initial Borrowing, and except
as described in the Parent Guarantor's Quarterly Reports on Form 10-Q for the
quarterly periods ended June 30, 1997 and September 30, 1997 furnished to the
Lenders pursuant to Section 4.02 prior to the date hereof, there has been no
material adverse change in, and there has occurred no event or condition which
is likely to result in a material adverse change in, the condition, financial or
otherwise, results of operations, business, assets or operations of (i) prior to
the Approval Date, the Obligors taken as a whole or (ii) on and after the
Approval Date, the Parent Guarantor and the Subsidiaries taken as a whole.
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SECTION 4.04. Title to Properties; Possession Under Leases. (a) To the
--------------------------------------------
best of the Parent Guarantor's knowledge, each of the Parent Guarantor and the
Principal Subsidiaries has good and marketable title to, or valid leasehold
interests in, all its material properties and assets and licenses, easements,
rights of way and other rights to use, except for minor defects in title that do
not interfere with its ability to conduct its business as currently conducted or
to utilize such properties and assets for their intended purposes. All such
material properties and assets are free and clear of Liens, other than Liens
expressly permitted by Section 6.01.
(b) Each of the Parent Guarantor and the Principal Subsidiaries has
complied with all obligations under all material leases to which it is a party
and all such leases are in full force and effect, except where such failure to
comply or maintain such leases in full force and effect would not have a
Material Adverse Effect. Each of the Parent Guarantor and the Subsidiaries
enjoys peaceful and undisturbed possession under all such material leases except
where such failure would not have a Material Adverse Effect.
SECTION 4.05. Ownership of Subsidiaries. The Parent Guarantor owns,
-------------------------
free and clear of any Lien (other than Liens expressly permitted by Section
6.01), all of the issued and outstanding shares of common stock of each of the
Principal Subsidiaries.
SECTION 4.06. Litigation; Compliance with Laws. (a) There is no
--------------------------------
action, suit, or proceeding, or any governmental investigation or any
arbitration, in each case pending or, to the knowledge of the Parent Guarantor,
threatened against the Parent Guarantor or any of the Subsidiaries or any
material property of any thereof before any court or arbitrator or any
governmental or administrative body, agency, or official on the date hereof or
the date of the initial Borrowing which (i) challenges the validity of this
Agreement or the Notes or (ii), except as disclosed in the Parent Guarantor's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 or its
Quarterly Reports on Form 10-Q for the quarterly periods ended June 30, 1997 and
September 30, 1997 furnished to the Lenders pursuant to Section 4.02 prior to
the date hereof, may have a Material Adverse Effect.
(b) Neither the Parent Guarantor nor any of the Subsidiaries is in
violation of any law, rule, or regulation, or in default with respect to any
judgment, writ, injunction or decree of any Governmental Authority, where such
violation or default could reasonably be anticipated to result in a Material
Adverse Effect.
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SECTION 4.07. Agreements. (a) Neither the Parent Guarantor nor any of
----------
the Subsidiaries is a party to any agreement or instrument or subject to any
corporate restriction that has resulted, or could reasonably be anticipated to
result, in a Material Adverse Effect.
(b) Neither the Parent Guarantor nor any of the Subsidiaries is in
default in any manner under any provision of any indenture or other agreement or
instrument evidencing Indebtedness, or any other material agreement or
instrument to which it is a party or by which it or any of its properties or
assets are or may be bound, where such default could reasonably be anticipated
to result in a Material Adverse Effect.
SECTION 4.08. Federal Reserve Regulations. No part of the proceeds of
---------------------------
the Advances will be used, whether directly or indirectly, and whether
immediately, incidentally, or ultimately, for any purpose which entails a
violation of, or which is inconsistent with, the provisions of the Margin
Regulations.
SECTION 4.09. Investment Company Act; Public Utility Holding Company
------------------------------------------------------
Act. Neither the Parent Guarantor nor any of the Subsidiaries is (a) an
- ---
"investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940 or (b) a "holding company" as defined in, or
subject to regulation under, the Public Utility Holding Company Act of 1935.
SECTION 4.10. Use of Proceeds. The Borrower will use the proceeds of
---------------
the Advances only for the purposes specified in Section 5.05.
SECTION 4.11. Tax Returns. Each of the Parent Guarantor and the
-----------
Subsidiaries has filed or caused to be filed all Federal, state and local tax
returns required to have been filed by it and has paid or caused to be paid all
taxes shown to be due and payable on such returns or on any assessments received
by it, except taxes that are being contested in good faith by appropriate
proceedings and for which the Parent Guarantor shall have set aside on its books
adequate reserves.
SECTION 4.12. No Material Misstatements. No statement, information,
-------------------------
report, financial statement, exhibit, or schedule furnished by or on behalf of
the Parent Guarantor to the Administrative Agent, the Co-Administrative Agent or
any Lender in connection with the syndication or negotiation of this Agreement
or included herein or delivered pursuant hereto contained, contains, or will
contain any material misstatement of fact or intentionally omitted, omits, or
will omit to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were, are, or will be made,
not misleading.
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SECTION 4.13. Employee Benefit Plans. (a) Each Plan is in compliance
----------------------
with ERISA, except for such noncompliance that has not resulted, and could not
reasonably be anticipated to result, in a Material Adverse Effect.
(b) No Plan has an accumulated or waived funding deficiency within the
meaning of Section 412 or Section 418B of the Code, except for any such
deficiency that has not resulted, and could not reasonably be anticipated to
result, in a Material Adverse Effect.
(c) No proceedings have been instituted to terminate any Plan, except
for such proceedings where the termination of a Plan has not resulted, and could
not reasonably be anticipated to result, in a Material Adverse Effect.
(d) Neither the Parent Guarantor nor any Subsidiary or ERISA Affiliate
has incurred any liability to or on account of a Plan under ERISA (other than
obligations to make contributions in accordance with such Plan), and no
condition exists which presents a material risk to the Parent Guarantor or any
Subsidiary of incurring such a liability, except for such liabilities that have
not resulted, and could not reasonably be anticipated to result, in a Material
Adverse Effect.
SECTION 4.14. Insurance. Each of the Parent Guarantor and the
---------
Principal Subsidiaries maintains insurance with financially sound and reputable
insurers, or self-insurance, with respect to its properties and business against
loss or damage of the kind customarily insured against by reputable companies in
the same or similar business and of such types and in such amounts (with such
deductible amounts) as is customary for such companies under similar
circumstances.
ARTICLE V
AFFIRMATIVE COVENANTS
The Parent Guarantor covenants and agrees with the Administrative Agent and
each Lender that, so long as this Agreement shall remain in effect or the
principal of or interest on any Advance (or any portion thereof), or any other
expenses or amounts payable hereunder, shall be unpaid, the Parent Guarantor
will:
SECTION 5.01. Existence, Businesses and Properties. (a) Preserve and
------------------------------------
maintain, cause each of the Principal Subsidiaries to preserve and maintain, and
cause each other Subsidiary to preserve and maintain (where the failure by any
such other Subsidiary to so preserve and maintain would likely result in a
Material Adverse Effect), its corporate existence, rights and franchises,
provided, however, that the corporate existence of
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any Principal Subsidiary (other than the Borrower) may be terminated if such
termination is not disadvantageous to the Administrative Agent or any Lender;
(b) continue to own all of the outstanding shares of common stock of
each Principal Subsidiary other than the Borrower, and continue to own
outstanding shares of common stock of the Borrower carrying voting power
sufficient to elect a majority of the Board of Directors of the Borrower and
representing at least 51% of the economic interests in the Borrower;
(c) comply, and cause each of the Subsidiaries to comply, in all
material respects, with all applicable laws, rules, regulations and orders;
(d) pay, and cause each of the Subsidiaries to pay, before any such
amounts become delinquent, (i) all taxes, assessments and governmental charges
imposed upon it or upon its property, and (ii) all claims (including, without
limitation, claims for labor, materials, supplies, or services) which might, if
unpaid, become a Lien upon its property, unless, in each case, the validity or
amount thereof is being disputed in good faith, and the Parent Guarantor has
maintained adequate reserves with respect thereto;
(e) keep, and cause each of the Subsidiaries to keep, proper books of
record and account, containing complete and accurate entries of all financial
and business transactions of the Parent Guarantor and such Subsidiary;
(f) continue to carry on, and cause each Principal Subsidiary to
continue to carry on, substantially the same type of business as the Parent
Guarantor or such Principal Subsidiary conducted as of the date hereof and
business reasonably related thereto; and
(g) maintain or cause to be maintained insurance with financially sound
and reputable insurers, or self-insurance, with respect to its properties and
business and the properties and business of the Subsidiaries against loss or
damage of the kinds customarily insured against by reputable companies in the
same or similar businesses, such insurance to be of such types and in such
amounts (with such deductible amounts) as is customary for such companies under
similar circumstances;
provided, however, that the foregoing shall not limit the right of the Parent
Guarantor or any of its Subsidiaries to engage in any transaction not otherwise
prohibited by Section 6.02, 6.03 or 6.04.
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SECTION 5.02. Financial Statements, Reports, etc. In the case of the
-----------------------------------
Parent Guarantor, furnish to the Administrative Agent and each Lender:
(a) as soon as available and in any event within 110 days after the
end of each fiscal year, consolidated balance sheets and the related
statements of income and cash flows of the Parent Guarantor and its
Subsidiaries (the Parent Guarantor and its Subsidiaries being collectively
referred to as the "Companies") as of the close of such fiscal year (which
---------
requirement shall be deemed satisfied by the delivery of the Parent
Guarantor's Annual Report on Form 10-K (or any successor form) for such
year), all audited by KPMG Peat Marwick or other independent public
accountants of recognized national standing and accompanied by an opinion
of such accountants to the effect that such consolidated financial
statements fairly present in all material respects the financial condition
and results of operations of the Companies an a consolidated basis in
accordance with GAAP consistently applied;
(b) within 65 days after the end of each of the first three fiscal
quarters of each fiscal year, consolidated balance sheets and related
statements of income and cash flows of the Companies as of the close of
such fiscal quarter and the then elapsed portion of the fiscal year (which
requirement shall be deemed satisfied by the delivery of the Parent
Guarantor's Quarterly Report on Form 10-Q (or any successor form) for such
quarter), each certified by a Financial officer as fairly presenting the
financial condition and results of operations of the Companies on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments;
(c) promptly upon the mailing or filing thereof copies of all
financial statements, reports and proxy statements mailed to the Parent
Guarantor's public shareholders, and copies of all registration statements
(other than those on Form S-8) and Form 8-K's (to the extent that such Form
8-K's disclose actual or potential adverse developments with respect to the
Parent Guarantor or any of its Subsidiaries that constitute, or could
reasonably be anticipated to constitute, a Material Adverse Effect) filed
with the Securities and Exchange Commission (or any successor thereto) or
any national securities exchange;
(d) prompt notice of any reduction in the credit rating given to the
Parent Guarantor by any Rating Agency;
(e) promptly after (i) the occurrence thereof, notice of any ERISA
Termination Event or "prohibited transaction",
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as such term is defined in Section 4975 of the Code, with respect to any
Plan that results, or could reasonably be anticipated to result, in a
Material Adverse Effect, which notice shall specify the nature thereof and
the Parent Guarantor's proposed response thereto, and (ii) actual knowledge
thereof copies of any notice of PBGC's intention to terminate or to have a
trustee appointed to administer any Plan; and
(f) promptly, from time to time, such other information, regarding
its operations, business affairs and financial condition, or compliance
with the terms of this Agreement, as the Administrative Agent or any Lender
may reasonably request.
SECTION 5.03. Litigation and other Notices. Furnish to the
----------------------------
Administrative Agent and each Lender prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) proposed to be taken with
respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any governmental
authority, against the Parent Guarantor or any of the Subsidiaries which is
reasonably likely to be adversely determined and which, if adversely
determined, could reasonably be anticipated to result in a Material Adverse
Effect; and
(c) any development with respect to the Parent Guarantor or any
Subsidiary that has resulted in, or could reasonably be anticipated to
result in, a Material Adverse Effect.
SECTION 5.04. Maintaining Records. Maintain all financial records in
-------------------
accordance with GAAP and, upon reasonable notice, permit any Lender to visit and
inspect the financial records of the Parent Guarantor at reasonable times and as
often as requested and to make extracts from and copies of such financial
records, and permit any representatives designated by any Lender to discuss the
affairs, finances and condition of the Parent Guarantor with the appropriate
officers thereof and, with the Parent Guarantor's consent (which shall not be
unreasonably withheld), the independent accountants therefor; provided, however,
that if the Parent Guarantor shall so require, a single representative shall be
appointed by the Majority Lenders to exercise the rights granted under this
Section 5.04.
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SECTION 5.05. Use of Proceeds. Use the proceeds of the Advances only
---------------
for the purposes set forth in the preamble of this Agreement; provided, however,
that no such proceeds shall be used directly or indirectly in connection with
(i) the acquisition of in excess of 5% of any class of equity security that is
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (ii) any transaction subject to the requirements
of Section 13 of the Exchange Act or (iii) any transaction subject to the
requirements of Section 14 of the Exchange Act with respect to which proxies,
consents or authorizations, as the case may be, are being sought by any person
(as defined in the Exchange Act) other than the majority of the board of
directors of the issuer of the securities in respect of which such proxies,
consents or authorizations are being sought.
ARTICLE VI
NEGATIVE COVENANTS
The Parent Guarantor covenants and agrees with each Lender and the
Administrative Agent that, so long as this Agreement shall remain in effect or
the principal of or interest on any Advance (or any portion thereof), or any
other expenses or amounts payable hereunder, shall be unpaid, it will not:
SECTION 6.01. Liens. Create, incur, assume, or suffer to exist, or
-----
permit any of the Principal Subsidiaries to create, incur, assume, or suffer to
exist, any Lien on any of its property now owned or hereafter acquired to secure
any Indebtedness of the Parent Guarantor or any such Principal Subsidiary, other
than (a) Liens incurred or deposits made in the ordinary course of business to
secure surety and appeal bonds, leases, return-of-money bonds and other similar
obligations (exclusive of obligations of the payment of borrowed money); (b)
Liens created under or in connection with the First Mortgage Bond Indentures or
any other indentures governing the issuance of mortgage bonds by the Parent
Guarantor; (c) pledges or deposits to secure the utility obligations of the
Parent Guarantor incurred in the ordinary course of business; (d) Liens upon or
in property now owned or hereafter acquired to secure Indebtedness incurred
solely for the purpose of financing the acquisition, construction or improvement
of any property, provided that such Indebtedness shall not exceed the fair
market value of the property being acquired, constructed or improved; (e) Liens
on the assets of any Principal Subsidiary to secure the repayment of project
financing for such Principal Subsidiary; (f) Liens on the assets of any Person
merged or consolidated with or into (in accordance with Section 6.04) the Parent
Guarantor or any Principal Subsidiary that were in effect at the time of such
merger or consolidation; and (g) Liens securing Indebtedness of
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the Parent Guarantor or of any Principal Subsidiary to the U.S. Rural
Electrification Administration (or any successor agency) or to the U.S. Rural
Telephone Bank (or any successor agency); provided, however, that the Parent
Guarantor or any Principal Subsidiary may create, incur, assume or suffer to
exist other Liens (in addition to Liens excepted by the foregoing clauses (a)
through (g)) on its assets so long as the assets subject to such Liens do not
represent in the aggregate more than 30% of the Parent Guarantor's Consolidated
Tangible Assets.
SECTION 6.02. Ownership of the Principal Subsidiaries. Sell, assign,
---------------------------------------
pledge, or otherwise transfer or dispose of any shares of common stock, voting
stock, or stock convertible into voting or common stock of any Principal
Subsidiary except to another Subsidiary or (in the case of stock of the
Borrower) if such transaction would not result in a violation of Section
5.01(b).
SECTION 6.03. Asset Sales. Permit any Principal Subsidiary to sell,
-----------
assign, or otherwise dispose of assets (whether in one transaction or a series
of transactions), if after giving effect to such transaction, (a) such Principal
Subsidiary (if not the Borrower) will have disposed of, in the aggregate, assets
representing more than 25% of such Principal Subsidiary's aggregate Consolidated
Tangible Assets as of the date upon which such Principal Subsidiary first became
a Principal Subsidiary or (b) such Principal Subsidiary (if the Borrower) will
have disposed of, in the aggregate, assets representing more than 25% of such
Principal Subsidiary's aggregate Consolidated Tangible Assets as of the date of
such transaction; provided that any Principal Subsidiary may transfer assets
representing up to 100% of such Principal Subsidiary's Consolidated Tangible
Assets to any other Subsidiary or to the Parent Guarantor.
SECTION 6.04. Mergers. Merge or consolidate with, or sell, assign,
-------
lease, or otherwise dispose of (whether in one transaction or a series of
transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to any person, or permit any Principal Subsidiary to do so,
except that (a) any Subsidiary (other than the Borrower) may merge into or,
subject to Section 6.03, transfer assets to the Parent Guarantor or any other
Subsidiary and the Parent Guarantor may merge with any person and (b) the
Borrower may, subject to Section 5.01(b), merge with another Person if,
immediately thereafter and after giving effect thereto, no event shall occur or
be continuing which constitutes an Event of Default or a Default; provided that,
immediately thereafter and after giving effect thereto, no event shall occur or
be continuing which constitutes an Event of Default or a Default and, in the
case of any such merger to which the Parent Guarantor is a party, either the
Parent Guarantor is
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the surviving corporation or the surviving entity (if not the Parent Guarantor)
has a consolidated net worth (as determined in accordance with GAAP) immediately
subsequent to such merger at least equal to the Consolidated Net Worth of the
Parent Guarantor immediately prior to such merger and expressly assumes the
obligations of the Parent Guarantor under the Loan Documents; providing,
however, that notwithstanding the foregoing, the Parent Guarantor and any of the
Principal Subsidiaries may sell assets in the ordinary course of its business
and may sell or otherwise dispose of worn out or obsolete equipment on a basis
consistent with good business practices.
SECTION 6.05. Restrictions on Dividends. Enter into or permit any
-------------------------
Principal Subsidiary to enter into, any contract or agreement (other than with a
governmental regulatory authority having jurisdiction over the Parent Guarantor
or such Principal Subsidiary) restricting the ability of such Principal
Subsidiary to pay dividends or make distributions to the Parent Guarantor in any
manner that would impair the ability of any Obligor to meet its present and
future obligations hereunder or under any Note. The Secretary of the Parent
Guarantor or another officer of the Parent Guarantor satisfactory to the
Administrative Agent shall, prior to entry into any contract or agreement that
could restrict the ability of any Principal Subsidiary to pay dividends or make
distributions to the Parent Guarantor, deliver to the Lenders a certificate
certifying (a) to the absence of any Event of Default or Default after giving
effect to the entry by such Principal Subsidiary into such contract or
agreement, and (b) that such contract or agreement will not impair the ability
of the Parent Guarantor to meet its present and future obligations hereunder or
under any Note.
SECTION 6.06. Transactions with Affiliates. Sell or transfer any
----------------------------
property or assets to, or purchase or acquire any property or assets from, or
otherwise engage in any other transactions with, any of its Affiliates, except
that as long as no Default or Event of Default shall have occurred and be
continuing, the Parent Guarantor or any Subsidiary may engage in any of the
foregoing transactions in the ordinary course of business at prices and on terms
and conditions not less favorable to the Parent Guarantor or such Subsidiary
that could be obtained on an arm's-length basis from unrelated third parties or
as otherwise may be required by any Federal or state Governmental Authority.
SECTION 6.07. Minimum Consolidated Net Worth. Permit its Consolidated
------------------------------
Net Worth at any time to be less than $1,000,000,000.
SECTION 6.08. Combined Shareholders' Equity of Subsidiary Guarantors.
------------------------------------------------------
Permit the combined shareholders' equity
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----------------
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of the Subsidiary Guarantors to be less than 150% of the aggregate principal
amount of the Advances outstanding at any time prior to the Approval Date.
ARTICLE VII
EVENTS OF DEFAULT
In case of the happening of any of the following events ("Events of
---------
Default"):
(a) any representation or warranty made or deemed made in or in
connection with this Agreement or the Borrowings hereunder, or any
representation, warranty, statement, or information contained in any
written report, certificate, financial statement, or other instrument
furnished in connection with or pursuant to this Agreement, shall prove to
have been false or misleading in any material respect when so made, deemed
made, or furnished;
(b) default shall be made in the payment of any principal of any Advance
(or any portion thereof) when and as the same shall become due and payable,
whether at the due date thereof or at a date fixed or for prepayment
thereof or by acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on any Advance
(or any portion thereof) or any Fee or any other amount (other than an
amount referred to in (b) above) due under any Loan Document, when and as
the same shall become due and payable, and such default shall continue
unremedied for a period of five Business Days;
(d) default shall be made in the due observance or performance of any
covenant, condition, or agreement contained in Section 5.01(f) or Section
5.05 or in Article VI;
(e) default shall be made in the due observance or performance of any
covenant, condition, or agreement contained herein (other than those
specified in (b), (c), or (d) above) and such default shall continue
unremedied for a period of 30 days after the earlier to occur of (i) the
Parent Guarantor obtaining knowledge thereof and (ii) the date that written
notice thereof shall have been given to the Parent Guarantor by the
Administrative Agent or any Lender;
(f) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i)
relief in respect of the Parent
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Guarantor or any Principal Subsidiary, or of a substantial part of the
property or assets of the Parent Guarantor or a Principal Subsidiary, under
Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency,
receivership, or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator, or similar official for the Parent
Guarantor or any Principal Subsidiary or for a substantial part of the
property or assets of the Parent Guarantor or a Principal Subsidiary, or
(iii) the winding-up or liquidation of the Parent Guarantor or any
Principal Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of
the foregoing shall be entered;
(g) the Parent Guarantor or any Principal Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency,
receivership, or similar law, (ii) consent to the institution of, or fail
to contest in a timely and appropriate manner, any proceeding or the filing
of any petition described in (f) above, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator,
or similar official for the Parent Guarantor or any Principal Subsidiary or
for a substantial part of the property or assets of the Parent Guarantor or
any Principal Subsidiary, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v) make
a general assignment for the benefit of creditors, (vi) become unable,
admit in writing its inability, or fail generally to pay its debts as they
become due, or (vii) take any action for the purpose of effecting any of
the foregoing;
(h) the Parent Guarantor or any Principal Subsidiary, as the case may
be, fails to pay when due, or within any grace period applicable thereto by
the terms thereof any other Indebtedness of the Parent Guarantor or any
Principal Subsidiary aggregating $50,000,000 or more;
(i) the Parent Guarantor or any Principal Subsidiary shall fail to
observe or perform any covenant or agreement contained in any single
agreement or instrument relating to any Indebtedness in excess of (i)
$75,000,000 in the aggregate, with respect to any Indebtedness issued on a
tax-exempt basis, and (ii) $50,000,000 in the aggregate, with respect to
all other Indebtedness, in each case within any applicable grace period, or
any other event shall occur if the effect of such failure or other event is
to accelerate, or to permit the holder of such Indebtedness or any other
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<PAGE>
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person to accelerate, the maturity of such Indebtedness; or any such
Indebtedness shall be required to be prepaid (other than by a regularly
scheduled required prepayment or the exercise by the Parent Guarantor or
such Principal Subsidiary of its right to make a voluntary prepayment) in
whole or in part prior to its stated maturity;
(j) a judgment or order for the payment of money in excess of
$50,000,000 and having a Material Adverse Effect shall be rendered against
the Parent Guarantor or any of the Subsidiaries and such judgment or order
shall continue unsatisfied (in the case of a money judgment) and in effect
for a period of 30 days during which execution shall not be effectively
stayed or deferred (whether by action of a court, by agreement, or
otherwise);
(k) a Plan shall fail to maintain the minimum funding standard required
by Section 412(d) of the Code for any plan year or a waiver of such
standard is sought or granted under Section 412(d), or a Plan is or shall
have been terminated or the subject of termination proceedings under ERISA,
or the Parent Guarantor or an ERISA Affiliate has incurred a liability to
or on account of a Plan under Section 4062, 4063, 4064, 4201 or 4204 of
ERISA, and there shall result from any such event or events a Material
Adverse Effect;
(l) there shall have occurred a Change in Control;
(m) the Approval Date shall not have occurred on or before the 90th day
after the date hereof; or
(n) before the Approval Date, the obligations of any Subsidiary
Guarantor under Article X shall be, or shall be asserted by any Obligor to
be, invalid; or on or after the Approval Date, the obligations of the
Parent Guarantor under Article X shall be, or shall be asserted by any
Obligor to be, invalid;
then, and in every such event (other than an event with respect to the Borrower
described in paragraph (f) or (g) above), and at any time thereafter during the
continuance of such event, the Administrative Agent, at the request of the
Majority Lenders, shall by notice to the Parent Guarantor, take either or both
of the following actions, at the same or different times: (i) terminate
forthwith the Commitments and (ii) declare the Advances then outstanding to be
forthwith due and payable in whole or in part, whereupon the principal of the
Advances so declared to be due and payable, together with accrued interest
thereon and any unpaid accrued Fees and all other liabilities of the Parent
Guarantor accrued hereunder and under any other Loan Document, shall become
forthwith due and payable, without presentment,
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demand, protest, or any other notice of any kind, all of which are hereby
expressly waived by the Parent Guarantor, anything contained herein or in any
other Loan Document to the contrary notwithstanding; and in any event with
respect to the Parent Guarantor described in paragraph (f) or (g) above, the
Commitments shall automatically terminate and the principal of the Advances then
outstanding, together with accrued interest thereon and any unpaid accrued Fees
and all other liabilities of the Parent Guarantor accrued hereunder and under
any other Loan Document, shall automatically become due and payable, without
presentment, demand, protest, or any other notice of any kind, all of which are
hereby expressly waived by the Parent Guarantor, anything contained herein or in
any other Loan Document to the contrary notwithstanding.
ARTICLE VIII
THE ADMINISTRATIVE AGENT
SECTION 8.01. Authorization and Action. Each Lender hereby appoints
------------------------
and authorizes the Administrative Agent to take such action as administrative
agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers as are reasonably incidental thereto. As to any matters not expressly
provided for by this Agreement (including, without limitation, enforcement or
collection of the Notes), the Administrative Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Majority Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
- -------- -------
any action which exposes the Administrative Agent to personal liability or which
is contrary to this Agreement or applicable law. The Administrative Agent
agrees to give to each Lender prompt notice of each notice given to it by any
Obligor pursuant to the terms of this Agreement.
SECTION 8.02. Administrative Agent's Reliance, Etc. Neither the
-------------------------------------
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement, except for its or their own negligence or
willful misconduct. Without limitation of the generality of the foregoing, the
Administrative Agent: (i) may treat the payee of any Note as the holder thereof
until the Administrative Agent receives and accepts an Assignment and Acceptance
entered into by the Lender which is the payee of such Note, as assignor, and an
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Eligible Assignee, as assignee, as provided in Section 9.07; (ii) may consult
with legal counsel (including counsel for the any Obligor), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (iii) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations (whether written or oral) made in or
in connection with this Agreement; (iv) shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement on the part of the Borrower or to inspect the
property (including the books and records) of the Borrower or any of its
Subsidiaries; (v) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto; and
(vi) shall incur no liability under or in respect of this Agreement by acting
upon any notice, consent, certificate or other instrument or writing (which may
be by telecopier, telegram, cable or telex) believed by it to be genuine and
signed or sent by the proper party or parties.
SECTION 8.03. Citibank and Affiliates. With respect to its Commitment,
-----------------------
the Advances made by it and the Notes issued to it, Citibank shall have the same
rights and powers under this Agreement as any other Lender and may exercise the
same as though it were not the Administrative Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include Citibank in its
individual capacity. Citibank and its Affiliates may accept deposits from, lend
money to, act as trustee under indentures of, and generally engage in any kind
of business with, the Borrower, any of its Subsidiaries and any person who may
do business with or own securities of the Borrower or any such Subsidiary, all
as if Citibank were not the Administrative Agent and without any duty to account
therefor to the Lenders.
SECTION 8.04. Lender Credit Decision. Each Lender acknowledges that it
----------------------
has, independently and without reliance upon the Administrative Agent or any
other Lender and based on the financial statements referred to in Section 4.01
and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
Credit Agreement
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SECTION 8.05. Indemnification. The Lenders agree to indemnify the
---------------
Administrative Agent (to the extent not reimbursed by the Borrower), ratably
according to the respective principal amounts of the Notes then held by them (or
if no Notes are at the time outstanding, ratably according to the respective
amounts of their Commitments), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Administrative Agent in any way
relating to or arising out of this Agreement or any action taken or omitted by
the Administrative Agent under this Agreement, provided that no Lender shall be
--------
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Administrative Agent's gross negligence or willful misconduct. Without
limiting the foregoing, each Lender agrees to reimburse the Administrative Agent
promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by the Administrative Agent in connection with
the preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
to the extent that the Administrative Agent is not reimbursed for such expenses
by the Borrower.
SECTION 8.06. Successor Administrative Agent. The Administrative Agent
------------------------------
may resign at any time by giving written notice thereof to the Lenders and the
Borrower and may be removed at any time with or without cause by the Majority
Lenders. Upon any such resignation or removal, the Majority Lenders shall have
the right to appoint a successor Administrative Agent that, unless a Default or
Event of Default shall have occurred and then be continuing, is reasonably
acceptable to the Borrower. If no successor Administrative Agent shall have
been so appointed by the Majority Lenders, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent's giving of
notice of resignation or the Majority Lenders' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent, which shall be a
commercial bank organized under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$50,000,000. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations under
this Agreement. After any retiring
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Administrative Agent's resignation or removal hereunder as Administrative Agent,
the provisions of this Article VIII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under this
Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision
----------------
of this Agreement or the A Notes, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Lenders, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
-------- -------
writing and signed by all the Lenders (other than the Designated Bidders), do
any of the following: (a) waive any of the conditions specified in Section
3.01, (b) increase the Commitments of such Lenders or subject such Lenders to
any additional obligations, (c) reduce the principal of, or interest on, the A
Notes or any fees or other amounts payable hereunder, (d) postpone any date
fixed for any payment of principal of, or interest on, the A Notes or any fees
or other amounts payable hereunder, (e) change the percentage of the Commitments
or of the aggregate unpaid principal amount of the A Notes, or the number of
Lenders, which shall be required for the Lenders or any of them to take any
action hereunder or (f) amend this Section 9.01; provided further that no
-------- -------
amendment, waiver or consent shall, unless in writing and signed by each Lender
holding a B Note at such time, (1) reduce the principal of, or interest on, such
B Note or any fees or other amounts payable hereunder or thereunder with respect
thereto, (2) postpone any date fixed for any payment of principal of, or
interest on, such B Note or any fees or other amounts payable hereunder or
thereunder with respect thereto, or (3) subject such Lender to any additional
obligations; and provided further that no amendment, waiver or consent shall,
-------- -------
unless in writing and signed by the Administrative Agent in addition to the
Lenders required above to take such action, affect the rights or duties of the
Administrative Agent under this Agreement or any Note. This Agreement and the
Notes constitute the entire agreement of the parties with respect to the subject
matter hereof and thereof.
SECTION 9.02. Notices, Etc. All notices and other communications
-------------
provided for hereunder shall be in writing (including telecopier, telegraphic,
telex or cable communication) and mailed, telecopied, telegraphed, telexed,
cabled or
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delivered, if to any Obligor, at P.O. Box 3801, High Ridge Park, Stamford,
Connecticut 06905, Attention: Robert J. DeSantis, Vice President and Treasurer
of the Parent Guarantor, telephone no. (203) 614-5052, telecopier number (203)
614-4625; if to any Lender (other than a Designated Bidder), at the Domestic
Lending Office specified in the Administrative Questionnaire of such Lender or
in the Assignment and Acceptance pursuant to which it became a Lender; if to any
Designated Bidder, at the Domestic Lending Office specified in the Designation
Agreement pursuant to which it became a Lender; and if to the Administrative
Agent, Citibank, N.A., 1 Court Square, 7th Floor, Zone 7, Long Island City, New
York 11120, Attention: Kim Coley, telephone no. (718) 248-7180, telecopier no.
(718) 248-4844; or, as to the Borrower or the Administrative Agent, at such
other address as shall be designated by such party in a written notice to the
other parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrower and the
Administrative Agent. All such notices and communications shall, when mailed,
telecopied, telegraphed, telexed or cabled, be effective when deposited in the
mails, telecopied, delivered to the telegraph company, confirmed by telex
answerback or delivered to the cable company, respectively, except that notices
and communications to the Administrative Agent pursuant to Article II or VII
shall not be effective until received by the Administrative Agent.
SECTION 9.03. No Waiver; Remedies. No failure on the part of any
-------------------
Lender or the Administrative Agent to exercise, and no delay in exercising, any
right hereunder or under any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 9.04. Costs, Expenses and Indemnification.
-----------------------------------
(a) The Borrower agrees to pay and reimburse within 30 days after
demand all costs and expenses of the Administrative Agent in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Agreement, the Notes and the other documents to be delivered hereunder,
includ ing, without limitation, the reasonable fees and out-of-pocket expenses
of counsel for the Administrative Agent with respect thereto and with respect to
advising the Administrative Agent as to its rights and responsibilities under
this Agreement. The Borrower further agrees to pay on demand all costs and
expenses, if any (including, without limitation, reasonable counsel fees and
expenses of the Administrative Agent and each of the Lenders), incurred by the
Administrative Agent or any Lender in connection with the enforcement (whether
through negotiations,
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----------------
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legal proceedings or otherwise) of this Agreement, the Notes and the other
documents to be delivered hereunder, including, without limitation, reasonable
counsel fees and expenses in connection with the enforcement of rights under
this Section 9.04(a).
(b) The Borrower hereby indemnifies the Administrative Agent, Citicorp
Securities, Inc., each Lender and each of respective their Affiliates and their
respective officers, directors, employees, agents, advisors and representatives
(each, an "Indemnified Party") from and against any and all claims, damages,
-----------------
losses, liabilities and expenses (including, without limitation, fees and
disbursements of counsel), joint or several, that may be incurred by or asserted
or awarded against any Indemnified Party, in each case arising out of or in
connection with or relating to any investigation, litigation or proceeding or
the preparation of any defense with respect thereto arising out of or in
connection with or relating to this Agreement, the Notes or the transactions
contemplated hereby or thereby or any use made or proposed to be made with the
proceeds of the Advances, whether or not such investigation, litigation or
proceeding is brought by the Borrower, any of its shareholders or creditors, an
Indemnified Party or any other person, or an Indemnified Party is otherwise a
party thereto, and whether or not any of the conditions precedent set forth in
Article III are satisfied or the other transactions contemplated by this
Agreement are consummated, except to the extent such claim, damage, loss,
liability or expense results from such Indemnified Party's negligence or willful
misconduct, or from a violation by such Indemnified Party of any law, order,
regulation or agreement to which such Indemnified Party or its properties is
subject, or from a breach of this Agreement.
The Borrower hereby further agrees that no Indemnified Party shall have
any liability (whether direct or indirect, in contract, tort or otherwise) to
the Borrower for or in connection with or relating to this Agreement, the Notes
or the transactions contemplated hereby or thereby or any use made or proposed
to be made with the proceeds of the Advances, except to the extent such
liability is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's negligence or
willful misconduct; provided that nothing in this paragraph shall be deemed to
--------
constitute a waiver of any claim the Borrower may have, or to exculpate any
person from any liability that such person may have to the Borrower, for breach
by such person of its obligations under this Agreement.
(c) If any payment of principal of, or Conversion or Continuation of,
any Eurodollar Rate Advance is made other than on the last day of an Interest
Period for such Advance, as a result of acceleration of the maturity of the
Notes pursuant to Article VII or for any other reason (other than a payment or
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Conversion pursuant to Section 2.13), the Borrower shall pay (subject to the
last sentence of this Section 9.04(c)) to the Administrative Agent for the
account of such Lender any amounts required to compensate such Lender for any
additional losses, costs or expenses which it may reasonably incur as a result
of such payment, Continuation or Conversion, including, without limitation, any
loss (excluding loss of anticipated profits), cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by any
Lender to fund or maintain such Advance. The Borrower shall pay amounts owing
to any Lender pursuant to this Section 9.04(c) within 30 days after receipt from
such Lender of a certificate setting forth in reasonable detail the calculation
of the amount such Lender is entitled to claim under this Section 9.04(c) (which
certificate shall be conclusive and binding for all purposes, absent manifest
error).
SECTION 9.05. Right of Set-off. Upon (i) the occurrence and during the
----------------
continuance of any Event of Default under Article VII or (ii) the making of the
request or the granting of the consent specified by Article VII to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Article VII, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender or such Affiliate to or for the credit or the account
of the Borrower (all such deposits and other indebtedness being herein called
"Obligations") against any and all of the obligations of the Borrower now or
- ------------
hereafter existing under this Agreement and any Note held by such Lender,
whether or not such Lender shall have made any demand under this Agreement or
such Note and although the Obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower after any such set-off and application made by
such Lender or such Affiliate, provided that the failure to give such notice
--------
shall not affect the validity of such set-off and application. The rights of
each Lender and its Affiliate under this Section are in addition to other rights
and remedies (including, without limitation, other rights of set-off) which such
Lender or such Affiliate may have.
SECTION 9.06. Binding Effect. This Agreement shall become effective
--------------
when it shall have been executed by the Borrower and the Administrative Agent
and when the Administrative Agent shall have been notified by each Bank that
such Bank has executed it and thereafter shall be binding upon and inure to the
benefit of the Borrower, the Administrative Agent and each Lender and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Lenders.
Credit Agreement
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SECTION 9.07. Assignments, Designations and Participations.
--------------------------------------------
(a) Each Lender (other than a Designated Bidder) may, with notice to
and the consent of the Administrative Agent and the Borrower, such consents not
to be unreasonably withheld (but not otherwise), assign to one or more banks or
other entities all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment,
the Advances owing to it and the Note or Notes held by it); provided, however,
-------- -------
that (i) no such consent by the Borrower or the Administrative Agent shall be
required in the case of any assignment to an Affiliate of the assigning Lender,
(ii) each such assignment shall be of a constant, and not a varying, percentage
of all rights and obligations of the assigning Lender under this Agreement
(other than any right to make B Advances, B Advances owing to it or B Notes),
(iii) the amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment (determined as of the date of the Assignment
and Acceptance with respect to such assignment) shall in no event be less than
$10,000,000 and shall be an integral multiple of $1,000,000 unless the Borrower
and the Administrative Agent otherwise agree, (iv) each such assignment shall be
to an Eligible Assignee, (v) the parties to each such assignment shall execute
and deliver to the Administrative Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with any Note or Notes subject
to such assignment, and (vi) the parties to each such assignment (other than
the Borrower) shall deliver to the Administrative Agent a processing and
recordation fee of $3,000. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, (x) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder and (y) the Lender assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).
(b) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in
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<PAGE>
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or in connection with this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
instrument or document furnished pursuant hereto; (ii) such assigning Lender
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Borrower or the performance or observance by
the Borrower of any of its obligations under this Agreement or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of the
financial statements referred to in Section 4.01 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Administrative Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the
Administrative Agent to take such action as administrative agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.
(c) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Note or Notes subject to such assignment, the Administrative
Agent shall, if such Assignment and Acceptance has been completed (and the
Borrower and the Administrative Agent shall have consented to the relevant
assignment to the extent required pursuant to Section 9.07(a)) and is in
substantially the form of Exhibit C hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower. Within five Business Days
after its receipt of such notice, the Borrower, at its own expense, shall
execute and deliver to the Administrative Agent in exchange for the surrendered
Note or Notes (X) a new A Note to the order of such Eligible Assignee in an
amount equal to the Commitment assumed by it pursuant to such Assignment and
Acceptance and, if the assigning Lender has retained a Commitment hereunder, a
new A Note to the order of the assigning Lender in an amount equal to the
Commitment retained by it hereunder and (Y) new B Note or Notes to the order of
such Eligible Assignee in an amount equal to the principal amount of the B
Advances (if any) acquired by it pursuant to such Assignment and Acceptance
Credit Agreement
----------------
<PAGE>
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and, if the assigning Lender has retained a portion of such B Advances, new B
Note or Notes to the order of the assigning Lender in an amount equal to the
principal amount of the B Advances retained by it hereunder). Such new A Note
or Notes shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered A Note or Notes, and such new B Note or
Notes shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered B Note or Notes. All such Notes shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibit A-1 or A-2 hereto, as applicable.
(d) Each Lender (other than the Designated Bidders) may designate one
or more banks or other entities to have a right to make B Advances as a Lender
pursuant to Section 2.03; provided, however, that (i) no such Lender shall be
-------- -------
entitled to make more than two such designations, (ii) each such Lender making
one or more of such designations shall retain the right to make B Advances as a
Lender pursuant to Section 2.03, (iii) each such designation shall be to a
Designated Bidder and (iv) the parties to each such designation shall execute
and deliver to the Administrative Agent, for its acceptance and recording in the
Register, a Designation Agreement. Upon such execution, delivery, acceptance
and recording, from and after the effective date specified in each Designation
Agreement, the designee thereunder shall be a party hereto with a right to make
B Advances as a Lender pursuant to Section 2.03 and the obligations related
thereto.
(e) By executing and delivering a Designation Agreement, the Lender
making the designation thereunder and its designee thereunder confirm and agree
with each other and the other parties hereto as follows: (i) such Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such designee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into the
Designation Agreement; (iv) such designee will, independently and without
reliance upon the Administrative Agent, such designating Lender
Credit Agreement
----------------
<PAGE>
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or any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) such designee confirms that it is a
Designated Bidder; (vi) such designee appoints and authorizes the Administrative
Agent to take such action as administrative agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Administrative Agent by
the terms hereof, together with such powers as are reasonably incidental
thereto; and (vii) such designee agrees that it will perform in accordance with
their terms all of the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.
(f) Upon its receipt of a Designation Agreement executed by a
designating Lender and a designee representing that it is a Designated Bidder,
the Administrative Agent shall, if such Designation Agreement has been completed
and is substantially in the form of Exhibit D hereto, (i) accept such
Designation Agreement, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Borrower.
(g) The Administrative Agent shall maintain at its address referred to
in Section 9.02 a copy of each Assignment and Acceptance and each Designation
Agreement delivered to and accepted by it and a register for the recordation of
the names and addresses of each of the Lenders and, with respect to Lenders
other than Designated Bidders, the Commitment of, and principal amount of the A
Advances owing to, each such Lender from time to time (the "Register"). The
--------
entries in the Register shall be conclusive and binding for the purposes, absent
manifest error, and the Borrower, the Administrative Agent and the Lenders may
treat each person whose name is recorded in the Register as a Lender hereunder
for the purposes of this Agreement. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
(h) Each Lender may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment,
the Advances owing to it and the Note or Notes held by it); provided, however,
-------- -------
that (i) such Lender's obligations under this Agreement (including, without
limitation, its Commitment to the Borrower hereunder) shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, (iii) such Lender shall remain the holder
of any such Note for all purposes of this Agreement, (iv) the Borrower, the
Administrative Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this
Credit Agreement
----------------
<PAGE>
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Agreement, and (v) no participant under any such participation agreement shall
have any right to approve any amendment or waiver of any provision of this
Agreement or any Note, or to consent to any departure by the Borrower therefrom,
except to the extent that any such amendment, waiver or consent would (x) reduce
the principal of, or interest on, the Notes or any fee or other amounts payable
hereunder, in each case to the extent the same are subject to such
participation, or (y) postpone any date fixed for the payment of principal of,
or interest on, the Notes or any fees or other amounts payable hereunder, in
each case to the extent the same are subject to such participation.
(i) Any Lender may, in connection with any assignment, designation or
participation or proposed assignment, designation or participation pursuant to
this Section 9.07, disclose to the assignee, designee or participant or proposed
assignee, designee or participant, any information relating to the Borrower or
any of its Subsidiaries furnished to such Lender by or on behalf of the
Borrower; provided that, prior to any such disclosure, the assignee, designee or
--------
participant or proposed assignee, designee or participant shall agree to
preserve the confidentiality of any confidential information relating to the
Borrower or any such Subsidiary received by it from such Lender on the terms set
forth in Section 9.14.
(j) Notwithstanding any other provision set forth in this Agreement, any
Lender may at any time create a security interest in all or any portion of its
rights under this Agreement (including, without limitation, the Advances owing
to it and the Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
(k) All amounts payable by the Borrower to any Lender under Sections
2.08, 2.12, 2.15 and 9.04(c) in respect of Advances held by such Lender, and
such Lender's Commitment, shall be determined as if such Lender had not sold or
agreed to sell any participations in such Advances or Commitment and as if such
Lender were funding each of such Advances and Commitments in the same way that
it is funding the portion of such Advances and Commitment in which no
participations have been sold. No assignee or other transferee of any Lender's
rights shall be entitled to receive any greater payment under Section 2.12 than
such Lender would have been entitled to receive with respect to the rights
transferred, unless such transfer is made (i) with the Borrower's prior written
consent, (ii) by reason of the provisions of said Section 2.12 requiring such
Lender to designate a different Applicable Lending Office as provided in said
Section 2.12 or (iii) at a time when the circumstances giving rise to such
greater payment did not exist.
Credit Agreement
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<PAGE>
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SECTION 9.08. Governing Law; Submission to Jurisdiction. This
-----------------------------------------
Agreement and the Notes shall be governed by, and construed in accordance with,
the law of the State of New York. The Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York state court sitting in New York City
for the purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. The Borrower irrevocably
waives, to the fullest extent permitted by applicable law, any objection that it
may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum.
SECTION 9.09. Severability. In case any provision in this Agreement or
------------
in any Note shall be held to be invalid, illegal or unenforceable, such
provision shall be severable from the rest of this Agreement or such Note, as
the case may be, and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 9.10. Execution in Counterparts. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
SECTION 9.11. Survival. The obligations of the Borrower under Sections
--------
2.08, 2.12, 2.15 and 9.04, and the obligations of the Lenders under Section
8.05, shall survive the repayment of the Advances and the termination of the
Commitments. In addition, each representation and warranty made, or deemed to
be made by any Notice of A Borrowing or Notice of B Borrowing, herein or
pursuant hereto shall survive the making of such representation and warranty,
and no Lender shall be deemed to have waived, by reason of making any Advance,
any Default or Event of Default that may arise by reason of such representation
or warranty proving to have been false or misleading, notwithstanding that such
Lender or the Administrative Agent may have had notice or knowledge or reason to
believe that such representation or warranty was false or misleading at the time
such extension of credit was made.
SECTION 9.12. Waiver of Jury Trial. EACH OF THE BORROWER, THE
--------------------
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
Credit Agreement
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<PAGE>
- 64 -
SECTION 9.13. Substitution of Lender. If (a) the obligation of any
----------------------
Lender to make, Continue or otherwise maintain Eurodollar Rate Advances has been
suspended pursuant to Section 2.13, (b) any Lender has demanded compensation
under Section 2.12 or 2.15 or (c) any Lender shall fail to consent to an
amendment or a waiver which pursuant to the terms of Section 9.01 requires the
consent of all Lenders and with respect to which the Majority Lenders shall have
granted their consent, the Borrower shall have the right, if no Default or Event
of Default then exists, to replace such Lender (the "Replaced Lender") with one
---------------
or more Eligible Assignee(s), (each, a "Replacement Lender") acceptable to the
------------------
Administrative Agent, provided that:
--------
(i) at the time of any replacement pursuant to this Section 9.13, the
Replacement Lenders shall enter into one or more Assignment and Acceptance
Agreements, pursuant to which such Replacement Lenders shall acquire the
Commitments and outstanding Advances of the Replaced Lender and, in
connection therewith, shall pay to the Replaced Lender in respect thereof
an amount equal to the sum of (A) an amount equal to the principal of, and
all accrued interest on, all outstanding Advances of the Replaced Lender,
(B) an amount equal to all accrued and unpaid Facility Fees owing to the
Replaced Lender and (C) an amount equal to the amount which would be
payable by the Borrower to the Replaced Lender pursuant to Section 9.04(c)
if the Borrower prepaid at the time of such replacement all of the Advances
of such Replaced Lender outstanding at such time; and
(ii) all obligations of the Borrower owing to the Replaced Lender
(other than those specifically described in clause (i) above in respect of
which the assignment purchase price has been, or is concurrently being,
paid) shall be paid in full to such Replaced Lender concurrently with such
replacement.
Upon (I) the execution of the respective Assignment and Assumption Agreements,
(II) the payment of amounts referred to in clauses (i) and (ii) above and (III)
if so requested by a Replacement Lender, delivery to such Replacement Lender of
the appropriate Note or Notes executed by the Borrower, each Replacement Lender
shall become a Lender hereunder and the Replaced Lender shall cease to
constitute a Lender hereunder.
SECTION 9.14. Confidentiality. Each Lender agrees to hold all non-
---------------
public information obtained pursuant to the provisions of this Agreement in
accordance with its customary procedure for handling confidential information of
this nature and in accordance with safe and sound banking practices, provided
--------
that nothing herein shall prevent any Lender from disclosing such information
(i) to any other Lender or to the Administrative
Credit Agreement
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<PAGE>
- 65 -
Agent (or to Citicorp Securities, Inc.), (ii) upon the order of any court or
administrative agency or otherwise to the extent required by statute, rule,
regulation or judicial process, (iii) to bank examiners or upon the request or
demand of any other regulatory agency or authority, (iv) which had been publicly
disclosed other than as a result of a disclosure by the Administrative Agent or
any Lender prohibited by this Agreement, (v) in connection with any litigation
to which any one or more of the Lenders or the Administrative Agent is a party,
or in connection with the exercise of any remedy hereunder or under any Note,
(vi) to such Lender's or Administrative Agent's legal counsel and independent
auditors and accountants and (vii) subject to provisions substantially similar
to those contained in this Section, to any actual or proposed participant or
assignee.
ARTICLE X
GUARANTEE
SECTION 10.01 The Guarantee. Subject to Section 10.09 hereof, the
-------------
Guarantors hereby jointly and severally guarantee to each Lender and the
Administrative Agent and their respective successors and assigns the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the principal of and interest on the Advances made by the Lenders
to, and the Notes held by each Lender of, the Borrower and all other amounts
from time to time owing to the Lenders or the Administrative Agent by the
Borrower under this Agreement and under the Notes strictly in accordance with
the terms thereof (such obligations being herein collectively called the
"Guaranteed Obligations"). Subject to Section 10.09, the Guarantors hereby
- -----------------------
further jointly and severally agree that if the Borrower shall fail to pay in
full when due (whether at stated maturity, by acceleration or otherwise) any of
the Guaranteed Obligations, the Guarantors will promptly pay the same, without
any demand or notice whatsoever, and that in the case of any extension of time
of payment or renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, by acceleration or
otherwise) in accordance with the terms of such extension or renewal.
SECTION 10.02 Obligations Unconditional. Subject to Section 10.09, the
-------------------------
obligations of the Guarantors under Section 10.01 are absolute and
unconditional, joint and several, irrespective of the value, genuineness,
validity, regularity or enforceability of the obligations of the Borrower under
this Agreement, the Notes or any other agreement or instrument referred to
herein or therein, or any substitution, release or exchange of any other
guarantee of or security for any of the Guaranteed Obligations, and, to the
fullest extent permitted by
Credit Agreement
----------------
<PAGE>
- 66 -
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 10.02 that the obligations of the
Guarantors hereunder shall be absolute and unconditional, joint and several,
under any and all circumstances. Without limiting the generality of the
foregoing, but subject to Section 10.09, it is agreed that the occurrence of any
one or more of the following shall not alter or impair the liability of the
Guarantors hereunder which shall remain absolute and unconditional as described
above:
(i) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or compliance
shall be waived;
(ii) any of the acts mentioned in any of the provisions of this
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this Agreement
or the Notes or any other agreement or instrument referred to herein or
therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
(iv) any lien or security interest granted to, or in favor of, the
Administrative Agent or any Lender or Lenders as security for any of the
Guaranteed Obligations shall fail to be perfected.
The Guarantors hereby expressly waive diligence, presentment, demand of payment,
protest and all notices whatsoever, and any requirement that the Administrative
Agent or any Lender exhaust any right, power or remedy or proceed against the
Borrower under this Agreement or the Notes or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations.
SECTION 10.03 Reinstatement. Subject to Section 10.09, the obligations
-------------
of the Guarantors under this Article X shall be automatically reinstated if and
to the extent that for any reason any payment by or on behalf of the Borrower in
respect of the Guaranteed Obligations is rescinded or must be otherwise restored
by any holder of any of the Guaranteed Obligations, whether as a result of any
proceedings in bankruptcy or reorganization or
Credit Agreement
----------------
<PAGE>
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otherwise and the Guarantors jointly and severally agree that they will
indemnify the Administrative Agent and each Lender on demand for all reasonable
costs and expenses (including, without limitation, fees of counsel) incurred by
the Administrative Agent or such Lender in connection with such rescission or
restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law.
SECTION 10.04 Subrogation. The Guarantors hereby jointly and severally
-----------
agree that until the payment and satisfaction in full of all Guaranteed
Obligations and the expiration and termination of the Commitments of the Lenders
under this Agreement they shall not exercise any right or remedy arising by
reason of any performance by them of their guarantee in Section 10.01, whether
by subrogation or otherwise, against the Borrower or any other guarantor of any
of the Guaranteed Obligations or any security for any of the Guaranteed
Obligations.
SECTION 10.05 Remedies. Subject to Section 10.09, the Guarantors
--------
jointly and severally agree that, as between the Guarantors and the Lenders, the
obligations of the Borrower under this Agreement and the Notes may be declared
to be forthwith due and payable as provided in Article VII (and shall be deemed
to have become automatically due and payable in the circumstances provided in
said Article VII) for purposes of Section 10.01 notwithstanding any stay,
injunction or other prohibition preventing such declaration (or such obligations
from becoming automatically due and payable) as against the Borrower and that,
in the event of such declaration (or such obligations being deemed to have
become automatically due and payable), such obligations (whether or not due and
payable by the Borrower) shall forthwith become due and payable by the
Guarantors for purposes of said Section 10.01.
SECTION 10.06 Instrument for the Payment of Money. Subject to Section
-----------------------------------
10.09, each Guarantor hereby acknowledges that the guarantee in this Article X
constitutes an instrument for the payment of money, and consents and agrees that
any Lender or the Administrative Agent, at its sole option, in the event of a
dispute by such Guarantor in the payment of any moneys due hereunder, shall have
the right to bring motion-action under New York CPLR Section 3213.
SECTION 10.07 Continuing Guarantee. Subject to Section 10.09, the
--------------------
guarantee in this Article X is a continuing guarantee, and shall apply to all
Guaranteed Obligations whenever arising.
Credit Agreement
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<PAGE>
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SECTION 10.08 General Limitation on Guarantee Obligations. In any
-------------------------------------------
action or proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of any Subsidiary Guarantor under
Section 10.01 would otherwise be held or determined to be void, invalid or
unenforceable, or subordinated to the claims of any other creditors, on account
of the amount of its liability under said Section 10.01, then, notwithstanding
any other provision hereof to the contrary, the amount of such liability shall,
without any further action by such Subsidiary Guarantor, any Lender, the
Administrative Agent or any other Person, be automatically limited and reduced
to the highest amount that is valid and enforceable and not subordinated to the
claims of other creditors as determined in such action or proceeding.
SECTION 10.09 Effectiveness of Guarantee. Notwithstanding anything
--------------------------
contained herein to the contrary, the Parent Guarantor shall have no obligations
under this Article X until the Approval Date. On the Approval Date, the
obligations of the Parent Guarantor under this Article X shall become effective
and the obligations of the Subsidiary Guarantors under this Article X shall
terminate.
Credit Agreement
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<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER
--------
ELECTRIC LIGHTWAVE, INC.
By __________________________
Title:
PARENT GUARANTOR
----------------
CITIZENS UTILITY COMPANY
By __________________________
Title:
SUBSIDIARY GUARANTORS
---------------------
SOUTHWESTERN INVESTMENTS, INC.
By __________________________
Title:
SOUTHWESTERN CAPITAL CORP.
By __________________________
Title:
CU CAPITALCORP
By __________________________
Title:
Credit Agreement
----------------
<PAGE>
- 70 -
ADMINISTRATIVE AGENT
CITIBANK, N.A., as
Administrative Agent
By __________________________
Title: Attorney-in-Fact
Commitment BANKS
- ---------- -----
$350,000,000 CITIBANK, N.A.
By __________________________
Title: Attorney-in-Fact
Credit Agreement
----------------
<PAGE>
EXHIBIT A-1
FORM of A NOTE
U.S.$______________ Dated: _________ __, _____
FOR VALUE RECEIVED, the undersigned, ELECTRIC LIGHTWAVE, INC., a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
--------
_________________ (the "Lender") for the account of its Applicable Lending
------
Office (as defined in the Credit Agreement referred to below) on the Termination
Date (as so defined) the principal sum of U.S.$[amount of the Lender's
Commitment in figures] or, if less, the aggregate principal amount of the A
Advances (as defined below) made by the Lender to the Borrower pursuant to the
Credit Agreement then outstanding.
The Borrower promises to pay interest on the unpaid principal amount of
each A Advance from the date of such A Advance until such principal amount is
paid in full, at such interest rates, and payable at such times, as are
specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Citibank, N.A., as Administrative Agent, at 1 Court Square,
7th Floor, Long Island City, New York 11120, in same day funds. Each A Advance
made by the Lender to the Borrower pursuant to the Credit Agreement, and all
payments made on account of principal thereof, shall be recorded by the Lender
and, prior to any transfer hereof, endorsed on the grid attached hereto which is
part of this Promissory Note; provided that the failure of the Lender to make
--------
any such recordation or endorsement shall not affect the obligations of the
Borrower hereunder or under the Credit Agreement.
This Promissory Note is one of the A Notes referred to in, and is
entitled to the benefits of, the Credit Agreement dated as of November __, 1997
(the "Credit Agreement") among the Borrower, the Guarantors referred to therein,
----------------
the Lender and certain other banks parties thereto, and Citibank, N.A., as
Administrative Agent for the Lender and such other banks. The Credit Agreement,
among other things, (i) provides for the making of advances (the "A Advances")
----------
by the Lender to the Borrower from time to time in an aggregate amount not to
exceed at any time outstanding the U.S. dollar amount first above mentioned, the
indebtedness of the Borrower resulting from each such A Advance being evidenced
by this Promissory Note, and (ii) contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
Form of A Note
--------------
<PAGE>
- 2 -
The Borrower hereby waives presentment, demand, protest and notice of
any kind. No failure to exercise, and no delay in exercising, any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.
This Promissory Note shall be governed by, and construed in accordance
with, the law of the State of New York, United States.
ELECTRIC LIGHTWAVE, INC.
By__________________________
Title:
Form of A Note
--------------
<PAGE>
- 3 -
ADVANCES AND PAYMENTS OF PRINCIPAL
================================================================================
Amount of Unpaid of
Amount of Principal Paid Principal Notation
Date Advance or Prepaid Balance Made By
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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Form of A Note
--------------
<PAGE>
EXHIBIT A-2
FORM OF B NOTE
U.S.$______________ Dated: _________ __, _____
FOR VALUE RECEIVED, the undersigned, ELECTRIC LIGHTWAVE, INC., a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
--------
_________________ (the "Lender") for the account of its Applicable Lending
------
Office (as defined in the Credit Agreement referred to below), on
______________, _____, the principal amount of __________ Dollars
($___________).
The Borrower promises to pay interest on the unpaid principal amount
hereof from the date hereof until such principal amount is paid in full, at the
interest rate and payable on the interest payment date or dates provided below:
Interest Rate: _____% per annum (calculated on the basis of a year of _____
days for the actual number of days elapsed).
Interest Payment Date or Dates: ___________________________
Both principal and interest are payable in lawful money of the United
States of America to ______________ or the account of the Lender at the office
of ________________________________, at _____________________, in same day
funds.
This Promissory Note is one of the B Notes referred to in, and is
entitled to the benefits of, the Credit Agreement dated as of November __, 1997
(the "Credit Agreement") among the Borrower, the Guarantors referred to therein,
----------------
the Lender and certain other banks parties thereto, and Citibank, N.A., as
Administrative Agent for the Lender and such other banks. The Credit Agreement,
among other things, contains provisions for acceleration of the maturity hereof
upon the happening of certain stated events.
The Borrower hereby waives presentment, demand, protest and notice of
any kind. No failure to exercise, and no delay in exercising, any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.
Form of B Note
--------------
<PAGE>
- 2 -
This Promissory Note shall be governed by, and construed in accordance
with, the law of the State of New York, United States.
ELECTRIC LIGHTWAVE, INC.
By_________________________
Title:
Form of B Note
--------------
<PAGE>
EXHIBIT B-1
NOTICE OF A BORROWING
Citibank, N.A., as Administrative
Agent for the Lenders parties
to the Credit Agreement
referred to below
1 Court Square, 7th Floor, Zone 7
Long Island City, New York 11120
Attention: Kim Coley
[Date]
Ladies and Gentlemen:
The undersigned, Electric Lightwave, Inc., refers to the Credit
Agreement, dated as of November __, 1997 (the "Credit Agreement", the terms
----------------
defined therein being used herein as therein defined), among the undersigned,
the Guarantors referred to therein, certain Lenders parties thereto and
Citibank, N.A., as Administrative Agent for said Lenders, and hereby gives you
notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the
undersigned hereby requests an A Borrowing under the Credit Agreement, and in
that connection sets forth below the information relating to such A Borrowing
(the "Proposed A Borrowing") as required by Section 2.02(a) of the Credit
--------------------
Agreement:
(i) The Business Day of the Proposed A Borrowing is ___________ __,
_____.
(ii) The Type of A Advances comprising the Proposed A Borrowing is
[Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed A Borrowing is $___________.
[(iv) The initial Interest Period for each A Advance made as part of
the Proposed A Borrowing is ______ month[s]]/1/.
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed A Borrowing:
- --------------------
/1/ For Eurodollar Rate Advances only.
Form of Notice of A Borrowing
-----------------------------
<PAGE>
- 2-
(A) the representations and warranties contained in Section 4.01
[(other than Section 4.01(e)(iii))]/2/ are correct, before and after giving
effect to the Proposed A Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date; and
(B) no event has occurred and is continuing, or would result from such
Proposed A Borrowing or from the application of the proceeds therefrom,
which constitutes a Default or an Event of Default.
Very truly yours,
ELECTRIC LIGHTWAVE, INC.
By___________________________
Title:
- ---------------------
/2/ Exclude bracketed text if the proposed A Borrowing is the initial Borrowing
under the Credit Agreement.
Form of Notice of A Borrowing
-----------------------------
<PAGE>
EXHIBIT B-2
NOTICE OF B BORROWING
Citibank, N.A., as Administrative
Agent for the Lenders parties
to the Credit Agreement
referred to below
1 Court Square, 7th Floor, Zone 7
Long Island City, New York 11120
Attention: Kim Coley
[Date]
Ladies and Gentlemen:
The undersigned, Electric Lightwave, Inc., refers to the Credit
Agreement, dated as of November __, 1997 (the "Credit Agreement", the terms
----------------
defined therein being used herein as therein defined), among the undersigned,
the Guarantors referred to therein, certain Lenders parties thereto and
Citibank, N.A., as Administrative Agent for said Lenders, and hereby gives you
notice pursuant to Section 2.03 of the Credit Agreement that the undersigned
hereby requests a B Borrowing under the Credit Agreement, and in that connection
sets forth the terms on which such B Borrowing (the "Proposed B Borrowing") is
--------------------
requested to be made:
(A) Date of B Borrowing _______________________
(B) Amount of B Borrowing _______________________
(C) Maturity Date _______________________
(D) Interest Rate Basis _______________________
(E) Interest Payment Date(s) _______________________
(F) _______________________ _______________________
(G) _______________________ _______________________
(H) _______________________ _______________________
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed B Borrowing:
(a) the representations and warranties contained in Section 4.01
[(other than Section 4.01(e)(iii))]/1/ are correct, before and after giving
effect to the Proposed B Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date;
- -----------------------
/1/ Exclude bracketed text if the proposed B Borrowing is the initial Borrowing
under the Credit Agreement.
Form of Notice of B Borrowing
-----------------------------
<PAGE>
- 2-
(b) no event has occurred and is continuing, or would result from the
Proposed B Borrowing or from the application of the proceeds therefrom,
which constitutes a Default or an Event of Default; and
(c) the aggregate amount of the Proposed B Borrowing and all other
Borrowings to be made on the same day under the Credit Agreement is within
the aggregate amount of the unused Commitments of the Lenders.
The undersigned hereby confirms that the Proposed B Borrowing is to be
made available to it in accordance with Section 2.03(a)(v) of the Credit
Agreement.
Very truly yours,
ELECTRIC LIGHTWAVE, INC.
By________________________
Title:
Form of Notice of B Borrowing
-----------------------------
<PAGE>
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Dated ____________ __, _____
Reference is made to the Credit Agreement dated as of November __,
1997 (the "Credit Agreement") among Electric Lightwave, Inc., a Delaware
----------------
corporation (the "Borrower"), the Guarantors (as defined in the Credit
--------
Agreement), the Lenders (as defined in the Credit Agreement) and Citibank, N.A.,
as Administrative Agent for the Lenders (the "Administrative Agent"). Terms
--------------------
defined in the Credit Agreement are used herein with the same meaning.
_____________ (the "Assignor") and _____________ (the "Assignee")
-------- --------
agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, that interest in and to
all of the Assignor's rights and obligations under the Credit Agreement as of
the date hereof [(other than in respect of B Advances and B Notes)]/1/ which
represents the percentage interest specified on Schedule 1 of all outstanding
rights and obligations under the Credit Agreement [(other than in respect of B
Advances and B Notes)]/1/, including, without limitation, such interest in the
Assignor's Commitment, the A Advances and B Advances owing to the Assignor, and
the A Note[s] and B Note[s] held by the Assignor. After giving effect to such
sale and assignment, the Assignee's Commitment and the amount of the A Advances
and B Advances owing to the Assignee will be as set forth in Section 2 of
Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Agreement or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto;
and (iv) attaches the A Note[s] and B Note[s] referred to in paragraph 1 above
and requests that the Administrative Agent
- -------------------------
/1/ Delete bracketed text if B Advances are covered by this Assignment and
Acceptance.
Form of Assignment and Acceptance
---------------------------------
<PAGE>
- 2 -
exchange such Note[s] for (X) a new A Note to the order of the Assignee in an
amount equal to the Commitment assumed by it pursuant hereto and a new A Note to
the order of the Assignor in an amount equal to the Commitment retained by it
under the Credit Agreement and (Y) new B Note or Notes to the order of the
Assignee in an amount equal to the principal amount of the B Advances (if any)
acquired by it pursuant hereto and, if the Assignor has retained a portion of
such B Advances, new B Note or Notes to the order of the Assignor in an amount
equal to the principal amount of the B Advances retained by it under the Credit
Agreement, in each case specified on Schedule 1 hereto.
3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 4.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (ii) agrees that it will, independently and
without reliance upon the Administrative Agent, the Assignor or any other Lender
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv)
appoints and authorizes the Administrative Agent to take such action as
administrative agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; (v) agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of the Credit Agreement are required to be performed by it as a
Lender; [and] (vi) specifies as its Domestic Lending Office (and address for
notices) and Eurodollar Lending Office the offices set forth beneath its name on
the signature pages hereof [and (vii) attaches the forms prescribed by the
Internal Revenue Service of the United States certifying as to the Assignee's
status for purposes of determining exemption from United States withholding
taxes with respect to all payments to be made to the Assignee under the Credit
Agreement and the Notes or such other documents as are necessary to indicate
that all such payments are subject to such rates at a rate reduced by an
applicable tax treaty]./2/
4. Following the execution of this Assignment and Acceptance by the
Assignor and the Assignee and the consent of the Borrower (to the extent
required pursuant to Section 9.07 of the Credit Agreement), it will be delivered
to the Administrative
- --------------------
/2/ If the Assignee is organized under the laws of a jurisdiction outside the
United States.
Form of Assignment and Acceptance
---------------------------------
<PAGE>
- 3-
Agent for acceptance and recording by the Administrative Agent. The effective
date of this Assignment and Acceptance shall be the date of acceptance thereof
by the Administrative Agent, unless otherwise specified on Schedule 1 hereto
(the "Effective Date").
--------------
5. Upon such acceptance and recording by the Administrative Agent, as
of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance, have the rights
and obligations of a Lender thereunder and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Administrative Agent,
from and after the Effective Date, the Administrative Agent shall make all
payments under the Credit Agreement and the Notes in respect of the interest
assigned hereby (including, without limitation, all payments of principal,
interest and Facility Fees with respect thereto) to the Assignee. The Assignor
and Assignee shall make all appropriate adjustments in payments under the Credit
Agreement and the Notes for periods prior to the Effective Date directly between
themselves.
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective officers thereunto duly
authorized, as of the date first above written, such execution being made on
Schedule 1 hereto.
Form of Assignment and Acceptance
---------------------------------
<PAGE>
SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE
Percentage assigned to Assignee _______________%
Assignee's Commitment $______________
Aggregate outstanding principal
amount of A Advances assigned $______________
Principal Amount of A Note
payable to Assignee $______________
Principal Amount of A Note
payable to Assignor $______________
Aggregate outstanding principal
amount of B Advances assigned $______________
Principal Amount of B Note
payable to Assignee $______________
Principal Amount of B Note
payable to Assignor $______________
Effective Date (if other than
date of acceptance by
Administrative Agent)* __________ __, _____
[NAME OF ASSIGNOR], as Assignor
By______________________________
Title:
[NAME OF ASSIGNEE], as Assignee
By______________________________
Title:
Domestic Lending Office:
Eurodollar Lending Office:
* This date should be no earlier than the date of acceptance by the
Administrative Agent.
Form of Assignment and Acceptance
---------------------------------
<PAGE>
- 2 -
Accepted this ____ day
of _______, _____
CITIBANK, N.A., as
Administrative Agent
By_____________________
Title:
CONSENTED TO:
ELECTRIC LIGHTWAVE, INC.
By_____________________
Title:
Form of Assignment and Acceptance
---------------------------------
<PAGE>
EXHIBIT D
DESIGNATION AGREEMENT
Dated _____________ __, _____
Reference is made to the Credit Agreement dated as of November __,
1997 (the "Credit Agreement") among Electric Lightwave, Inc., a Delaware
----------------
corporation (the "Borrower"), the Guarantors (as defined in the Credit
--------
Agreement), the Lenders (as defined in the Credit Agreement) and Citibank, N.A.,
as Administrative Agent for the Lenders (the "Administrative Agent"). Terms
--------------------
defined in the Credit Agreement are used herein with the same meaning.
____________ (the "Designator") and ____________ (the "Designee")
---------- --------
agree as follows:
1. The Designator hereby designates the Designee, and the Designee
hereby accepts such designation, to have a right to make B Advances pursuant to
Section 2.03 of the Credit Agreement.
2. The Designator makes no representation or warranty and assumes no
responsibility with respect to (i) any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto and
(ii) the financial condition of the Borrower or the performance or observance by
the Borrower of any of its obligations under the Credit Agreement or any other
instrument or document furnished pursuant thereto.
3. The Designee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 4.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Designation Agreement; (ii) agrees that it will, independently and without
reliance upon the Administrative Agent, the Designator or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Credit Agreement; (iii) confirms that it is a Designated Bidder; (iv)
appoints and authorizes the Administrative Agent to take such action as
administrative agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; (v) agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of the Credit Agreement are required to be performed by it as a
Lender; and (vi) specifies as its Applicable Lending Office with respect
Form of Designation Agreement
-----------------------------
<PAGE>
- 2 -
to B Advances (and address for notices) the offices set forth beneath its name
on the signature pages hereof.
4. Following the execution of this Designation Agreement by the
Designator and its Designee, it will be delivered to the Administrative Agent
for acceptance and recording by the Administrative Agent. The effective date of
this Designation Agreement shall be the date of acceptance thereof by the
Administrative Agent, unless otherwise specified on the signature page hereto
(the "Effective Date").
--------------
5. Upon such acceptance and recording by the Administrative Agent, as
of the Effective Date, the Designee shall be a party to the Credit Agreement
with a right to make B Advances as a Lender pursuant to Section 2.03 of the
Credit Agreement and the rights and obligations of a Lender related thereto.
6. This Designation Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
Form of Designation Agreement
-----------------------------
<PAGE>
- 3 -
IN WITNESS WHEREOF, the parties hereto have caused this Designation
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
Effective Date*: _____________ __, _____
[NAME OF DESIGNATOR]
By________________________
Title:
[NAME OF DESIGNEE]
By________________________
Title:
Applicable Lending
Office (and address
for notices)
__________________________
__________________________
__________________________
__________________________
Accepted this ____ day
of _____________, _____
CITIBANK, N.A., as
Administrative Agent
By______________________
Title:
* This date should be no earlier than the date of acceptance by the
Administrative Agent.
Form of Designation Agreement
-----------------------------
<PAGE>
EXHIBIT E
[Form of Opinion of Counsel of the Borrower]
________, 1997
To the Banks party to the
Credit Agreement referred to
below
Citibank, N.A., as Administrative
Administrative Agent
399 Park Avenue
New York, New York 10043
Ladies and Gentlemen:
This opinion is rendered in connection with the Credit Agreement (the
"Credit Agreement") dated as of November __, 1997, among the Electric Lightwave,
- -----------------
Inc. (the "Borrower"), Citizens Utilities Company (the "Parent Guarantor"), the
-------- ----------------
Subsidiary Guarantors referred to therein, the Lenders referred to therein and
Citibank, N.A., as Administrative Agent, providing for loans to be made by said
Lenders to the Borrower in an aggregate principal amount not exceeding
$400,000,000. Terms defined in the Credit Agreement are used herein as therein
defined.
I am the General Counsel of the Parent Guarantor and, in that capacity in
connection with the foregoing, I have examined the Credit Agreement and the
Notes. I have also examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents, corporate records,
certificates of public officials and other instruments, and have conducted such
other investigations of fact and law, as I have deemed necessary or advisable
for purposes of this opinion.
Based on the foregoing, I am of the opinion that:
1. Each of the Guarantor and the Principal Subsidiaries (a) is a
corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation, (b) has the
requisite power and authority to own its property and assets and to
carry on its business as now conducted and (c) is qualified to do
business in every jurisdiction where such qualification is required,
except where the failure so to qualify would not have a Material
Adverse Effect.
2. The execution, delivery and performance by each Obligor of the Credit
Agreement and (in the case of the Borrower) the Notes (a) have been
duly authorized by all necessary corporate action on the part of such
Obligor and do not and will not require the consent or approval of
Opinion of Counsel of the Borrower
----------------------------------
<PAGE>
- 2 -
shareholders of such Obligor, other than such consents as have been
obtained, (b) will not violate (i) any provision of law, statute, rule
or regulation or the Certificate of Incorporation or the By-Laws of
any Obligor or (ii) any order of any court or of any other agent of
government binding upon any Obligor, (c) will not violate, be in
conflict with, result in a breach of or constitute (alone or with
notice or lapse of time or both) a default under any indenture,
agreement or other instrument to which the Parent Guarantor or any
Principal Subsidiary is a party or by which the Parent Guarantor or
any Principal Subsidiary or any of its properties or assets are or may
be bound and (d) will not result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any property
or assets of the Parent Guarantor or any Principal Subsidiary.
3. All consents or approvals of, or other actions by, any governmental
agency, authority or regulatory body required in connection with the
execution, delivery and performance by each Obligor of the Credit
Agreement and (in the case of the Borrower) the Notes have been duly
obtained and are in full force and effect, without amendment or
modification, and are not the subject of any pending or threatened
proceedings seeking to amend, modify, or rescind all or any portion of
the terms thereof, or any stay.
4. The Credit Agreement and (in the case of the Borrower) the Notes have
been duly executed and delivered by each Obligor and constitute legal,
valid and binding obligations of each Obligor stated to be a party
thereto, enforceable against such Obligor in accordance with their
terms, except as such enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium and other laws
affecting the rights of creditors generally and general principles of
equity.
5. There are not any actions, suits, or proceedings at law or in equity
or by or before any governmental instrumentality, regulatory
authority, or other agency now pending or, to the best of my
knowledge, threatened against the Parent Guarantor or any Subsidiary
(a) which involve the Credit Agreement or any of the transactions
contemplated thereby or (b) which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect, or (ii)
impair in any respect the validity or enforceability of, or the
ability of any Obligor to perform its obligations under, the Credit
Agreement or the Notes.
Opinion of Counsel of the Borrower
----------------------------------
<PAGE>
- 3 -
6. Neither the Parent Guarantor nor any Subsidiary is in violation of any
law, or in default with respect to any judgment, writ, injunction,
decree, rule, or regulation of any court or governmental agency or
instrumentality, where such violation or default could have (i) a
Material Adverse Effect, or (ii) impair in any respect the validity or
enforceability of, or the ability of any Obligor to perform its
obligations under, the Credit Agreement or the Notes.
7. Neither the Parent Guarantor nor any Subsidiary is an "investment
company" as defined in or subject to regulation under the Investment
Company Act of 1940, as amended. Neither the Parent Guarantor nor the
Subsidiary is a "holding company" as defined in or subject to
regulation under the Public Utility Holding Company Act of 1935, as
amended.
Very truly yours,
Opinion of Counsel of the Borrower
----------------------------------
<PAGE>
EXHIBIT F
[Form of Opinion of Special New York Counsel
to the Administrative Agent]
November __, 1997
To the Banks party to the
Credit Agreement referred to
below
Citibank, N.A., as
Administrative Agent
399 Park Avenue
New York, New York 10043
Ladies and Gentlemen:
We have acted as special New York counsel to Citibank, N.A., as
Administrative Agent, in connection with the Credit Agreement dated as of
November __, 1997 (the "Credit Agreement") among Electric Lightwave, Inc. (the
----------------
"Borrower"), the guarantors named therein, the lenders named therein and
- ---------
Citibank, N.A., as Administrative Agent, providing for loans to be made by said
lenders to the Borrower in an aggregate principal amount not exceeding
$400,000,000. Terms defined in the Credit Agreement are used herein as defined
therein. This opinion is being delivered pursuant to Section 3.01(f) of the
Credit Agreement.
In rendering the opinions expressed below, we have assumed, with
respect to all of the documents referred to in this opinion letter, that:
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and (except to the extent set forth in
the opinions below as to the Borrower) constitute legal, valid,
binding and enforceable obligations of, all of the parties to
such documents;
(ii) all signatories to such documents have been duly authorized; and
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and authority (corporate or
other) to execute, deliver and perform such documents.
Opinion of Special New York Counsel
to the Administrative Agent
---------------------------
<PAGE>
- 2 -
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that each of the Credit Agreement and the
Notes constitutes the legal, valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or transfer or other similar laws relating to or affecting the rights
of creditors generally and except as the enforceability of the Credit Documents
is subject to the application of general principles of equity (regardless of
whether considered in a proceeding in equity or at law), including, without
limitation, (a) the possible unavailability of specific performance, injunctive
relief or any other equitable remedy and (b) concepts of materiality,
reasonableness, good faith and fair dealing.
The foregoing opinions are subject to the following comments and
qualifications:
(A) The enforceability of Section 9.04(b) of the Credit Agreement may
be limited by laws limiting the enforceability of provisions exculpating or
exempting a party from, or requiring indemnification of a party for, its
own action or inaction, to the extent such action or inaction involves
gross negligence, recklessness or wilful or unlawful conduct.
(B) The enforceability of provisions in the Credit Documents to the
effect that terms may not be waived or modified except in writing may be
limited under certain circumstances.
(C) We express no opinion as to (i) the effect of the laws of any
jurisdiction in which any Lender is located (other than the State of New
York) that limit the interest, fees or other charges such Lender may
impose, (ii) the second sentence of Section 2.16 of the Credit Agreement,
(iii) the second sentence of Section 9.08 of the Credit Agreement, insofar
as such sentence relates to the subject matter jurisdiction of the United
States District Court for the Southern District of New York to adjudicate
any controversy related to the Credit Documents, (iv) the waiver of
inconvenient forum set forth in Section 9.08 of the Credit Agreement with
respect to proceedings in the United States District Court for the Southern
District of New York and (v) Section 9.09 of the Credit Agreement.
Opinion of Special New York Counsel
to the Administrative Agent
---------------------------
<PAGE>
- 3 -
(D) Clause (iii) of the second sentence of Section 10.02 of the
Credit Agreement may not be enforceable to the extent that the Guaranteed
Obligations are materially altered.
(E) We express no opinion as to the applicability to the obligations
of any Subsidiary Guarantor (or the enforceability of such obligations) of
Section 548 of the Bankruptcy Code or any other provision of law relating
to fraudulent conveyances, transfers or obligations.
The foregoing opinions are limited to matters involving the Federal
laws of the United States and the law of the State of New York, and we do not
express any opinion as to the laws of any other jurisdiction.
This opinion letter is, pursuant to Section 3.01(f) of the Credit
Agreement, provided to you by us in our capacity as special New York counsel to
the Administrative Agent and may not be relied upon by any person for any
purpose other than in connection with the transactions contemplated by the
Credit Agreement without, in each instance, our prior written consent.
Very truly yours,
Opinion of Special New York Counsel
to the Administrative Agent
---------------------------
<PAGE>
EXHIBIT 10.13
ELECTRIC LIGHTWAVE INC.
1997 EQUITY INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of the Electric Lightwave, Inc. 1997 Equity Incentive Plan
(the "Plan") is to provide compensation incentives for high levels of
performance and productivity by employees of the Company and its Affiliates (as
that term is defined later herein) or an individual who performs services for
the Company as a director, consultant or otherwise. The Plan is intended to
strengthen the Company's existing operations and its ability to attract and
retain outstanding employees upon whose judgment, initiative and efforts the
continued efficiency, productivity, growth and development of the Company is
dependent, as well as encourage such employees to have a greater personal
financial investment in the Company through ownership of its common stock.
SECTION 2. DEFINITIONS
When used herein, the following terms have the following meanings:
(A) "AFFILIATE" means any company controlled by the Company,
controlling the Company or under common control with the
Company.
(B) "AWARD" means an award granted to any Eligible Individual in
accordance with the provisions of the Plan.
(C) "AWARD AGREEMENT" means the written agreement or certificate
evidencing the terms of the Award granted to a Participant
under the Plan.
(D) "BENEFICIARY" means the beneficiary or beneficiaries
designated pursuant to Section 11 to receive the amount, if
any, payable under the Plan upon the death of an Eligible
Individual.
(E) "BOARD" means the Board of Directors of the Company.
(F) A "CHANGE IN CONTROL" shall mean the occurrence of any of the
following events with respect to the Company:
(I) (A) a third "Person" (other than an employee
benefit plan of the Company or the Company's parent company,
Citizens Utilities Company, or an Affiliate of Citizens
Utilities Company), including a "group", as those terms are
used in Section 13(d) of the Exchange Act, is or becomes the
beneficial owner (as that term is used in said Section 13(d))
of stock having twenty percent (20%) or more of the total
number of votes that may be cast for the election of members
of
<PAGE>
the Board or (B) the receipt by the Company of any report,
schedule, application or other document filed with a state or
federal governmental agency or commission disclosing such
ownership or proposed ownership;
(II) approval by the stockholders of the Company of
any (A) consolidation or merger or sale of assets of the
Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of stock of
the Company would be converted into cash, securities or other
property, other than a consolidation or merger of the Company
in which holders of its common stock immediately prior to the
consolidation or merger have substantially the same
proportionate ownership of common stock of the surviving
corporation immediately after the consolidation or merger as
they held immediately before, or (B) sale, lease, exchange or
other transfer (in one transaction or a series of related
transactions) of 51% or more of the assets or businesses of
the Company;
(III) as a result of, or in connection with, any cash
tender offer, exchange offer, merger or other business
combination, sale of assets or contested election, or any
combination of the foregoing transactions (a "Transaction"),
the persons who are members of the Board before the
Transaction shall cease to constitute a majority of the Board
or any successor to the Company.
(G) "CODE" means the Internal Revenue Code of 1986, as now in
effect or as hereafter amended. (All citations to Sections of
the Code are to such Sections as they are currently designated
and reference to such Sections shall include the provisions
thereof as they may from time to time be amended or renumbered
as well as any successor provisions and any applicable
regulations.)
(H) "COMPANY" means Electric Lightwave, Inc., and its successors
and assigns.
(I) "COMMITTEE" means the Compensation Committee of the Board of
Directors of the Company.
(J) "DEFERRED STOCK" means Stock credited to a Participant under
the Plan subject to the requirements of Section 8 and such
other terms and restrictions as the Committee deems
appropriate or desirable.
(K) "EFFECTIVE DATE" means October 16, 1997.
(L) "ELIGIBLE INDIVIDUAL" means a director, officer or employee of
any Participating Company or an individual who performs
services for the Company directly or indirectly as a director,
consultant or otherwise, upon whose judgment, initiative and
efforts, in the judgment of the Committee, the continued
efficiency, productivity, growth and development of the
Company is dependent. Where
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required by the context, "Eligible Individual" includes an
individual who has been granted an Award but is no longer an
employee of any Participating Company.
(M) "FAIR MARKET VALUE" means, unless another reasonable method
for determining fair market value is specified by the
Committee (which may include appraisal by a third party or the
Board), the average of the high and low sales prices of a
share of the Stock as reported by the NASDAQ (or if such
shares are listed on a national stock exchange, as reported or
quoted by such exchange) on the date in question or, if no
such sales were reported for such date, for the most recent
date on which sales prices were quoted.
(N) "FAMILY MEMBER" AND "FAMILY TRUST" shall have the same
meanings as are employed from time to time by the SEC in
describing individuals, trusts, partnerships, pass-through and
other entities which qualify for exemption from any of the
rules promulgated by the SEC which would otherwise limit
transferability of stock options and stock awards for purposes
of Section 16 of the Exchange Act and/or the use of Form S-8
under the Securities Act or for any comparable purpose,
provided that, for the purposes of the Plan, the phrases
"Family Member" and "Family Trust" shall also be limited, when
applied to any Participant, so that said Participant shall not
be free to make a transfer to an individual or entity if such
a transfer or the ability of said Participant to make such a
transfer shall have adverse consequences to the Company or
said Participant by reason of Section 162(m) of the Code.
(O) "OPTION" means an option to purchase Stock, including
Restricted Stock, Deferred Stock, or share units or phantom
shares, if the Committee so determines, subject to the
applicable provisions of Section 5 and awarded in accordance
with the terms of the Plan, which may be an incentive stock
option qualified under Section 422 of the Code or a
nonqualified stock option.
(P) "PARTICIPATING COMPANY" means the Company or any subsidiary or
other Affiliate of the Company which is 50% or more owned
directly or indirectly by the Company or which owns 50% or
more of the voting power of the shares of Stock of the
Company, or is controlled by, or controls, or is under common
control with the Company; provided, however, for incentive
stock options only, "Participating Company" means the Company,
any corporation or other entity which at the time such option
is granted under the Plan qualifies as a subsidiary of the
Company under the definition of "subsidiary corporation"
contained in Section 425(f) of the Code.
(Q) "PARTICIPANT" means an Eligible Individual who has been or is
being granted an Award. When required by the context, the
definition of Participant shall include an individual who has
been granted an Award but is no longer an employee of any
Participating Company.
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(R) "PERFORMANCE SHARE" means a performance share of Stock subject
to the requirements of Section 6 and awarded in accordance
with the terms of the Plan.
(S) "PLAN" means the Electric Lightwave, Inc. 1997 Equity
Incentive Plan, as the same may be amended, administered or
interpreted from time to time.
(T) "RESTRICTED STOCK" means Stock subject to the requirements of
Section 7 and awarded in accordance with the terms of the
Plan.
(U) "SAR" means a stock appreciation right subject to the
appropriate requirements under Section 5 and awarded in
accordance with the terms of the Plan.
(V) "SEC" means the Securities and Exchange Commission. "Exchange
Act" means the Securities Exchange Act of 1934. "Rule 16b-3"
shall mean such rule promulgated by the SEC under the Exchange
Act and, unless the circumstances require otherwise, shall
include any other rule or regulation adopted under Sections
16(a) or 16(b) of the Exchange Act relating to compliance
with, or an exemption from, Section 16(b). "Securities Act"
means the Securities Act of 1933. Reference to any section of
the Securities Act, Exchange Act or any rule promulgated
thereunder shall include any successor section or rule.
(W) "STOCK" means the Class A or Class B Common Stock of the
Company and any successor common stock, and includes share
units or phantom shares unless the context required otherwise.
The number of shares of Stock included in any Award or used in
any other designation of number of shares herein shall be
based on an assumed capitalization and will be appropriately
adjusted to reflect the actual number of shares of Class A and
Class B Common Stock outstanding immediately after an initial
public offering.
(X) "TERMINATION WITHOUT CAUSE" means termination of employment
with a Participating Company by the employer for any reason
other than death, Total Disability or termination for
deliberate, willful or gross misconduct, and also includes
voluntary termination of employment by an employee.
(Y) "TOTAL DISABILITY" means the complete and permanent inability
of an Eligible Individual to perform all of his or her duties
under the terms of his or her employment with any
Participating Company, as determined by the Committee upon the
basis of such evidence, including independent medical reports
and data, as the Company deems appropriate or necessary.
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SECTION 3. SHARES SUBJECT TO THE PLAN
(A) Subject to adjustment as provided in Section 14 hereof,
4,170,600 shares of Stock are hereby reserved for issuance
pursuant to Awards under the Plan. Shares reserved for
issuance under the Plan shall be made available either from
authorized and unissued shares, shares held by the Company in
its treasury or reacquired shares. The term "issued" shall
include all deliveries to a Participant of shares of Stock
pursuant to Awards under the Plan. The Committee may, in its
discretion, decide to award other securities issued by the
Company that are convertible into Stock or make such shares
subject to purchase by an option, in which event the maximum
number of shares of Stock into which such securities may be
converted, or which may be so purchased, shall be used in
applying the aggregate share limit under this Section 3 and
all provisions of the Plan relating to Stock shall apply with
full force and effect with respect to such convertible
securities or options and the underlying shares of Stock.
(B) If, for any reason, any shares of Stock awarded or subject to
purchase or issuance under the Plan are not delivered or are
reacquired by the Company for reasons including, but not
limited to, a forfeiture of Restricted Stock or Deferred Stock
or termination, expiration or a cancellation of an Option, SAR
or a Performance Share, or other award, such shares of Stock
shall be deemed not to have been issued pursuant to Awards
under the Plan or to have been subject to the Plan; provided,
however, that the counting of shares of Stock subject to
Awards granted under the Plan against the number of shares
available for further Awards shall in all cases conform to the
requirements of Rule 16b-3 under the Exchange Act.
(C) With respect to any Award constituting an Option or SAR
granted to any Eligible Individual who is a "covered employee"
as defined in Section 162(m) of the Code that is canceled, the
number of shares of Stock originally subject to such Award
shall continue to count in accordance with Section 162(m) of
the Code and the regulations promulgated thereunder.
(D) Unless the Committee otherwise determines, shares of Stock
received by the Company in connection with the exercise of
Options by delivery of shares or in connection with the
payment of withholding taxes shall reduce the number of shares
deemed to have been issued pursuant to Awards under the Plan
for the limit set forth in Section 3(a) hereof.
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SECTION 4. GRANT OF AWARDS AND AWARD AGREEMENTS
(A) Subject to and in furtherance of the provisions of the Plan,
the Committee shall (i) determine and designate from time to
time those Eligible Individuals or groups of Eligible
Individuals to whom Awards are to be granted; (ii) grant
Awards to Eligible Individual; (iii) determine the form or
forms of Award to be granted to any Eligible Individual; (iv)
determine the amount or number of shares of Stock subject to
each Award, including Awards of any nature which may be
granted under the Plan, if the Committee so determines; (v)
determine the terms and conditions (which need not be
identical) of each Award; (vi) determine the rights of each
Participant after employment has terminated and the periods
during which such rights may be exercised; (vii) establish and
modify performance objectives; (viii) determine whether and to
what extent Eligible Individuals shall be allowed or required
to defer receipt of any Awards or other amounts payable under
the Plan to the occurrence of a specified date or event; (ix)
determine the price at which shares of Stock may be offered
under each Award which price may, except in the case of
Options, be zero; (x) permit cashless exercise of Options and
other Awards or provisions in the nature of a sale, or loan
covering exercise prices and/or income taxes; (xi) interpret,
construe and administer the Plan and any related Award
Agreement and define the terms employed therein; and (xii)
make all of the determinations necessary or advisable with
respect to the Plan or any Award granted thereunder. Awards
granted to different Eligible Individuals or Participants need
not be identical and, in addition, may be modified in
different respects by the Committee.
(B) Each Award granted under the Plan shall be evidenced by a
written Award Agreement, in a form approved by the Committee.
Such agreement shall be subject to and incorporate the express
terms and conditions, if any, required under the Plan or as
required by the Committee for the form of Award granted and
such other terms and conditions as the Committee may specify.
(C) The Committee may modify or amend any Awards (by cancellation
and regrant or substitution of Awards or otherwise and with
terms and conditions more or less favorable to Eligible
Individuals) or waive any restrictions or, conditions
applicable to any Awards or the exercise or realization
thereof (except that the Committee may not undertake any such
modifications, amendments or waivers if the effect thereof,
taken as a whole, adversely and materially affects the rights
of any recipient of previously granted Awards without his or
her consent, unless such modification, amendment or waiver is
necessary or desirable for the continued validity of the Plan
or its compliance with Rule 16b-3 or any other applicable law,
rule or regulation or pronouncement or to avoid any adverse
consequences under Section 162(m) of the Code or any
requirement of a securities exchange or association or
regulatory or self-regulatory body).
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(D) The Committee may permit the voluntary surrender of all or a
portion of any Award granted under the Plan to be conditioned
upon the granting of a new Award or may require such voluntary
surrender as a condition to a grant of a new Award. Any such
new Award shall be subject to such terms and conditions as are
specified by the Committee at the time the new Award is
granted, determined in accordance with the provisions of the
Plan without regard to the terms of the surrendered Award.
(E) In any calendar year, no Eligible Individual may receive
Awards covering more than 500,000 shares of the Company's
Stock if the Award is denominated in number of shares, or, if
the Award is denominated in dollars, $750,000 in dollar value.
Such number of shares shall be adjusted in accordance with
Section 14 hereof.
SECTION 5. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
(A) With respect to the Options and SARS, the Committee shall (i)
authorize the granting of incentive stock options,
nonqualified stock options, SARs or a combination of incentive
stock options, nonqualified stock options and SARS; (ii)
determine the number of shares of Stock subject to each Option
or the number of shares of Stock that shall be used to
determine the value of a SAR; (iii) determine whether such
Stock shall be Restricted Stock or, with respect to
nonqualified stock options, Deferred Stock or share units or
phantom shares; (iv) determine the time or times when and the
manner in which each Option shall be exercisable and the
duration of the exercise period; and (v) determine whether or
not all or part of each Option may be canceled by the exercise
of a SAR; provided, however, that the aggregate Fair Market
Value (determined as of the date of Option is granted) of the
Stock (disregarding any restrictions in the case of Restricted
Stock) for which incentive stock options granted to any
Eligible Individual under this Plan may first become
exercisable in any calendar year shall not exceed $100,000.
Notwithstanding the foregoing, to the extent that Options
intended to be incentive stock options granted to an Eligible
Individual under this Plan for any reason exceed such limit on
exercisability, such excess Options shall be treated as
nonqualified stock options as provided under Section 422(d) of
the Code, but shall in all other respects remain outstanding
and exercisable in accordance with their terms.
(B) The exercise period for a nonqualified stock option or SAR
shall be 10 years from the date of grant or such shorter
period as may be specified by the Committee at the time of
grant. The exercise period for an incentive stock option and
any related SAR, including any extension which the Committee
may from time to time decide to grant, shall not exceed 10
years from the date of grant; provided, however, that, in the
case of an incentive stock option granted to an Eligible
Individual who, at the time of grant, owns stock possessing
more than 10% of the
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total combined voting power of all classes of stock of the
Company (a "10% Stockholder"), such period, including
extensions, shall not exceed five years from the date of
grant.
(C) The Option or SAR price per share shall be determined by the
Committee at the time any Option is granted and shall be not
less than 85% of the Fair Market Value in the case of non-
qualified stock option, 100% of the Fair Market Value in the
case of a SAR or incentive stock option, or 110% of Fair
Market Value in the case of an incentive stock option granted
to a 10% Stockholder and any related tandem SARS (disregarding
any restrictions in the case of any Restricted Stock or
Deferred Stock), on the date the Option is granted, all as
determined by the Committee; provided, however, that such
price shall be at least equal to the par value of one share of
Stock; provided further, however, that in the discretion of
the Committee in the case of a nonstatutory stock option, the
Option or SAR price per share may be less than the Fair Market
Value in the case of an Option or SAR granted in order to
induce an individual to become an employee of a Participating
Company or in the case of an Option or SAR granted to a new or
prospective employee in order to replace stock options or
other long-term incentives under a program maintained by a
prior employer which are forfeited or cease to be available to
the new employee by reason of his termination of employment
with his prior employer.
(D) No part of any Option or SAR may be exercised (i) until the
Participant who has been granted the Award shall have remained
in the employ of a Participating Company for such period after
the date on which the Option or SAR is granted as the
Committee may specify and (ii) until achievement of such
performance or other criteria, if any, by the Participant, as
the Committee may specify. A SAR and a related Option shall
commence to be exercisable no earlier than six months
following the date the Option and SAR are granted. The
Committee may further require that an Option or SAR become
exercisable in installments.
(E) Except as otherwise provided in the Plan, the purchase price
of the shares as to which an Option shall be exercised shall
be paid to the Company at the time of exercise either in cash
or in such other consideration as the Committee deems
appropriate, including Stock, stock units or phantom shares,
or with respect to nonqualified options, Restricted Stock or
Deferred Stock already owned by the optionee (subject to any
minimum holding period specified by the Committee), having a
total Fair Market Value, or equivalent, as determined by the
Committee, equal to the purchase price, or a combination of
cash and such other consideration having a total Fair Market
Value, as so determined, equal to the purchase price;
provided, however, that if payment of the exercise price is
made in whole or in part in the form of Restricted Stock or
Deferred Stock, the Stock received upon the exercise of the
Option shall be Restricted Stock or Deferred Stock, as the
case may be, at least with respect to the same number of
shares and subject to the same restrictions or other
limitations as the Restricted Stock or Deferred Stock paid on
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the exercise of the Option. The Committee may provide that a
Participant who delivers shares of Stock to the Company, or
sells shares of Stock and applies all of the proceeds, (a) to
pay, or reimburse the payment of the exercise price of shares
of Stock acquired under an employee stock option or SAR or to
purchase shares of Stock under an employee award or grant, an
employee purchase plan or program or any other stock-based
employee benefit or incentive plan (whether or not such award
or grant is under this Plan) and/or (b) to pay federal or
state income taxes resulting from the exercise of such options
or SARs or the purchase of shares of Stock pursuant to any
such grant, award, plan or program, shall receive a
replacement Option under this Plan to purchase a number of
shares of Stock equal to the number of shares of Stock
delivered to the Company, or sold, the proceeds of the sale of
which are applied as aforesaid in this sentence. The
replacement Option shall have an exercise price equal to Fair
Market Value on the date of such payment and shall include
such other terms and conditions as the Committee may specify.
(F) (I) Upon the Termination Without Cause of a
Participant holding Options or SARs (who has not both reached
the age of 55 and also achieved at least 5 years of service
with the Company or an Affiliate), his or her Options and SARs
may be exercised to the extent exercisable on the date of
Termination Without Cause, at any time and from time to time
within the three months of the date of such Termination. The
Committee, however, in its discretion, may provide that any
Option or SAR of such a Participant which is not exercisable
by its terms on the date of Termination Without Cause will
become exercisable in accordance with a schedule (which may
extend the time limit referred to above, but not later than
the final expiration date specified in the Option or SAR Award
Agreement) to be determined by the Committee at any time
during the period that any other Options or SARs held by the
Participant are exercisable.
(II) Upon the death or Total Disability (during a
Participant's employment or within 3 months after termination
of employment for any reason other than termination for cause)
of a Participant holding an Option or SAR (who has not both
reached the age of 55 and also achieved at least 5 years of
service with the Company or an Affiliate), his or her Options
and SARs may be exercised only to the extent exercisable at
the time of death or Total Disability (or such earlier
termination of employment) from time to time (A) in the event
of death or Total Disability, within the 12 months following
death or Total Disability or (B) in the event of such
termination of employment followed by death or Total
Disability within the 3 months after such termination, within
the 12 months following such termination. The Committee,
however, in its discretion, may provide that any Options or
SAR's outstanding but not exercisable at the date of the first
to occur of death or, Total Disability will become exercisable
in accordance with a schedule (which may extend the limits
referred to above, but not to a date later than the final
expiration date specified in such Option or SAR Award
Agreement) to be
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determined by the Committee at any time during the period
while any other Option or SARs held by the Participant are
exercisable.
(III) Upon death, Total Disability or Termination
Without Cause of a Participant holding an Option(s) or SAR(s)
(who has reached the age of 55 and has at least 5 years of
service with the Company or an Affiliate), his or her Options
or SARs may be exercised in full as to all shares or SAR
rights covered by Options and SAR Award Agreements (whether or
not then exercisable) at any time, or from time to time, but
no later than the expiration date specified in such Option or
SAR Award Agreement as specified in Section 5(b) above or, in
the case of incentive Options, within 12 months following such
death, Total Disability or Termination Without Cause.
(IV) If the employment of a Participant holding an
Option or SAR is terminated for deliberate, willful or gross
misconduct, as determined by the Company, all rights of such
Participant and any Family Member or Family Trust or other
transferee to which such Participant has transferred his or
her Option or SAR shall expire upon receipt by the Participant
of the notice of such termination.
(V) In the event of the death of a Participant, his
or her Options and SARs may be exercised by the person or
persons to whom the Participant's rights under the Option or
SAR pass by will, or if no such person has such right, by his
or her executors or administrators or Beneficiary. The death
of a Participant after Total Disability or Termination Without
Cause will not adversely effect the rights of a Participant or
anyone entitled to the benefits of such Option or SAR.
(G) Except as otherwise determined by the Committee, no Option or
SAR granted under the Plan shall be transferable other than by
will or by the laws of descent and distribution, unless the
Committee determines that an Option or SAR may be transferred
by a Participant to a Family Member or Family Trust or other
transferee. Such transfer shall be evidenced by a writing from
a grantee to the Committee or Committee's designee on a form
established by the Committee. Absent an authorized transfer
during the lifetime of the Participant, an Option shall be
exercisable only by him or her by his or her guardian or legal
representative.
(H) With respect to an incentive stock option, the Committee shall
specify such terms and provisions as the Committee may
determine to be necessary or desirable in order to qualify
such Option as an incentive stock option within the meaning of
Section 422 of the Code.
(I) Upon exercise of a SAR, the Participant shall be entitled,
subject to such terms and conditions as the Committee may
specify at any time, to receive upon exercise thereof all or a
portion of the excess of (i) the Fair Market Value of a
specified number of shares of Stock at the time of exercise,
as determined by the Committee, over (ii) a specified amount
which shall not, subject to Section 5(c),
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be less than the Fair Market Value of such specified number of
shares of Stock at the time the SAR is granted. Upon exercise
of a SAR, payment of such excess shall be made as the
Committee shall specify (A) in cash, (B) through the issuance
or transfer to the Participant of whole shares of Stock,
including Restricted Stock or Deferred Stock, with a Fair
Market Value, disregarding any restrictions in the case of
Restricted Stock or Deferred Stock, at such time equal to any
such excess, or (C) a combination of cash and shares of Stock
with a combined Fair Market Value at such time equal to such
excess, all as determined by the Committee; provided, however,
a fractional share of Stock shall be paid in cash equal to the
Fair Market Value of the fractional share of Stock,
disregarding any restrictions in the case of Restricted Stock
or Deferred Stock, at such time.
(J) If the Award granted to a Participant allows the Participant
to elect to cancel all or any portion of an unexercised Option
by exercising a related SAR, then the Option price per share
of Stock shall be used as the specified price in Section 5(i),
to determine the value of the SAR upon such exercise; and, in
the event of the exercise of such SAR, the Company's
obligation in respect of such Option or such portion thereof
will be discharged by payment of the SAR so exercised.
(K) If authorized by the Committee in its sole discretion, the
Company may accept the surrender of the right to exercise any
Option granted under the Plan (whether or not granted with a
related SAR) as to all or any of the shares of Stock as to
which the Option is then exercisable, in exchange for payment
to the optionee (in cash or shares of Stock valued at the then
Fair Market Value) of an amount not to exceed the difference
between the option price and the then Fair Market Value of the
shares as to which such right to exercise is surrendered.
SECTION 6. PERFORMANCE SHARES
(A) The Committee may award Performance Shares to Participants
under the Plan, which may be denominated in Stock or in
dollars. The Committee shall determine the performance periods
(the "Performance Periods") and the performance objectives
relating to each Performance Share Award. Performance
objectives may vary from Participant to Participant and
between groups of Participants, and shall only be based upon
any one or more of the following performance criteria, any
combination and/or specifics of which shall be determined by
the Committee as it may deem appropriate: (I) stock price;
(ii) market shares; (iii) sales; (iv) earnings per share; (v)
operating cash flow; (vi) free cash flow; (vii) net income or
loss; (viii) net income or loss adjusted to exclude specified
items such as gain or losses from extraordinary or non-
recurring items and non-cash expense and income, and before
specified expense items such as interest, depreciation,
amortization and income taxes; (ix) EBITDA; (x) revenues; (xi)
return on equity or assets; or (xii) cost control. Performance
objectives may be in respect to the performance of the Company
and its subsidiaries or a particular subsidiary or
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division and may be expressed in absolute terms or in relation
to another company or companies or a division thereof.
Performance Periods may overlap and Participants may
participate simultaneously with respect to Performance Shares
for which different Performance Periods are prescribed.
(B) At the beginning of each Performance Period, (but in any event
prior to the earlier of the elapsing of 90 days or 25% of such
Performance Period) the Committee shall determine and set
forth in writing for each Participant or group of Participants
the number of Performance Shares or the dollar value of the
Performance Share Awards made and the applicable performance
objectives, each of which may be fixed or may be expressed in
terms of the progression within a specified range. At the end
of each Performance Period, the Committee shall certify in
writing the extent to which the prescribed performance
objectives have been satisfied. An Eligible Individual shall
be eligible to be awarded, in any calendar year, Performance
Share Awards up to the maximum number of shares contemplated
in Section 4(e) and shall also be eligible to be awarded
Performance Shares Awards denominated in dollars subject to a
maximum limitation of $750,000 for all such dollar-denominated
Awards granted to any Eligible Individual in any calendar
year.
(C) If during the course of a Performance Period there shall occur
significant events as determined by the Committee, including,
but not limited to a reorganization of the Company, which the
Committee expects to have a substantial effect on a
performance objective during such period, the Committee may
revise such objective.
(D) An Award may provide that, if a Participant terminates service
with all Participating Companies during a Performance Period
because of death, Total Disability, or a significant event, as
determined by the Committee, that Participant shall be
entitled to payment in settlement of each Performance Share
for which the Performance Period was prescribed (i) based upon
the performance objectives satisfied at the end of such period
and (ii) prorated for the portion of the Performance Period
during which the Participant was employed by any Participating
Company; provided, however, the Committee may provide for an
earlier payment in settlement of such Performance Share in
such amount and under such terms and conditions as the
Committee deems appropriate or desirable with the consent of
the Participant. If a Participant terminates service with all
Participating Companies during a Performance Period for any
other reason, then such Participant shall not be entitled to
any payment with respect to that Performance Period unless the
Award so provides or the Committee shall otherwise determine.
The Award may provide that the Performance Period shall not be
cancelled or otherwise affected by the termination of service
by a Participant.
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(E) Each Performance Share may be paid in whole shares of Stock,
including Restricted Stock or Deferred Stock (together with
any cash representing fractional shares of Stock), or cash, or
a combination of Stock and cash either as a lump sum payment
or in annual installments, all as the Committee shall
determine, at the time of grant of the Performance Share or
otherwise, commencing as soon as practicable after the end of
the relevant Performance Period. Any dividends or
distributions payable on Performance Shares (or the equivalent
as specified in the grant), other than cash dividends
representing the periodic distribution of profits which shall
be retained by the Company, shall be paid over to the
Participant when and if payment is made of the underlying
Performance Shares, unless the grant provides otherwise.
Except as otherwise provided in this Section 6, no Performance
Shares awarded to Participants shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of
during the Performance Period unless the Committee determines
that an Award may be transferred to a Family Member or Family
Trust or other transferee.
SECTION 7. RESTRICTED STOCK
(A) Restricted Stock may be received by a Participant either as an
Award or as the result of an exercise of an Option or SAR or
as payment for a Performance Share. Restricted Stock shall be
subject to a restriction period (after which restrictions
shall lapse) which shall mean a period commencing on the date
the Award is granted and ending on such date or upon the
achievement of such performance or other criteria as the
Committee shall determine (the "Restriction Period"). The
Committee may provide for the lapse of restrictions in
installments where deemed appropriate.
(B) Except as otherwise provided in this Section 7, no shares of
Restricted Stock received by a Participant shall be sold,
exchanged, transferred, pledged, hypothecated or otherwise
disposed of during the Restriction Period unless the Committee
determines that an Award may be transferred by a Participant
to a Family Member or Family Trust or other transferee;
provided, however, the Restriction Period for any Participant
shall expire and all restrictions on shares of Restricted
Stock shall lapse upon the Participant's (i) death, (ii) Total
Disability or (iii) Termination Without Cause where the
Participant has reached the age of 55 and has at least 5 years
of service with the Company or an Affiliate, or with the
consent of the Company, or upon some significant event, as
determined by the Committee, including, but not limited to, a
reorganization of the Company.
(C) If the Award Agreement so provides, if a Participant
terminates employment with all Participating Companies for any
reason other than under the circumstances referred to in
clause (b) before the expiration of the Restriction Period,
all shares
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of Restricted Stock still subject to restriction shall, unless
the Committee otherwise determines within 90 days after such
termination, be forfeited by the Participant and shall be
reacquired by the Company, and, in the case of Restricted
Stock purchased through the exercise of an Option, the Company
shall refund the purchase price paid on the exercise of the
Option.
(D) The Committee may require under such terms and conditions as
it deems appropriate or desirable that the certificates for
Restricted Stock delivered under the Plan may be held in
custody until the Restriction Period expires or until
restrictions thereon otherwise lapse, and may require as a
condition of any receipt of Restricted Stock that the
Participant shall have delivered a stock power endorsed in
blank relating to the Restricted Stock.
(E) Nothing in this Section 7 shall preclude a Participant from
exchanging any shares of Restricted Stock subject to the
restrictions contained herein for any other shares of Stock
that are similarly restricted.
(F) Unless the Award Agreement provides otherwise, amounts equal
to any cash dividends representing the periodic distributions
of profits declared and payable during the Restriction Period
with respect to the number of shares of Restricted Stock
credited to a Participant shall be paid to the Participant
within 30 days after each dividend becomes payable, unless, at
the time of the Award, the Committee determines that the
dividends should be reinvested in additional shares of
Restricted Stock, in which case additional shares of
Restricted Stock shall be credited to the Participant based on
the Stock's Fair Market Value at the time of each such
dividend, or unless the Committee specifies otherwise. All
dividends or distributions payable on shares (other than cash
dividends representing periodic distributions of profits) of
Restricted Stock (or the equivalent as specified in the grant)
shall be paid over to the Participant when and if as
restrictions lapse on the underlying shares of Restricted
Stock, unless the grant provides otherwise.
SECTION 8. DEFERRED STOCK
(A) Deferred Stock may be credited to an Eligible Individual
either as an Award or as the result of an exercise of an
Option or SAR or as payment for a Performance Share. Deferred
Stock shall be subject to a deferral period which shall mean a
period commencing on the date the Award is granted and ending
on such date or upon the achievement of such performance or
criteria as the Committee shall determine (the "Deferral
Period"). The Committee may provide for the expiration of the
Deferral Period in installments where deemed appropriate.
(B) Except as otherwise provided in this Section 8, no Deferred
Stock credited to Participant shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of
during the Deferral Period unless the Committee determines
14
<PAGE>
that, in the circumstances, an Award may be transferred to a
Family Member or Family Trust or other transferee; provided,
however, the Deferral Period for any Participant shall expire
upon the Participant's (i) death, (ii) Total Disability or
(iii) Termination Without Cause where the Participant has
reached the age of 55 and has at least 5 years of service with
the Company or an Affiliate, or with the consent of the
Company, or upon some significant event, as determined by the
Committee, including, but not limited to, a reorganization of
the Company.
(C) At the expiration of the Deferral Period, the Participant
shall be entitled to receive a certificate pursuant to Section
10 for the number of shares of Stock equal to the number of
shares of Deferred Stock credited on his or her behalf. Unless
the Award Agreement provides otherwise, amounts equal to any
cash dividends representing the periodic distributions of
profits declared and payable during the Deferral Period with
respect to the number of shares of Deferred Stock credited to
a Participant shall be paid to such Participant within 30 days
after each dividend becomes payable unless, at the time of the
Award, the Committee determined that such dividends should be
reinvested in additional shares of Deferred Stock, in which
case additional shares of Deferred Stock shall be credited to
the Participant based on the Stock's Fair Market at the time
of each such dividend, or unless the Committee specifies
otherwise. All dividends or distributions payable on shares
(other than cash dividends representing periodic distributions
of profits) of Deferred Stock (or the equivalent as specified
in the grant) shall be paid over to the Participant when the
Deferral Period ends, unless the grant provides otherwise.
(D) Unless the Award Agreement provides otherwise, if a
Participant terminates employment with all Participating
Companies for any reason other than under the circumstances
referred to in clause (b) before the expiration of the
Deferral Period, all shares of Deferred Stock shall, unless
the Committee otherwise determines within 90 days after such
termination, be forfeited by the Participant, and, in the case
of Deferred Stock purchased through the exercise of an Option,
the Company shall refund the purchase price paid on the
exercise of the Option.
SECTION 9. OTHER STOCK-BASED AWARDS
The Committee may grant other Awards under the Plan which are
denominated in stock or shares, or as phantom shares or phantom units, or as
units or pursuant to which shares of Stock may be acquired, including Awards
valued using measures other than market value or Fair Market Value, if deemed by
the Committee in its discretion to be consistent with the purposes of the Plan.
Subject to the terms of the Plan, the Committee shall determine the form of such
Awards, the number of shares of Stock to be granted or covered pursuant to and
represented by such Awards, the manner of paying out such shares or units in
dollars, Stock or other credits and all other terms and conditions of such
Awards.
15
<PAGE>
SECTION 10. CERTIFICATES FOR AWARDS OF STOCK
(A) Subject to Section 7(d), each Participant entitled to receive
shares of Stock under the Plan shall be issued a certificate
for such shares or have their shares registered for their
account in book entry form by the Company's transfer agent. In
the instance of a certificate, such certificate shall be
registered in the name of the Participant, and shall bear an
appropriate legend reciting the terms, conditions and
restrictions, if any, applicable to such shares and shall be
subject to appropriate stop-transfer orders.
(B) The Company shall not be required to issue or deliver any
shares or certificates for shares of Stock prior to (i) the
listing of such shares on any stock exchange or quotation
system on which the Stock may then be listed or quoted, and
(ii) the completion of any registration, qualification,
approval or authorization of such shares under any federal or
state law, or any ruling or regulation or approval or
authorization of such shares under any governmental body which
the Company shall, in its sole discretion, determine to be
necessary or advisable.
(C) All shares and certificates for shares of Stock delivered
under the Plan shall also be subject to such stop-transfer
orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements
of the SEC, any stock exchange upon which the Stock is then
listed and any applicable federal or state securities or
regulatory laws, and the Committee may cause a legend or
legends to be placed on any such certificates to make
appropriate reference to such restrictions. The foregoing
provisions of this Section 10(c) shall not be effective if and
to the extent that the shares of Stock delivered under the
Plan are covered by an effective and current registration
statement under the Securities Act, or if the Committee
determines that application of such provisions is no longer
required or desirable. In making such determination, the
Committee may rely upon an opinion of counsel for the Company.
(D) Except for the restrictions on Restricted Stock under Section
7, each Participant who receives an award of Stock shall have
all of the rights of a stockholder with respect to such
shares, including the right to vote the shares and receive
dividends and other distributions. No Participant awarded an
Option, a SAR, or Performance Share or Deferred Stock shall
have any right as a stockholder with respect to any shares
subject to such Award prior to the date of issuance to him or
her of certificate or certificates for such shares.
16
<PAGE>
SECTION 11. BENEFICIARY
(A) Each Eligible Individual shall file with the Committee a
written designation of one or more persons as the Beneficiary
who shall be entitled to receive the Award, if any, payable
under the Plan upon his or her death. An Eligible Individual
may from time to time revoke or change his or her Beneficiary
designation without the consent of any prior Beneficiary by
filing a new designation with the Committee. The last such
designation received by the Committee shall be controlling;
provided, however, that no designation, or change or
revocation thereof, shall be effective unless received by the
Committee prior to the Eligible Individual's death, and in no
event shall it be effective as of a date prior to such
receipt.
(B) If no such Beneficiary designation is in effect at the time of
an Employee's death, or if no designated Beneficiary survives
the Eligible Individual or if such designation conflicts with
law, the Eligible Individual's estate shall be entitled to
receive the Award, if any, payable under the Plan upon his or
her death. If the Committee is in doubt as to the right of any
person to receive such Award, the Company may retain such
Award, without liability for any interest thereon, until the
Committee determines the right thereto, or the Company may pay
such Award into any court of appropriate jurisdiction and such
payment shall be a complete discharge of the liability of the
Company therefor.
SECTION 12. ADMINISTRATION OF THE PLAN
(A) The Plan shall be administered by the Committee, as appointed
by the Board and serving at the Board's pleasure. Each member
of the Committee shall be a member of the Board and shall
satisfy both the "disinterested administration" or similar
successor requirements, if any, of Rule 16b-3 under the
Exchange Act and the "outside director" or similar successor
requirements, if any, of Section 162(m) of the Code and the
regulations promulgated thereunder or other similar
requirements of applicable law or regulation.
(B) All decisions, determinations or actions of the Committee made
or taken pursuant to grants of authority under the Plan shall
be made or taken in the sole and absolute discretion of the
Committee and shall be final, conclusive and binding on all
persons for all purposes.
(C) The Committee shall have full power, discretion and authority
to interpret, construe and administer the Plan and any part
thereof and any related Award Agreement and define the terms
employed in the Plan or any agreement, and its interpretations
and constructions thereof and actions taken thereunder shall
be final, conclusive and binding on all persons for all
purposes.
17
<PAGE>
(D) The Committee shall have full power, discretion and authority
to prescribe and rescind rules, regulations and policies for
the administration of the Plan.
(E) The Committee's decisions and determinations under the Plan
and with respect to any Award granted thereunder need not be
uniform and may be made selectively among Awards, Participants
or Eligible Individuals, whether or not such Awards are
similar or such Participants or Eligible Individuals are
similarly situated.
(F) The Committee shall keep minutes of its actions under the
Plan. The act of a majority of the members present at a
meeting duly called and held shall be the act of the
Committee. Any decision or determination reduced to writing
and signed by all members of the Committee shall be fully as
effective as if made by unanimous vote at a meeting duly
called and held.
(G) The Committee may employ such legal counsel, including without
limitation independent legal counsel and counsel regularly
employed by the Company, consultants and agents as the
Committee may deem appropriate for the administration of the
Plan and may rely upon any opinion received from any such
counsel or consultant and any computations received from any
such consultant or agent. All expenses incurred by the
Committee in interpreting and administering the Plan,
including without limitation, meeting fees and expenses and
professional fees, shall be paid by the Company.
(H) No member or former member of the Committee or the Board shall
be liable for any action or determination made in good faith
with respect to the Plan or any Award granted under it. Each
member or former member of the Committee or the Board shall be
indemnified and held harmless by the Company against all cost
or expense (including counsel fees and expenses) or liability
(including any sum paid in settlement of a claim with the
approval of the Board) arising out of any act or omission to
act in connection with the Plan unless arising out of such
member's or former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights to
indemnification or insurance the members or former member may
have as directors or under the by-laws of the Company or
otherwise.
(I) The Committee's determination that an Option, SAR, Performance
Share, Restricted Stock, Deferred Stock or other Stock-based
Awards may be transferred by a Participant to a Family Member
or Family Trust or other transferee may be set forth in
determinations pursuant to Section 12(c), rules and
regulations of general application adopted pursuant to Section
12(d), in the written Award Agreement, or by a writing
delivered to the Participant made any time after the relevant
Award or Awards have been granted, on a case-by-case basis, or
otherwise. In any event, the transferee or Family Member or
Family Trust shall agree in writing to be bound by all the
provisions of the Plan and the Award Agreement, and in no
event shall any such transferee have greater rights under such
Award than the Participant
18
<PAGE>
effecting such transfer. Exercisability of Awards and similar
matters will be determined with reference to the employment
status of the Participant.
(J) With respect to credits, shares, cash or other property
credited to a Participant by reason of dividends or
distributions, if the Committee shall so determine, all such
credits, shares, cash or other property to a Participant shall
be paid to the Participant periodically at the end of the
applicable period, whether or not the performance, employment
or other standards (or lapse of time) upon which such Award is
conditioned have been satisfied. In addition, the Committee
may determine to include in Award Agreements granting Options
and SARs a provision to the effect that (a) an amount equal to
any dividends (payable in cash or other property) paid after
the grant of the Option or SAR and before to the exercise of
such Option or SAR with respect to the number of shares of
Stock subject to such Option or SAR shall be credited to a
Participant and, if the Award Agreement so provides,
thereafter paid to such Participant within 30 days after each
dividend becomes payable or, (b) if the Committee so
determines, such Award shall be reinvested in additional
shares of Stock, in which case such additional shares of Stock
shall be credited to the Participant based on the Stock's Fair
Market Value at the time of payment of each such dividend. In
the latter event, if the Committee so determines, such
additional shares of Stock shall be delivered to the
Participant (whether or not such Option or SAR is exercised)
at the time that such Option or SAR ceases to be exercisable
in accordance with its terms or otherwise.
(K) Any power, action, authority or discretion granted to or
exercisable by the Committee pursuant to the provisions of
this Plan may, if the Compensation Committee or the Board so
determines, be exercised by or delegated to the Board.
SECTION 13. AMENDMENT OR DISCONTINUANCE
The Board may, at any time, amend or terminate the Plan. The Plan may
also be amended by the Committee, provided that all such amendments shall be
reported to the Board. No amendments shall become effective unless approved by
affirmative vote of the Company's stockholders if such approval is necessary or
desirable for the continued validity of the Plan or if the failure to obtain
such approval would adversely affect the compliance of the Plan with Rule 16b-3
or any successor rule under the Exchange Act or Section 162(m) of the Code or
any other rule or regulation of a stock exchange or other body. No amendment or
termination shall, when taken as a whole, adversely and materially affect the
rights of any Participant who has received a previously granted Award without
his or her consent unless the amendment or termination is necessary or desirable
for the continued validity of the Plan or its compliance with Rule 16b-3 or any
other applicable law, rule or regulation or pronouncement or to avoid any
adverse consequences under Section 162(m) of the Code or any requirement of a
securities exchange or association or regulatory or self-regulatory body),
19
<PAGE>
SECTION 14. ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK
In the event of a change in corporate capitalization, stock split or
stock dividend, the number of shares purchasable upon exercise of an Option or
SAR shall be increased to the new number of shares which result from the shares
covered by the Option or SAR immediately before the change, split or dividend.
The purchase price per share shall be reduced proportionately and the total
purchase price will remain the same.
In the event of any other change in corporate capitalization, or a
corporate transaction, such as any merger of a corporation into another
corporation, any consolidation of two or more corporations into another
corporation, any separation of a corporation (including a spinoff or other
distribution of stock or property by a corporation), any reorganization of a
corporation (whether or not such reorganization comes within the definition of
such term in Section 368 of the Code), or any partial or complete liquidation by
a. corporation or other similar event which could distort the implementation of
the Plan or the realization of its objectives, the Committee shall make an
appropriate adjustment in the number of shares of Stock (i) which are covered by
the Plan, (ii) which may be granted to any one Eligible Individual and which are
subject to any Award, and the purchase price therefor, and in terms, conditions
or restrictions on securities as the Committee deems equitable, with the
objective that the securities covered under the Plan or an Award shall be those
securities which a Participant would have received if he or she had exercised
his or her Option or SAR prior to the event or been entitled to his or her
Restricted or Deferred Stock or Performance Shares.
All such events occurring between the effective date of the Option and
its exercise shall result in an adjustment to the Option terms.
SECTION 15. CHANGE IN CONTROL
Awards may include, or may incorporate from any relevant guidelines
adopted by the Committee, terms which provide that any or all of the following
actions or consequences, with any modifications adopted by the Committee, may
occur as a result of, or in anticipation of, any Change in Control to assure
fair and equitable treatment of Participants:
(A) Any Options outstanding at least six months as of the date of
Change in Control shall, if held by a current employee of the
Company, become immediately exercisable in full. In addition,
all Participants may, regardless of whether still an employee
of the Company, elect to cancel all or any portion of any
Option or Award no later than 90 days after the Change in
Control, in which event the Company shall pay to such electing
Participant, an amount in cash equal to the excess, if any, of
the Current Market Value (as defined below) of the shares of
Stock, including Performance Shares, Restricted Stock or
Deferred Stock, subject to the Option or of the portion
thereof so canceled over the option price for such shares;
provided, however, that no Participant shall have the right to
elect
20
<PAGE>
cancellation unless and until at least 6 months have elapsed
after the date of grant of the Option.
(B) Any Performance Periods shall end and the Company shall pay
each Participant an amount in cash equal to the value of such
Participant's performance shares, if any, based upon the
Stock's Current Market Value in full settlement of such
performance shares.
(C) Any Restriction Periods shall end and the Company shall pay
each Participant an amount in cash equal to the Current Market
Value of the Restricted Stock held by, or on behalf of, each
Participant in exchange for such Restricted Stock.
(D) Any Deferral Period shall end and the Company shall pay to
each Participant an amount in cash equal to the Current Market
Value of the number of shares of Stock equal to the number of
shares of Deferred Stock credited to such Participant in full
settlement of any Deferred Stock Award.
(E) The Company shall pay to each Participant all amounts due, if
any, deferred by or payable under Awards granted to such
Participant under the Plan which are not Performance Shares,
Restricted Stock or Deferred Stock, in accordance with the
terms provided by the Committee at the time of deferral or
grant.
(F) For purpose of this Section 15, "Current Market Value" means
the highest Fair Market Value during the period commencing 30
days prior to the Change in Control and ending 30 days after
the Change in Control (the "reference period"); provided that,
if the Change in Control occurs as a result of a tender offer
or exchange offer, or a merger, purchase of assets or stock,
or another transaction approved by shareholders of the
Company, Current Market Value means the higher of (i) the
highest Fair Market Value during the reference period, or (ii)
the highest price paid per share of Stock pursuant to such
tender offer, exchange offer or transaction.
SECTION 16. MISCELLANEOUS
(A) Nothing in this Plan or any Award granted hereunder shall
confer upon any employee any right to continue in the employ
of any Participating Company or interfere in any way with the
right of any Participating Company to terminate his or her
employment at any time.
(B) No Award payable under the Plan shall be deemed salary or
compensation for the purpose of computing benefits under any
employee benefit plan or other arrangement of any
Participating Company for the benefit of its employees unless
the Company shall determine otherwise.
21
<PAGE>
(C) No Eligible Individual or Participant shall have any claim to
an Award until it is actually granted under the Plan. To the
extent that any person acquires a right to receive payments
from the Company under this Plan, such right shall be no
greater than the right of an unsecured general creditor of the
Company. All payments of Awards provided for under the Plan
shall be paid by the Company either by issuing shares of Stock
or by delivering cash from the general funds of the Company or
other property of the Company; provided, however, that such
payments shall be reduced by the amount of any payments made
to the Participant or his or her dependents, beneficiaries or
estate from any trust or special or separate fund established
in connection with this Plan. The Company shall not be
required to establish a special or separate fund or other
segregation of assets to assure such payments, and, if the
Company shall make any investments to aid it in meeting its
obligations hereunder, the Participant shall have no right,
title, or interest whatever in or to any such investments
except as may otherwise be expressly provided in a separate
written instrument relating to such investments.
(D) Absence on leave approved by a duly constituted officer of the
Company shall not be considered interruption or termination of
employment for any purposes of the Plan; provided, however,
that no Award may be granted to an employee while he or she is
absent on leave.
(E) If the Committee shall find that any person to whom any Award,
or portion thereof, is payable under the Plan is unable to
care for his or her affairs because of illness or accident, or
is a minor, then any payment due him or her (unless a prior
claim therefor has been made by a duly appointed legal
representative) may, if the Committee so directs the Company,
be paid to his or her spouse, a child, a relative, an
institution maintaining or having custody of such person, or
any other person deemed by the Committee to be a proper
recipient on behalf of such person otherwise entitled to
payment. Any such payment shall be a complete discharge of the
liability of the Company therefor.
(F) The right of any Participant or other person to any Award
payable under the Plan may not be assigned, transferred,
pledged or encumbered, either voluntarily or by operation of
law, except as provided in Section 11 with respect to the
designation of a Beneficiary or as may otherwise be required
by law or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder or unless the
Committee determines, in the circumstances, that an Award may
be transferred to a Family Member or Family Trust or other
transferee. If, by reason of any attempted assignment,
transfer, pledge, or encumbrance or any bankruptcy or other
event happening at any time, any amount payable under the Plan
would be made subject to the debts or liabilities of the
Participant or his or her Beneficiary or would otherwise
devolve upon anyone else and not be enjoyed by the Participant
or his or her Beneficiary or transferee, Family Trust or
Family Member, then the Committee may terminate such person's
interest in any such payment and direct that the same
22
<PAGE>
be held and applied to or for the benefit of the Participant,
his or her Beneficiary, taking into account the expressed
wishes of the Participant (or, in the event of his or her
death, those of his or her Beneficiary) in such manner as the
Committee may deem proper.
(G) Copies of the Plan and all amendments, administrative rules
and procedures and interpretations shall be made available for
review to all Eligible Individuals at all reasonable times at
the Company's administrative offices.
(H) The Committee may cause to be made, as a condition precedent
to the payment of any Award, or otherwise, appropriate
arrangements with the Participant or his or her Beneficiary,
for the withholding of any federal, state, local or foreign
taxes. The Committee may in its discretion permit the payment
of such withholding taxes by authorizing the Company to
withhold shares of Stock to be issued, or the Participant to
deliver to the Company shares of Stock owned by the
Participant or Beneficiary, in either case having a Fair
Market Value equal to the amount of such taxes, or otherwise
permit a cashless exercise.
(I) All elections, designations, requests, notices, instructions
and other communications from an Eligible Individual,
Participant, Beneficiary or other person to the Committee,
required or permitted under the Plan, shall be in such form as
is prescribed from time to time by the Committee and shall be
mailed by first class mail or transmitted by facsimile copy or
delivered to such location as shall be specified by the
Committee.
(J) The terms of the Plan shall be binding upon the Company and
its successors and assigns.
(K) Captions preceding the sections hereof are inserted solely as
a matter of convenience and in no way define or limit the
scope or intent of any provision hereof.
(1) The Plan and the grant, exercise and carrying out of Awards
shall be subject to all applicable federal and state laws,
rules, and regulations and to all required or otherwise
appropriate approvals and authorizations by any governmental
or regulatory agency or commission. The Company shall have no
obligation of any nature hereunder to any Eligible Individual,
Participant or any other person in the absence of all
necessary or desirable approvals or authorizations and shall
have no obligation to seek or obtain the same.
(M) Whenever possible, each provision of this Plan and any Award
Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any such
provision is held to be ineffective, invalid, illegal or
unenforceable in any respect under the applicable laws or
regulations of the United States or any state, such
ineffectiveness, invalidity, illegality or unenforceability
will not affect any
23
<PAGE>
other provision but this Plan and any such agreement will be
reformed, construed and enforced so as to carry out the intent
hereof or thereof and as if any invalid or illegal provision
had never been contained herein.
(N) The Committee, in its discretion, may defer, without the
consent of the Participant, the payment of an Award, if such
payment would otherwise cause the annual remuneration of a
Participant, who is a covered employee under Section 162(m) of
the Code, to exceed $1,000,000.
(O) The Plan shall be construed and governed under the laws of the
State of Delaware.
SECTION 17. EFFECTIVE DATE AND STOCKHOLDER APPROVAL
The Effective Date of the Plan shall be October 16, 1997, subject to
approval by the holders of a majority of the Company's common stock at a meeting
of stockholders to be held no later than the latest date by which all approvals
of the stockholders of the Company must be obtained in order to satisfy the
requirements of each of (a) Section 162(m) of the Code relating to the approval
of the stockholders of the Company, (b) any national stock market or quotation
organization or other body on which the Company's common stock is listed or
quoted that requires approval of the stockholders of the Company, and (c) any
other applicable rule, policy order or regulation which requires approval of
stockholders of the Company. Any Awards granted prior to stockholder approval
will be subject to the receipt of such approval. No Awards will be granted under
the Plan after the expiration of ten years from the Effective Date.
24
<PAGE>
EXHIBIT 10.16
CITIZENS UTILITIES COMPANY
High Ridge Park
Stamford, Connecticut 06905
November __, 1997
Electric Lightwave Inc.
8100 N.E. Parkway Drive
Suite 150
Vancouver, WA 98662
Re: Guaranty Fees
Dear Sir/Madam:
Reference is made to the Guaranty Agreement of Citizens Utilities
Company ("Citizens") in favor of Shawmut Bank Connecticut, National Association
("Shawmut"), BA Leasing & Capital Corporation ("BA") and the other Beneficiaries
named therein, dated as of April 28, 1995, pursuant to which Citizens has agreed
to guaranty certain obligations of Electric Lightwave, Inc. (the "Company")
under the Participation Agreement between the Company, Shawmut, the Certificate
Purchasers named therein, the Lenders named therein, BA and Citizens, dated as
of April 28, 1995 (the "Participation Agreement"), and the related operating
documents. For value received, the Company hereby agrees to pay Citizens a
guarantee fee at a rate of 3.25% per annum of the amount of the lessor's
investment in the leased assets.
Reference is made to the Credit Agreement dated as of November __, 1997
among the Company, Citizens, the Lenders named therein and Citibank, N.A. (the
"Credit Agreement"), pursuant to which Citizens, indirectly through certain
subsidiaries and, after regulatory authorization has been obtained, directly,
has agreed to guaranty obligations of the Company under the Credit Agreement.
For value received, the Company hereby agrees to pay Citizens a guarantee fee at
a rate of 3.25% per annum based on the balance outstanding of the Company under
the Credit Agreement.
In the event that Citizens intends to reduce its economic interest in
the Company to less than 51%, Citizens will be entitled to request the Company
to refinance its obligations under the Participation Agreement and the Credit
Agreement and the Company shall be obligated to use its
<PAGE>
best efforts to do so. This refinancing would occur when Citizens reduces its
economic interest in the Company to less than 51%.
If you are in agreement with all of the above, please sign in the space
below.
Very truly yours,
CITIZENS UTILITIES COMPANY
By: __________________________
Name:
Title:
Agreed and Accepted:
Dated: November __, 1997
ELECTRIC LIGHTWAVE, INC .
By: ____________________
Name:
Title:
2
<PAGE>
EXHIBIT 10.17
PRE-CONSTRUCTION IRU AGREEMENT
Between
FTV COMMUNICATIONS, LLC
and
ELECTRIC LIGHTWAVE, INC.
Dated October 16, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I. CONSTRUCTION.................................... 1
------------
ARTICLE II. PAYMENT; CONVEYANCE OF IRU...................... 4
--------------------------
ARTICLE III. CONNECTION OF ELI NETWORK TO THE SYSTEM......... 6
---------------------------------------
ARTICLE IV. ACCEPTANCE AND TESTING OF IRU FIBERS............ 6
------------------------------------
ARTICLE V. SYSTEM DOCUMENTATION............................ 7
--------------------
ARTICLE VI. TERM............................................ 7
----
ARTICLE VII. OPERATION, MAINTENANCE, AND REPAIR OF THE SYSTEM 8
------------------------------------------------
ARTICLE VIII. PERMITS; PHYSICAL PLANT AND REQUIRED RIGHTS..... 10
-------------------------------------------
ARTICLE IX. RELOCATION...................................... 10
----------
ARTICLE X. USE OF THE SYSTEM............................... 12
-----------------
ARTICLE XI. INDEMNIFICATION................................. 13
---------------
ARTICLE XII. INSURANCE....................................... 14
---------
ARTICLE XIII. TAXES AND FRANCHISE, LICENSE AND PERMIT FEES.... 15
--------------------------------------------
ARTICLE XIV. SYSTEM WARRANTIES............................... 16
-----------------
ARTICLE XV. NOTICE.......................................... 17
------
ARTICLE XVI. CONFIDENTIALITY................................. 18
---------------
ARTICLE XVII. DEFAULT......................................... 19
-------
ARTICLE XVIII. FORCE MAJEURE................................... 22
-------------
ARTICLE XIX. ARBITRATION..................................... 22
-----------
-i-
<PAGE>
ARTICLE XX. WAIVER.......................................... 23
------
ARTICLE XXI. GOVERNING LAW................................... 23
-------------
ARTICLE XXII. RULES OF CONSTRUCTION........................... 23
---------------------
ARTICLE XXIII. ASSIGNMENT...................................... 24
----------
ARTICLE XXIV. REPRESENTATIONS AND WARRANTIES.................. 25
------------------------------
ARTICLE XXV. ENTIRE AGREEMENT; AMENDMENT..................... 26
---------------------------
ARTICLE XXVI. RELATIONSHIP OF THE PARTIES..................... 26
---------------------------
ARTICLE XXVII. SEVERABILITY.................................... 26
------------
ARTICLE XXVIII. COUNTERPARTS.................................... 26
------------
ARTICLE XXIX. CERTAIN DEFINITIONS............................. 27
-------------------
ARTICLE XXX. AUDIT RIGHTS.................................... 30
------------
-ii-
<PAGE>
EXHIBITS
- --------
Exhibit A Cable Installation Specifications
Exhibit B Fiber Specifications
Exhibit C Fiber Splicing, Testing and Acceptance Standards
Exhibit D Regenerator/Amplifier Site Specifications
Exhibit E As-Built Drawing Specifications
Exhibit F Operations Specifications
Exhibit G Colocation
Exhibit H Pass-Through Provisions
ATTACHMENTS
- -----------
Attachment 1 Route Map
-iii-
<PAGE>
PRE-CONSTRUCTION IRU AGREEMENT
THIS IRU PRE-CONSTRUCTION AGREEMENT (this "Agreement") is made as of the
16th day of October, 1997, (the "Effective Date") by and among FTV
COMMUNICATIONS, LLC, a Delaware limited liability company ("FTV"), having its
principal office at 210 SW Morrison, Suite 300, Portland, Oregon 97204 and
ELECTRIC LIGHTWAVE, INC. ("ELI"), a Delaware corporation, whose address is 8100
NE Parkway Drive, Suite 150, Vancouver, Washington 98662.
BACKGROUND
----------
WHEREAS, FTV intends to construct a fiber optic communication system as set
forth in Attachment 1 hereto (the "System Route"); and
------------
WHEREAS, ELI desires to purchase from FTV and FTV desires to sell to ELI an
indefeasible right to use (an "IRU") in the optical fibers (the "IRU Fibers") in
the quantity and of the type to be determined upon the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the mutual promises set forth below,
the parties hereby agree as follows:
ARTICLE I. CONSTRUCTION
------------
A. FTV shall install the Cable (capitalized terms used in this Agreement
are defined in Article XXIX of this Agreement entitled Certain Definitions) as
-------------------
described in this Paragraph I.A. Specifically FTV shall:
1. Install the Cable according to the specifications set forth in
Exhibit A, using the fiber specifications given in Exhibit B, along the System
- --------- ---------
Route.
2. Splice and test the installed Cable pursuant to the requirements
set forth in Article IV of this Agreement entitled Acceptance and Testing of IRU
-----------------------------
Fibers and in Exhibit C.
- ------ ---------
3. Comply with all applicable laws, rules and regulations (including
environmental) and obtain all necessary permits, franchises, easements and
rights-of-way needed to install the Cable and to deliver the IRU Fibers to ELI.
4. If requested, provide ELI with a monthly progress report which
shall include, among other things, notice of any anticipated events that may
materially delay or accelerate the Scheduled Completion Date or the Revised
Scheduled Completion Date, as applicable, or the anticipated Completion Date.
Upon reasonable request by ELI, FTV shall also
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 1 of 30
<PAGE>
provide such reports during periods between the monthly reports; provided
--------
that such reports shall not be requested more frequently than once per week.
5. At any location where ELI has optronic equipment in FTV-operated
space, as part of the Enhanced Maintenance Services, allow ELI access at no
additional cost to all environmental alarms relating to such space by means of
an electrical contact point located in such space. ELI shall be responsible for
obtaining any facilities needed to connect these contact points to ELI's
monitoring system.
B. FTV warrants and represents that, upon the Completion Date:
1. The System shall be designed, engineered, installed and
constructed to perform in accordance with the specifications set forth in the
Exhibits.
- --------
2. It shall have performed all necessary surveying and mapping for
the System, including, without limitation:
a) A complete locations survey of the System Route, in
accordance with standard telecommunication engineering practices; and
b) Survey of sites for regeneration stations and other
facilities.
3. It shall have acquired all land, rights-of-way and easements
necessary for the continuous operation and maintenance of the System, and for
the connection of the ELI network to the System in accordance with Article III
of this Agreement, to enable ELI to use the IRU Fibers to provide
telecommunications services over the System throughout the Term of this
Agreement, including:
a) Easements, IRU's, rights-of-way, conduit or other leases,
fee interests and other rights, that 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; and
b) Permits for highway, railroad and waterway crossings as
well as all other permits necessary for the construction of the System.
C. ELI shall have the right, but not the obligation, to inspect all R of W
Agreements. Any inspection by ELI shall be in compliance with and subject to
confidentiality and similar provisions of such R of W Agreements. In the event
any problem arises concerning either the adequacy or validity of such R of W
Agreements or their termination prior to the Term of this Agreement, FTV, at its
expense, shall take all reasonably necessary steps to allow the System to
operate and be maintained through the Term of this Agreement. FTV shall not
have any obligation to ELI under the preceding sentence to the extent that such
problem is due to a Force Majeure Event, ELI's violation of this Agreement, or
to ELI's intentional or negligent act or
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 2 of 30
<PAGE>
omission. In the event FTV refuses to fulfill its obligations under this
paragraph, ELI shall be entitled to obtain specific performance of such
obligations from FTV.
D. ELI shall have the right to review permits, franchises, easements,
rights-of-way and similar contracts and records of FTV relating to the System
and the construction and maintenance of the Cable. In addition, ELI shall have
the right at its own expense and without unreasonable interference with the
Installation or FTV's construction schedule, to observe construction and to
perform reasonable inspections to ensure that all construction is in accordance
with the provisions of this Agreement, including the specifications set forth on
Exhibit A, drawings, easement provisions, and the terms of applicable contracts
- ---------
and codes. FTV shall keep ELI advised of the progress of the Installation in
order to facilitate ELI's right to conduct such observations and inspections.
ELI's right to observe and inspect shall include, but not be limited to, the
following:
1. Observing and inspecting construction operations, including, but
not limited to, clearing, grading, ditching, fiber placement, splicing, and
clean-up; and
2. Observing tests of the fiber within the Cable, which observation
shall not unreasonably interfere with such tests.
E. FTV shall diligently seek to complete the Installation of the Cable by
the Scheduled Completion Date. However, FTV shall have the one time right to
extend the Scheduled Completion Date to a Revised Scheduled Completion Date, on
the terms and conditions set forth in this Paragraph I.E. If it appears
reasonably certain that Installation of the Cable will be delayed beyond the
Scheduled Completion Date, FTV, at least ninety (90) days prior to the Scheduled
Completion Date, may give written notice to ELI of such circumstance. If FTV
does not notify ELI of the delay at least ninety (90) days before the Scheduled
Completion Date, the original Scheduled Completion Date shall remain in effect
and FTV shall not have any further right to request an extension of time to
complete the Installation of the Cable. Within thirty (30) days of such notice,
FTV shall provide to ELI a new schedule for the completion of the Installation
including a Revised Scheduled Completion Date. The Revised Scheduled Completion
Date may not be more than ninety (90) days after the original Scheduled
Completion Date. During the time a new construction schedule is being
developed, FTV shall continue the Installation of the Cable.
F. If Installation has not been completed by the sixtieth (60th) day
following the original Scheduled Completion Date or the Revised Scheduled
Completion Date, as applicable, FTV shall continue work to complete the
Installation of the Cable. However, FTV shall pay to ELI liquidated damages in
the amount of $25,000.00 per day for each day beyond the thirtieth (30th) day
following the original Scheduled Completion Date or the Revised Scheduled
Completion Date, as applicable, through and including the date Installation is
completed. FTV shall pay such liquidated damages to ELI within ten (10) days of
demand from ELI, which demand may be made not more frequently than once per
month. Late payments of such amounts shall accrue interest from the date due
until paid at a rate equal to eighteen percent (18%) per
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 3 of 30
<PAGE>
annum or, if lower, the highest percentage allowed by law. If Installation has
not been completed by the sixtieth (60th) day following the original Scheduled
Completion Date or the Revised Scheduled GCompletion Date, as applicable, ELI,
at is option, may notify FTV in writing that ELI will assume all or part of the
construction project administration, and FTV shall work with ELI to transfer to
ELI that part of the construction project administration as may be requested by
ELI. No penalty shall be assessed against FTV after ELI has exercised its option
to complete the Installation of the Cable. If ELI participates in such
construction, FTV shall promptly reimburse ELI the Direct Costs necessarily (as
determined by the specifications contained in Exhibits A and C) incurred by ELI
----------------
in such participation; provided, however, that FTV may elect to set off any such
-------- -------
reimbursement against the payments in Paragraph II.A. in the following order -
first to II.A.4., then to II.A.3., then to II.A.2. ELI shall provide reasonable
supporting documentation for its Direct Costs.
ARTICLE II. PAYMENT; CONVEYANCE OF IRU
--------------------------
A. FTV, upon the terms, covenants and conditions contained in this
Agreement hereby grants to ELI an exclusive IRU in and to the IRU Fibers. ELI
shall pay FTV $31,000 per actual Route Mile, payable as follows:
1. Twenty-five percent (25%) of the estimated IRU payment [based on
the estimated 1,620 Route Miles] on or before November 15, 1997;
2. Twenty-five percent (25%) of the IRU payment [based on the actual
Route Miles] within thirty (30) days of the Completion Date;
3. Twenty-five percent (25%) of the IRU payment [based on the actual
Route Miles] within thirty (30) days of the first anniversary of the Completion
Date; and
4. Twenty-five percent (25%) of the IRU payment [based on the actual
Route Miles] within thirty (30) days of the second anniversary of the Completion
Date.
To the extent that the actual Route Miles varies from 1,620 miles, the payment
in Paragraph II.A.1. above shall be adjusted to reflect the actual Route Miles
at $31,000 per Route Mile, and any decrease or increase resulting from such
adjustment shall be reflected in the payment to be made pursuant to Paragraph
II.A.2. above. As a condition precedent to ELI's payment obligations under this
Paragraph II.A., FTV shall deliver to ELI on or before November 15, 1997, a
comfort letter from the parent of each of FTV's members stating that the
transaction contemplated by this Agreement has been authorized and will be
funded in accordance with the terms of this Agreement. If FTV fails to deliver
such comfort letters to ELI by such date, ELI shall not be required to make the
payment described in Paragraph II.A.1. and, at its option, may terminate this
Agreement.
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 4 of 30
<PAGE>
B. FTV and ELI intend that the price charged to ELI for the IRU in the
System be at the lowest price charged by FTV for any comparable transactions
made by FTV within two years from the Completion Date. In order to accomplish
such intention, an adjustment may be required on more than one occasions, and
one or more of the payments scheduled above may require adjustment. If the
following conditions are satisfied, the total amount due from ELI to FTV will be
adjusted: (1) prior to the second anniversary of the Completion Date, FTV sells
an IRU in the Cable to another party in an installment sale or cash transaction
similar to that described in this Agreement; (2) the sale of an IRU covers a
segment of the System Route in excess of 150 miles; and (3) the Present Value
price, including basic maintenance elements (comparable to the Basic Maintenance
Services provided to ELI pursuant to this Agreement), for such other party is
less than $1,291.66 per actual fiber mile for less than or equal to 24 fibers.
In such event, the adjustment would be in such amount as to reduce ELI's cost
per Route Mile for the segment of the System Route to which such sale of an IRU
applies to the effective cost per Route Mile for such other party. ELI's next
payment due as set forth in Paragraph II.A. above shall be adjusted accordingly.
C. The amounts described in Paragraphs II.A.3. and 4. shall bear interest
until paid in full at the Prime Rate plus 3%. Such amounts, including any
accrued interest, may be prepaid at anytime prior to the date due without
premium or penalty
D. ELI hereby grants to FTV a security interest in the IRU, the IRU Fibers
and the proceeds from any sale, swap or other transfer of IRU in the IRU Fibers
to secure the payments, including interest, described in Paragraphs II.A. and
II.C., and agrees to execute, deliver and cooperate with respect to the filing
of such documents, including financing statements, as FTV may reasonably request
to evidence and perfect its security interest. FTV's security interests shall
terminate upon payment in full of all such amounts and, following such payment,
FTV shall terminate all filings it may have made to perfect its security
interests.
E. After the Fiber Acceptance Testing for any segment of the System has
been accepted or deemed accepted by ELI as described in Article IV of this
Agreement entitled Acceptance and Testing of IRU Fibers, and following receipt
------------------------------------
by FTV of the payment described in Paragraph II.A.1., ELI may exercise its IRU
for such segment. At any time after payment of the amount described in
Paragraph II.A.1., ELI may sell, lease, assign or swap an IRU or other interest
in the IRU Fibers to another party upon prior or simultaneous payment to FTV in
cash of $1,200 per fiber mile for the number of IRU Fibers in which the IRU or
other interest is sold, leased, assigned or swapped; provided that such party is
--------
subject to and bound by provisions substantially the same as those set forth in
Exhibit H. Such payment to FTV shall be applied by FTV to reduce the amount of
- ---------
the payments due from ELI to FTV pursuant to Paragraph II.A. in the following
order - first to II.A.4., then to II.A.3., then to II.A.2. FTV agrees that upon
receipt of the payment called for in this Paragraph II.E. it shall release its
security interests in the IRU, the IRU Fibers and proceeds to which the payment
relates, if not previously released. The IRU granted to ELI shall be for the
exclusive use of the IRU Fibers in each segment of the System along the entirety
of the System Route. After ELI has paid in full the amounts described in
Paragraph II.A., with any accrued interest as described in Paragraph II.C.
above, it may sell,
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 5 of 30
<PAGE>
lease, assign, swap or otherwise transfer an IRU in the IRU Fibers without
further payment obligation to FTV or FTV's consent.
ARTICLE III. CONNECTION OF ELI NETWORK TO THE SYSTEM
---------------------------------------
A. Subject to the provisions herein, ELI shall be responsible for all
costs to connect its facilities with the IRU Fibers. Subject to Exhibit G, ELI
---------
may connect its system or other fiber optic systems controlled by it with the
IRU Fibers at ELI's sole cost, at any Connecting Point along the System;
provided, however, any connection requiring a splice to be entered shall be
- -------- -------
performed by FTV at ELI's sole expense. In order to schedule a connection of
this type ELI shall coordinate the work at least thirty (30) days in advance of
the date the connection is requested to be completed. FTV shall use
commercially reasonable efforts to accommodate the request. Such work shall be
restricted to the Planned System Work Period set forth in Exhibit F to this
---------
Agreement unless otherwise agreed to in writing for specific projects. FTV
shall also provide ELI reasonable access to any Connecting Point during the Term
of this Agreement.
B. FTV may prohibit ELI from making a connection if FTV can demonstrate to
ELI's reasonable satisfaction that use of a proposed Connecting Point would
materially and adversely affect the System. ELI shall not employ equipment or
technologies that will interfere with the use of the remaining fibers or damage
the fibers in the System.
ARTICLE IV. ACCEPTANCE AND TESTING OF IRU FIBERS
------------------------------------
A. FTV shall test the IRU Fibers in accordance with the Fiber Acceptance
Testing Standards to verify that they are operating in accordance with the
specifications in Exhibit C. Fiber Acceptance Testing shall progress segment by
---------
segment along the System as cable splicing progresses, so that test results may
be reviewed in a timely manner. ELI shall have the right, but not the
obligation, to have a person or persons present to observe FTV Fiber Acceptance
Testing and FTV agrees to provide ELI prior notice of FTV's testing schedule.
Within fourteen (14) days of the conclusion of FTV Fiber Acceptance Testing of
the IRU Fibers along a segment, FTV shall provide ELI with a copy of the test
results.
B. If, within ten (10) days after receipt by ELI from FTV of the initial
test results referred to above or of the results of re-testing as set forth
below, ELI reasonably determines that the test results are unacceptable, ELI
shall, within such ten (10) day period, notify FTV of such determination and ELI
shall have the right, but not the obligation, at its sole expense, to conduct
its own Fiber Acceptance Testing of the IRU Fibers to verify that they are
operating in accordance with the specifications in Exhibit C. Subject to
---------
Paragraph IV.D., ELI shall commence its Fiber Acceptance Testing of the IRU
Fibers within ten (10) days of such notice to FTV and shall complete such
testing within fourteen (14) days thereafter. FTV shall have the right, but not
the obligation, to have a person or persons present to observe ELI's Fiber
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 6 of 30
<PAGE>
Acceptance Testing. Within fourteen (14) days of the conclusion of ELI's Fiber
Acceptance Testing of the IRU Fibers, ELI shall provide FTV with a copy of the
test results.
C. In the event the results of the tests of the IRU Fibers show the IRU
Fibers are not operating within the parameters of the applicable specifications,
ELI shall notify FTV in writing that the results with respect to some or all
portions of the IRU Fibers are unacceptable. Thereupon, FTV shall expeditiously
take such action as shall be reasonably necessary with respect to such portion
of the IRU Fibers that do not operate within the parameters of the
specifications to bring the operating standards of such portion of the IRU
Fibers within such parameters. After taking such actions and re-testing of the
IRU Fibers, FTV shall provide ELI with a copy of the new test results and ELI
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 IRU
Fibers operate within the parameters of the applicable specifications.
D. ELI shall be deemed to have accepted the IRU Fibers unless it notifies
FTV within ten (10) days of receipt of FTV Fiber Acceptance Testing results that
such results are unacceptable. If the test results of ELI Fiber Acceptance
Testing are within the parameters of the specifications in Exhibit C, ELI shall,
---------
within ten (10) days of receipt of ELI's test results, provide FTV with a
written notice accepting the IRU Fibers. The date of this notice or the date of
deemed acceptance of the IRU Fibers (for all segments in the System), as the
case may be, shall be the "Completion Date."
ARTICLE V. SYSTEM DOCUMENTATION
--------------------
After the Completion Date and upon ninety (90) days prior notice from ELI,
FTV shall provide ELI with documentation ("Deliverables") that shall consist of
the following:
1. As-built drawings for the System complying with the specifications
for as-built drawings set forth in Exhibit E; and
---------
2. Technical specifications of the Cable and associated splices and
other equipment placed in the System as set forth on Exhibits A, B, C and D.
----------------------
ARTICLE VI. TERM
----
A. The Term of this Agreement shall begin on the Effective Date and shall
end on the twentieth (20th) anniversary of the Completion Date. Subject to the
conditions set forth below, ELI may, by written notice, extend the Term for an
additional ten (10) year period and, if it has so elected to extend the Term, it
may, by written notice, extend the term for a second ten (10) year period. ELI
shall provide the written notice at least one year in advance of the date the
Term would expire absent such notice. Subject only to the renegotiation of
charges for the Basic
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 7 of 30
<PAGE>
Maintenance Services and the Enhanced Maintenance Services (as described in
Paragraph VII.H. below), any extension of the Term shall be on the same terms
and conditions as contained in this Agreement, for no additional consideration.
B. ELI may not exercise its initial or subsequent right to extend the Term
of this Agreement if FTV, in its reasonable opinion, determines that operation
or maintenance of the Cable is no longer commercially practicable; provided that
--------
FTV shall in such case offer to quitclaim to ELI all of FTV's rights in the IRU
Fibers, together with licenses or assignments (at FTV's option) allowing ELI to
maintain the IRU Fibers in the existing rights-of-way, to the extent FTV has the
right to convey such licenses. If ELI accepts FTV's offer, then all FTV
obligations under this Agreement shall terminate as of the date as of such
conveyance, except for those set forth in Articles XI, XVI and XIX of this
------
Agreement entitled Indemnification, Confidentiality, and Arbitration,
--------------- --------------- -----------
respectively. SUCH QUITCLAIM TRANSFER SHALL BE ON AN "AS IS" BASIS AND WITHOUT
WARRANTIES AS TO THE SYSTEM OR TITLE TO THE RIGHTS OF WAY.
C. Subject to the extension rights described above, upon the expiration of
the Term of this Agreement, ELI's IRU in the System shall immediately terminate
and all rights of ELI to use the System, or any part thereof, shall cease and
FTV shall owe ELI no additional duties or consideration. Within sixty (60) days
after the end of the Term, unless the parties agree otherwise, ELI shall remove
all electronics and equipment from any FTV facilities at ELI's sole cost under
FTV's supervision.
D. Notwithstanding the foregoing and except as provided in Paragraph A of
------
this Article, 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 Articles XI,
XII, XIII, XVI and XIX of this Agreement entitled Indemnification, Insurance,
--------------- ---------
Taxes and Franchise, License and Permit Fees, Confidentiality, and Arbitration,
- -------------------------------------------- --------------- -----------
respectively.
ARTICLE VII. OPERATION, MAINTENANCE, AND REPAIR OF THE SYSTEM
---------------------------------------------------
A. During the Initial Term, FTV shall be responsible, at its sole expense
(including training), for the maintenance and repair of the System (including,
without limitation, the provision of Basic Maintenance Services), the IRU Fibers
and any common equipment on the System, all pursuant to the operations
specifications set forth on Exhibit F. FTV shall maintain the System and the
---------
IRU Fibers at all times in good working order and in a safe condition, in
conformity with the operations specifications set forth on Exhibit F and all
---------
applicable laws and regulations. FTV, at ELI's sole expense and at FTV's then
prevailing rates, shall repair damage caused by ELI's negligence or willful
misconduct or ELI's elective maintenance or repair requests. During the Initial
Term, the Enhanced Maintenance Services, however, shall be provided at ELI's
cost at the price stated in Paragraph X.B. of this Agreement. FTV shall not be
responsible for any maintenance or repair of any ELI equipment except as set
------
forth above.
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 8 of 30
<PAGE>
B. FTV may subcontract for maintenance and restoration services hereunder.
All such subcontractors shall perform their work in accordance with the
applicable specifications contained in this Agreement and the Exhibits attached
--------
hereto, and industry standards.
C. ELI shall perform all maintenance on ELI equipment on the System.
However, in the event FTV agrees to perform repair or maintenance with respect
to such ELI equipment, ELI shall pay for all repair and maintenance of such
equipment performed by FTV at FTV's rates then in effect. FTV shall, upon
written request, provide ELI notice of FTV's rates for repair and maintenance.
ELI reserves the right to perform maintenance on any of its own equipment,
except as expressly restricted by this Agreement.
- ------
D. Upon notification from ELI of any Service Interruption, FTV shall
immediately begin to mobilize FTV crews and make its best effort to achieve
necessary repairs or restoration, in accordance with the procedures set forth in
Exhibit F. FTV shall, without limiting the above, make its best efforts to
- ---------
restore service within four (4) hours in the case of Cable cuts or other
significant physical damage and within one (1) hour in the case of Service
Interruptions caused by other circumstances. For purposes hereof, "best
efforts" means activities and performance consistent with prudent industry
practice, and response times that do not jeopardize the health and safety of
employees or agents of FTV or ELI. In the event the Service Interruption is not
cured within such four (4) or one (1) hour period, ELI may perform maintenance
and repair services subject to the provisions of applicable R of W Agreements.
In such event, ELI may access any part of the System reasonably necessary to
perform such service. In the event ELI requires FTV personnel to unlock any FTV
facility, FTV shall cooperate fully with ELI to allow ELI access. In those
parts of the System that ELI does not require FTV personnel to enter FTV
facilities, ELI shall provide FTV with oral notification of those parts of the
System that were entered as soon as possible. ELI shall only use the preceding
rights to enter the System to the extent necessary for emergency situations.
FTV shall reimburse ELI its Direct Costs and out-of-pocket expenses of providing
such maintenance services. ELI shall provide reasonable supporting
documentation for its Direct Costs.
E. FTV shall use a degree of care in performing repair and maintenance
pursuant to this Agreement that equals or exceeds that which is normal and
customary in the telecommunications industry.
F. In the event ELI notifies FTV of a need for repair to the System, or of
damage to the System that results from a specific accident or disaster, or
deterioration of the fibers in the System requiring replacement of fibers
("Damage or Deterioration"), FTV, at its cost, shall promptly repair such Damage
or Deterioration using its best efforts as defined in Paragraph VII.D. above.
However, if the Damage or Deterioration is due to the negligence or willful
misconduct of FTV or ELI, the party responsible for such Damage or Deterioration
shall be responsible for the costs of repairing the System to the extent the
Damage or Deterioration was caused by such party. FTV and ELI shall cooperate
reasonably with each other to collect any
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 9 of 30
<PAGE>
available insurance proceeds and to resolve any disputes with insurance carriers
regarding the availability of insurance proceeds to repair any Damage or
Deterioration to the System.
G. ELI shall pay FTV's invoice for ELI's proportionate amount of the cost
to repair the Damage or Deterioration within thirty (30) days after receipt of
the invoice. Upon request by ELI, FTV shall promptly provide the necessary
substantiating information that will allow ELI to verify the accuracy of the
invoice.
H. After the Initial Term, FTV and ELI shall meet to renegotiate the terms
under which FTV will continue to provide the Basic Maintenance Services and the
Enhanced Maintenance Services, if any. If FTV and ELI are unable to agree on
the terms under which FTV will continue to provide such services, ELI shall have
the right to perform such services itself or to select an independent contractor
to perform such work. The selection of an independent contractor and all
agreements with such contractor must be approved by FTV, which approval shall
not be unreasonably withheld. The agreements with such contractor shall require
it to: (1) maintain insurance coverages not less than those required by Article
XII of this Agreement entitled Insurance and to provide FTV evidence of such
---------
coverage upon request; (2) maintain the confidentiality of confidential
information disclosed to it; and (3) comply with applicable provisions of R of W
Agreements. FTV shall have the right to have an inspector present at any work
performed by ELI or any such contractor, and ELI shall reimburse FTV for the
associated Inspection Costs. ELI or such contractor shall provide not less than
ten (10) days notice to FTV of such work.
ARTICLE VIII. PERMITS; PHYSICAL PLANT AND REQUIRED RIGHTS
-------------------------------------------
A. As of the Completion Date, FTV shall have obtained 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, franchise, 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 System
hereunder (all of which are referred to as "FTV Required Rights").
B. FTV shall cause all FTV Required Rights to remain effective through the
Term of this Agreement, except as provided in and subject to the provisions of
------
Articles IX and XVIII of this Agreement entitled Relocation, and Force Majeure,
---------- -------------
respectively.
ARTICLE IX. RELOCATION
----------
A. FTV, at FTV's cost and expense, shall be responsible for renewing or
replacing existing rights-of-way, easements, IRU or other underlying rights
necessary to maintain the System in place through the Initial Term. If FTV
determines it is not commercially practicable
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PRE-CONSTRUCTION IRU AGREEMENT Page 10 of 30
<PAGE>
to renew or replace its existing rights-of-way, easements, IRUs or other
underlying rights, then FTV, at its sole expense, shall relocate the segment of
the System so affected as provided in this Article IX. However, prior to any
such relocation ELI, at its election, may attempt to renew or replace any such
right-of-way, IRU or other underlying right, but at ELI's sole expense. FTV
shall cooperate with ELI during the notice period, as provided in Paragraph
IX.B. below, to allow ELI to make such renewal or replacement. In the event ELI
successfully renews or replaces any such right-of-way, IRU or other underlying
right, FTV shall allow ELI to continue its use of the affected IRU Fibers,
without relocation, as provided in this Agreement. In addition, if ELI desires,
ELI may extend the Term of this Agreement consistent with the provisions of
Article VI of this Agreement entitled Term, if such an extension is then
----
available, and such extension shall include ELI's right to continue using the
IRU Fibers in the renewed or replacement rights-of-way obtained by ELI.
B. If, following the Completion Date, FTV is required to relocate the
Cable or any of the facilities used or required in providing ELI with the IRU,
FTV shall give ELI sixty (60) days prior notice of any such relocation, if
possible, and shall proceed with such relocation. FTV shall have the right to
direct 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: (1) shall be constructed and tested in
- --------
accordance with the specifications and requirements set forth in Exhibits A and
--------------
C; (2) shall not result in a materially adverse change to the operations,
- -
performance, Connecting Points with the network of ELI, or end points of the
System; and (3) shall not unreasonably interrupt service on the System. If the
relocation is required due to the circumstances described in Paragraph IX.A.
above, FTV shall pay the Relocation Costs. If the relocation is required due to
the circumstances described in Paragraph IX.C. below, ELI shall pay the
Relocation Costs. In all other circumstances, ELI shall reimburse FTV for ELI's
proportionate share of the Relocation Costs (including, without limitation,
fiber acquisition, splicing and testing) based on the ratio between the number
of ELI's IRU Fibers to the total fiber count in the affected Cable so relocated.
In the event that a third party (that does not have an interest in the fibers in
the Cable) reimburses FTV for all of or a portion of the cost to relocate the
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 FTV under
this Article IX. FTV shall deliver to ELI updated as-built drawings consistent
with the specifications set forth in Exhibit E with respect to any relocated
---------
portion of the System no later than thirty (30) days following completion of the
work. FTV shall prepare a budget for the costs associated with such relocation.
Except in the event of an emergency, FTV, before beginning such relocation work,
shall provide ELI a copy of the proposed budget. ELI, within thirty (30) days
after receipt of the proposed budget, shall approve or reject the same. If
notice of rejection is not given by ELI within such 30-day period, ELI shall be
deemed to have approved the budget. ELI and FTV shall cooperate with each other
in resolving any disagreements over the terms of a proposed relocation budget.
FTV shall provide information and documentation to ELI sufficient to demonstrate
the basis for and the proportionate amount of the Relocation Costs chargeable to
ELI. ELI shall pay ELI's proportionate share of such Relocation Costs within
thirty (30) days of receipt of the foregoing information.
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PRE-CONSTRUCTION IRU AGREEMENT Page 11 of 30
<PAGE>
C. If relocation is requested by ELI, or if relocation is necessitated by
a breach of ELI's obligations under this Agreement, FTV shall complete the
relocation at ELI's expense.
ARTICLE X. USE OF THE SYSTEM
-----------------
A. ELI warrants that its use of the System shall comply in all material
respects with applicable government codes, ordinances, laws, rules, regulations
and restrictions and shall not have an adverse effect on the System or its use.
B. At the Completion Date, FTV shall deliver to ELI a concrete pad meeting
the specifications given in Exhibit D attached hereto for each Transmission
---------
Site. During the Term, ELI, at is own expense, shall have the right to enter
upon such Transmission Sites to install, repair, maintain and replace
Transmission Site structures (huts) and the equipment contained therein used by
ELI in the conduct of its business. In addition, FTV, at ELI's option, shall
provide the Enhanced Maintenance Services. ELI shall pay FTV a monthly
maintenance fee of $1,000.00 per Transmission Site for the Enhanced Maintenance
Services. Technical specifications applicable for the Enhanced Maintenance
Services are set forth on Exhibit D. In addition, ELI shall have the right
---------
during the Term, subject to availability, to space and power at the FTV sites at
FTV's then prevailing rates (which rates shall not be unreasonable).
C. After receipt by FTV of all payments due under Paragraphs II.A. and
II.C. and if ELI is not otherwise in default under this Agreement, ELI shall
have the right, by twelve (12) months' advance written notice, to abandon its
interest in the IRU Fibers, in which event the right to the use thereof shall
revert to FTV. Effective upon abandonment, ELI shall have no further rights
with respect to its IRU Fibers and this Agreement shall be terminated pursuant
to Paragraph VI.D. of this Agreement. Such abandonment shall not reduce or
otherwise affect ELI's obligations incurred before such abandonment.
D. ELI may use the IRU Fibers for any lawful purpose. FTV agrees and
acknowledges that FTV has no right to use the IRU Fibers during the Term.
E. FTV and ELI shall promptly notify each other of any matters pertaining
to any damage or impending damage to or loss of the System that are known to
such party and that could reasonably be expected to affect the System.
F. ELI shall take all reasonable precautions against, and shall assume
liability, subject to the terms of this Agreement, for, any damage caused by ELI
to the fibers used or owned by FTV or third parties. FTV shall take all
reasonable precautions against, and shall assume liability, subject to the terms
of this Agreement, for, any damage caused by FTV to the IRU Fibers, or fibers
used or owned by third parties.
G. ELI shall not use the IRU Fibers in a manner that interferes in any way
with or adversely affects the use of the fibers of FTV or third parties within
the Cable or their respective
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 12 of 30
<PAGE>
equipment and facilities associated with the Cable. FTV shall not use and shall
prohibit third parties from using the Cable in a manner that interferes in any
way with or adversely affects ELI's use of the IRU Fibers or ELI's equipment and
facilities associated with the IRU Fibers.
H. FTV and ELI each agree to cooperate with and support the other in
complying with any requirements directly applicable to the IRU Fibers by any
governmental or regulatory agency or authority.
ARTICLE XI. INDEMNIFICATION
---------------
A. ELI hereby releases and agrees to indemnify, defend, protect and hold
harmless FTV, its employees, members, managers, officers, agents, contractors
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 at trial and appeal), to the extent arising out of or resulting from the
acts or omissions, negligent or otherwise, of ELI, its officers, employees,
servants, affiliates, agents or contractors in connection with its performance
under this Agreement; and
2. Any claims, liabilities or damages arising out of any violation by
ELI of 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.
B. FTV hereby releases and agrees to indemnify, defend, protect and hold
harmless ELI, its employees, officers, directors, agents, contractors,
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 at trial and appeal), to the extent arising out of or resulting from the
acts or omissions, negligent or otherwise, of FTV, its officers, employees,
servants, affiliates, agents or contractors in connection with its performance
under this Agreement; and
2. Any claims, liabilities or damages arising out of any violation by
FTV of 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.
C. FTV and ELI hereby expressly recognize and agree that each party's
obligation to indemnify, defend, protect and save the other harmless is a
material obligation to the continuing performance of the parties' other
obligations, if any, hereunder. However, in the event that either FTV or ELI
fails for any reason to so indemnify, defend, protect and save the other
harmless, the injured party's sole remedy in such event shall be the right to
bring an arbitration proceeding
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 13 of 30
<PAGE>
pursuant to the terms of this Agreement against the other for damages as a
result of such failure to indemnify, defend, protect and save harmless. The
obligations of this Paragraph XI.C. shall survive the expiration or earlier
termination of this Agreement. FTV and ELI each affirmatively state and warrant
to the other that its indemnity obligation will be supported by liability
insurance to be furnished by it; provided that recovery under or in respect of
--------
this indemnity shall not be limited to the proceeds of any such insurance. In
addition, FTV and ELI hereby expressly agree that in no event shall either of
them be liable to the other for any lost or prospective profits or any other
special punitive, exemplary, consequential, incidental or indirect losses or
damages (in tort, contract or otherwise) under or in respect of this Agreement
or for any failure of performance related hereto howsoever caused, whether or
not arising from sole, joint or concurrent negligence.
D. Nothing contained herein shall operate as a limitation on the right of
either FTV or ELI 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 IRU Fibers or the System. Each of FTV and
ELI shall assign such rights of claims, execute such documents and do whatever
else may be reasonably necessary to enable the other to pursue any such action
against such third party, provided however, that the provisions of this
-------- -------
Paragraph XI.D. shall not permit either FTV or ELI to bring an action for
damages against a third party for indirect, special, or consequential damages if
such third party, directly or through one or more intermediate parties, has a
right of indemnification, impleader, cross-claim, contribution, or other right
of recovery against FTV or ELI.
ARTICLE XII. INSURANCE
---------
A. During the term of this Agreement, FTV and ELI shall each obtain and
maintain, and shall require their respective permitted contractors to obtain and
maintain, not less than the following insurance:
1. Commercial General Liability Insurance with a combined single
limit of $10,000,000 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 $1,000,000 each
accident. If work is to be performed in Nevada, North Dakota, Ohio, Washington,
Wyoming or West Virginia, the party shall 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
$2,000,000 for bodily injury and property damage, to include coverage for all
owned, non-owned and hired vehicles.
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 14 of 30
<PAGE>
The limits set forth above are minimum limits and shall not be construed to
limit the liability of either FTV or ELI.
B. Unless otherwise agreed, the FTV insurance policies required above
shall be obtained and maintained with companies rated A or better by Best's Key
Rating Guide and ELI, its parent and affiliated companies shall be named as
additional insureds as respects the indemnifications under this Agreement. FTV
shall provide ELI with an insurance certificate confirming compliance with the
insurance requirements of this Article XII. The insurance certificate shall
indicate that ELI shall be notified not less than thirty (30) days prior to any
cancellation or material change in coverage.
C. Unless otherwise agreed, the ELI insurance policies required above
shall be obtained and maintained with companies rated A or better by Best's Key
Rating Guide and FTV, its parent and affiliated companies shall be named as
additional insureds as respects the indemnifications under this Agreement. ELI
shall provide FTV with an insurance certificate confirming compliance with the
insurance requirements in this Article XII. The insurance certificate shall
indicate that FTV 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. FTV and ELI 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 and, as applicable, its parent
corporation, members, managers, shareholders, affiliates, subsidiaries,
assignees, officers, directors, and employees or any other party entitled to
indemnity under this Agreement.
F. Nothing in this Agreement shall be construed to prevent either FTV or
ELI from satisfying its insurance obligations pursuant to this Agreement under a
blanket policy or policies of insurance which meet or exceed the requirements of
this Article XII.
ARTICLE XIII. TAXES AND FRANCHISE, LICENSE AND PERMIT FEES
--------------------------------------------
A. Subject to Paragraph XIII.B. below, ELI shall be responsible for any
and all sales, use, income, gross receipts, excise, transfer, ad valorem or
other taxes, and any and all franchise fees or similar fees assessed against it
due to its ownership of an IRU, its use of the IRU Fibers, including the
providing of services over the IRU Fibers, or its ownership or use of facilities
connected to the IRU Fibers.
B. Subject to Paragraph XIII.A. above, FTV shall be responsible for any
and all sales, use, income, gross receipts, excise, transfer, ad valorem or
other taxes, and any and all
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 15 of 30
<PAGE>
franchise fees or similar fees assessed against it due to its construction,
ownership or use of the System, including providing of services over the System,
or its ownership or use of facilities connected to the System.
C. In the event that FTV is assessed for any taxes or fees related to
ELI's ownership of an IRU or ELI's use of the IRU Fibers, FTV, within thirty
(30) days of receipt of an invoice therefor, shall provide information and
documentation to ELI sufficient to demonstrate the basis for the tax or fee and
the amount and due date for payment of the tax or fee. In addition, FTV shall
provide ELI with all information reasonably requested by ELI with respect to any
such taxes or fees. After such thirty (30) day period, FTV, in it sole
discretion, may pay such tax or fee and invoice ELI for reimbursement. ELI
shall reimburse FTV for such payment within ten (10) days of receipt of FTV's
invoice. Notwithstanding such payment by FTV, ELI, at its option, shall have
the right to contest any such tax or fee and FTV will reasonably cooperate with
ELI in pursuing any such contest; provided that ELI shall have reimbursed FTV
--------
for such tax or fee. In the event FTV, in its sole discretion, elects to not
pay such tax or fee, it shall so notify ELI. ELI, at its option, may pay the
tax or fee, or contest the payment; provided that ELI shall indemnify and hold
--------
harmless FTV for the payment of such tax or fee and all interest and penalties
related thereto, and provided further, that such contest shall be resolved or
----------------
such tax or fee shall be paid so as to prevent any forfeiture of rights or
property or the imposition of any lien on the System.
D. In the event, following construction of any System segment, FTV
determines that it should relocate a portion of the System to bypass a
jurisdiction that has imposed or assessed taxes or fees on FTV or the System,
FTV shall give ELI sixty (60) days prior notice of the proposed relocation.
ELI, at its option, may agree to the relocation or determine to continue use of
the System through the jurisdiction in question. If ELI agrees to the
relocation, FTV shall proceed with the relocation as provided in, and ELI shall
bear its proportionate share of the Relocation Cost as described in, Article IX
of this Agreement entitled Relocation. If ELI determines to continue use of the
----------
System through the jurisdiction in question, ELI shall pay the additional tax or
fee attributable to ELI's use of the System.
E. FTV shall not, without the prior consent of ELI, enter into any
agreement relating to any easement, right-of-way (or similar right) for the
System that provides for payment for such easement, right-of-way or similar
right based upon System usage, revenues, profitability or other similar
compensation method.
ARTICLE XIV. SYSTEM WARRANTIES
-----------------
A. EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THE REPRESENTATIONS,
------
WARRANTIES, COVENANTS AND CONDITIONS OF THIS AGREEMENT, FTV MAKES NO WARRANTY TO
ELI OR ANY OTHER PERSON OR ENTITY, WHETHER EXPRESS, IMPLIED OR STATUTORY, AS TO
THE INSTALLATION, DESCRIPTION, QUALITY, MERCHANTABILITY, COMPLETENESS
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 16 of 30
<PAGE>
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.
B. In procuring and obtaining materials for the Installation of the Cable,
FTV shall use reasonable efforts to obtain from the vendors and suppliers
thereof, for the mutual benefit of ELI and FTV, warranties that such materials
are: (1) of the kind and quality described in the purchase order or supply
contract; (2) free of defects in workmanship, material, design and title; (3) of
good and merchantable quality; and (4) where appropriate, fit for their intended
purpose. In addition, FTV shall attempt to obtain standard warranty periods for
all System materials, and shall use reasonable efforts to obtain longer warranty
periods, if such extended warranties do not materially increase the cost of such
materials. ELI's and FTV's sole obligation and liability to each other with
respect to the System materials warranties shall be to administer such
warranties. In no event shall either ELI or FTV be deemed to have guaranteed
any such warranties provided by vendors or suppliers.
C. In the event any maintenance or repairs to the System are required as a
result of a breach of any warranty made by any manufacturer, contractor or
vendor, FTV shall pursue any remedies it may have against such manufacturer,
contractor or vendor, and FTV shall reimburse ELI for any maintenance costs that
ELI has incurred as a result of any such breach of warranty to the extent the
manufacturer, contractor or vendor has paid such costs; provided that: (1) FTV
--------
shall be entitled to reduce such amount by legal and collection costs incurred;
and (2) FTV shall have the right to prorate such payment among itself and other
parties, based on IRU or fiber ownership.
ARTICLE XV. NOTICE
------
A. Unless otherwise provided in this Agreement, all notices and
communications concerning this Agreement shall be in writing and addressed to
the other party as follows:
If to ELI: ELECTRIC LIGHTWAVE, INC.
8100 N.E. Parkway Drive, Suite 200
Vancouver, Washington 98662
Attn: Legal Department
Telephone No.: (360) 892-1000
Facsimile No.: (360) 253-4425
If to FTV: FirstPoint Communications, Inc.
Attn: FTV Representative
210 S.W. Morrison Street, Suite 400
Portland, Oregon 97204
Telephone No.: (503) 464-3500
Facsimile No.: (503) 464-7438
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 17 of 30
<PAGE>
with a copy to: Vyvx, Inc.
Attn: General Counsel
One Williams Center, Suite 4100
Tulsa, Oklahoma 74172
Facsimile No.: (918) 588-3005
and to: Touch America, Inc.
Attn: President, FTV Representative
40 East Broadway
Butte, Montana 59701-9394
Telephone No.: ____________________________
Facsimile No.: (406) 497-2150
or at such other address as may be designated in writing to the other party.
B. Unless otherwise provided in this Agreement, 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 at 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 XVI. CONFIDENTIALITY
---------------
A. If FTV and ELI have entered into (or later enter into) a
Confidentiality Agreement, the terms of such an agreement shall control and
Paragraph XVI.B. 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 XVI.B. shall be in effect during those periods.
B. In the absence of a separate Confidentiality Agreement between FTV and
ELI, if either FTV or ELI provides confidential information to the other in
writing and identified as such or if in the course of performing under this
Agreement a party learns confidential information regarding the facilities or
plans of the other, 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; provided, however,
-------- -------
that FTV and ELI shall each be entitled to provide such confidential information
to their respective directors, officers, members, managers, employees, agents,
and contractors ("Representatives"), entities controlling, controlled by or
under common control with ("Affiliates") FTV or ELI, respectively, or the
Representatives of such Affiliates, in each case whose access is reasonably
necessary. Each such recipient of confidential information shall be informed by
the party disclosing confidential information of its confidential nature, and
shall be directed to treat such
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 18 of 30
<PAGE>
information confidentially and shall agree to abide by these provisions. In any
event, each party shall be responsible for any breach of this provision by any
person to whom that party discloses confidential information. Neither FTV nor
ELI shall be required to hold confidential any information that: (1) becomes
publicly available other than through the recipient; (2) is required to be
disclosed by a governmental or judicial order, rule or regulation; (3) is
independently developed by the disclosing party; or (4) becomes available to the
disclosing party without restriction from a third party. These obligations shall
survive expiration or termination of this Agreement for a period of two (2)
years.
C. Notwithstanding Paragraphs XVI.A. and B., 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 FTV
and ELI, 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 FTV nor ELI shall use the name, tradename, servicemark or
trademark of the other or the existence of this Agreement in any promotional or
advertising material without the prior written consent of the other.
ARTICLE XVII. DEFAULT
-------
A. FTV shall not be in default under this Agreement unless and until ELI
shall have given FTV written notice of such default and FTV 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 FTV 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: (1) the breach by FTV of any material term, covenant or condition of
this Agreement; (2) the making by FTV of a general assignment for the benefit
of its creditors; (3) the filing of a voluntary petition in bankruptcy or the
filing of a petition in bankruptcy or other insolvency protection against FTV
that is not dismissed within ninety (90) days thereafter; or (4) the filing by
FTV 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 FTV may be waived under the terms of
this Agreement at ELI's option. Upon the failure by FTV to timely cure any such
default after notice thereof from ELI, ELI may: (a) take such action as ELI
determines, in its sole discretion, to be necessary to correct the default; and
(b) subject to the terms of Article XIX of this Agreement entitled Arbitration,
-----------
pursue any legal remedies it may have under applicable law or principles of
equity relating to such breach.
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PRE-CONSTRUCTION IRU AGREEMENT Page 19 of 30
<PAGE>
B. Default by ELI under the payment provisions of Article II of this
Agreement shall be governed by the following:
1. If ELI fails to fully pay the amount described in Article II.A.I.
when due, FTV may, in addition to any other remedies that it may have under this
Agreement or by operation of law, its sole discretion, terminate this Agreement.
2. If ELI fails to fully pay any amounts described in Article
II.A.2., 3. or 4. of this Agreement, including accrued interest, within five (5)
days after it becomes due, then, if ELI fails to make such full payment within
ten (10) days after notice from FTV of such failure, FTV may, in addition to any
other remedies that it may have under this Agreement or by operation of law,
terminate ELI's rights in the IRU Fibers and transfer such rights or similar
rights to another party.
3. If ELI fails to fully pay any amounts, including interest,
described in Article II.E. within the time periods specified in this Paragraph
XVII.B., then, in addition to any other remedies that it may have under this
Agreement or by operation of law, FTV may, in its sole discretion, suspend ELI's
right to use the IRU Fibers. If ELI subsequently pays all amounts due, together
with applicable interest and the reasonable costs incurred by FTV in suspending
ELI's use of the IRU Fibers within ten (10) days of such suspension, FTV shall
allow ELI to resume its use of the IRU Fibers. If ELI fails to subsequently pay
such amounts within such time periods, FTV may, in addition to any other
remedies that it may have under this Agreement or by operation of law, terminate
ELI's rights in the IRU Fibers and transfer such rights or similar rights to
another party.
4. Following any such termination of ELI's rights to the IRU Fibers,
ELI shall have forty-five (45) days in which to disconnect and remove its
equipment from the Cable. If ELI fails to make such disconnections and removal
within the allotted time, FTV, at its election, may disconnect ELI's equipment
from the IRU Fibers at ELI's cost.
C. With respect to any breach or failure to perform by ELI under this
Agreement other than as provided in Paragraph XVII.B., above, ELI shall not be
in default under this Agreement unless and until FTV shall have given ELI
written notice of such default and ELI 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
ELI 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: (1) the breach by ELI
of any material term, covenant or condition of this Agreement; (2) the making by
ELI of a general assignment for the benefit of its creditors; (3) the filing of
a voluntary petition in bankruptcy or the filing of a petition in bankruptcy or
other insolvency protection against ELI that is not dismissed within ninety (90)
days thereafter; or (4) the filing by ELI of any petition or answer seeking,
consenting to, or acquiescing in reorganization, arrangement, adjustment,
composition, liquidation, dissolution or similar relief. Any event of
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 20 of 30
<PAGE>
default by ELI may be waived under the terms of this Agreement at FTV's option.
Upon the failure by ELI to timely cure any such default after notice thereof
from FTV, FTV may: (a) take such action as it determines, in its sole
discretion, to be necessary to correct the default; and (b) subject to the
provisions of Article XIX of this Agreement entitled Arbitration, pursue any
-----------
legal remedies it may have under applicable law or principles of equity relating
to such breach.
D. EXCEPT AS OTHERWISE PROVIDED IN PARAGRAPH XVII.E. BELOW RELATING TO
LIQUIDATED DAMAGES, DAMAGES RECOVERABLE BY FTV OR ELI AGAINST THE OTHER DUE TO A
BREACH OF THIS AGREEMENT SHALL BE LIMITED TO ACTUAL DAMAGES. LIABILITY FOR TORT
CLAIMS RELATING TO THE ACTIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE
LIMITED TO GENERAL DAMAGES. IN NO EVENT SHALL FTV OR ELI BE LIABLE FOR DAMAGES
FOR LOST OR PROSPECTIVE PROFITS, OR ANY OTHER SPECIAL, PUNITIVE, EXEMPLARY,
CONSEQUENTIAL, INCIDENTAL OR INDIRECT LOSSES OR DAMAGES AS A RESULT OF THE
PERFORMANCE OR NONPERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT, OR ITS
ACTS OR OMISSIONS RELATED TO THIS AGREEMENT, WHETHER OR NOT ARISING FROM SOLE,
JOINT OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY. THIS PARAGRAPH SHALL NOT BE
CONSTRUED TO LIMIT EITHER PARTY'S ABILITY TO RECOVER UNDER ARTICLE XI OF THIS
AGREEMENT ENTITLED INDEMNIFICATION WITH RESPECT TO CLAIMS OF THIRD PARTIES
---------------
BROUGHT AGAINST SUCH PARTY. THE ABOVE LIMITATION OF LIABILITY SHALL APPLY TO
INDIRECT LIABILITY INVOLVING SUITS BROUGHT AGAINST THIRD PARTIES WHO, DIRECTLY
OR THROUGH ONE OR MORE OTHER PARTIES, HAVE A RIGHT OF INDEMNIFICATION,
IMPLEADER, CROSS-CLAIM, CONTRIBUTION, OR OTHER RIGHT OF RECOVERY AGAINST A PARTY
TO THIS AGREEMENT (e.g., if an affiliate of Party A sues Party B's contractor
under circumstances in which the contractor has a right of indemnity against
Party B).
E. FTV and ELI acknowledge and agree that substantial damages may be
suffered by ELI if FTV wrongfully fails to complete the Installation of the
Cable by the Scheduled Completion Date or, if applicable, the Revised Scheduled
Completion Date. With the fluctuation in the value and pricing of
telecommunications services, the current and unpredictable state of the national
economy, and other factors which directly affect the value of this Agreement to
ELI, FTV and ELI realize that it would be extremely difficult and impractical,
if not impossible, to ascertain with any degree of certainty prior to signing
this Agreement, the amount of damages which would be suffered by ELI in the
event of FTV's wrongful failure to complete the Installation of the Cable on
time. Therefore, FTV and ELI hereby acknowledge and agree that the damages for
late delivery of the installed Cable described in Paragraph I.F. of this
Agreement constitute a reasonable estimate of such damages. In addition, in the
event of FTV's failure to complete the Installation of the Cable within the time
frames established by this Agreement, ELI shall be entitled to payment of such
damages as full liquidated damages for such failure by FTV.
F. In the event either FTV or ELI fails to make any payment under this
Agreement when due, such amounts shall accrue interest, from the date such
payment is due until paid,
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PRE-CONSTRUCTION IRU AGREEMENT Page 21 of 30
<PAGE>
including accrued interest, at a rate (unless specifically described elsewhere
in this Agreement) equal to eighteen percent (18%) per annum or, if lower, the
highest percentage allowed by law.
ARTICLE XVIII. FORCE MAJEURE
-------------
Neither FTV nor ELI shall be in default under this Agreement with respect
to any delay in its performance caused by any of the following conditions (each
a "Force Majeure Event"): (1) act of God; (2) fire; (3) flood; (4) material
shortage or unavailability not resulting from the responsible party's failure to
timely place orders or take other necessary actions therefor; (5) 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); (6) war or civil disorder; or (7) any other cause beyond the
reasonable control of such party. The party claiming relief under this Article
XVIII shall promptly notify the other in writing of the existence of the Force
Majeure Event relied on, the expected duration of the Force Majeure Event, and
the cessation or termination of the Force Majeure Event. The party claiming
relief under this Article XVIII shall exercise commercially reasonable efforts
to minimize the time for any such delay.
ARTICLE XIX. ARBITRATION
-----------
A. Any dispute or disagreement arising between FTV and ELI in connection
with this Agreement that is not settled to their mutual satisfaction within the
applicable notice or cure periods provided in this Agreement, shall be settled
by arbitration in Portland, Oregon, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association in effect on the date
that such notice is given. If FTV and ELI cannot agree on a single arbitrator
within fifteen (15) days after the applicable notice or cure period has expired,
FTV and ELI shall each select an arbitrator within such fifteen (15)day period
and the two (2) arbitrators shall select a third arbitrator within ten (10)
days. If the parties fail to appoint arbitrators or the arbitrators cannot
agree on a third arbitrator, then either party may request that the American
Arbitration Association select and appoint a neutral arbitrator who shall act as
the sole arbitrator. The decision of the arbitrator or arbitrators shall be
final and binding upon FTV and ELI and shall include written findings of law and
fact, and judgment may be obtained thereon by either FTV or ELI in a court of
competent jurisdiction. FTV and ELI shall each bear the cost of preparing and
presenting its own case. The cost of the arbitration, including the fees and
expenses of the arbitrator or arbitrators, shall be shared equally by FTV and
ELI unless the award otherwise provides. The arbitrator or arbitrators shall be
instructed to establish procedures such that a decision can be rendered within
sixty (60) days of the appointment of the arbitrator or arbitrators. Except as
otherwise provided in Paragraph XVII.E. of this Agreement (relating to
liquidated damages), in no event shall the arbitrator or arbitrators have the
power to award any damages for lost or prospective profits, or any other
special, punitive, exemplary, consequential, incidental or indirect losses or
damages as a result of the performance or nonperformance of its obligations
under this Agreement, or its acts or omissions related to this Agreement,
whether or not arising
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PRE-CONSTRUCTION IRU AGREEMENT Page 22 of 30
<PAGE>
from sole, joint or concurrent negligence or strict liability, regardless of
whether such damages may be available under applicable law. FTV and ELI hereby
waive their rights, if any, to recover any such damages, whether in arbitration
or litigation. This paragraph shall not be construed to limit either party's
ability to recover under Article XI of this Agreement entitled Indemnification
---------------
with respect to claims of third parties brought against such party (as described
in Paragraph XVII.D. of this Agreement).
B. The obligation 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.
ARTICLE XX. WAIVER
------
The failure of either FTV or ELI 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 XXI. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of Oregon without reference to its choice of law
principles. With respect to any suit, action or proceedings relating to this
Agreement (the "Proceedings"), each party: (1) irrevocably submits to the
exclusive jurisdiction of the courts of the State of Oregon and the United
States District Court located in Multnomah County, Oregon; (2) irrevocably
waives any objection which it may have at any time to the laying of venue of any
Proceedings brought in any such court; (3) waives any claim that such
Proceedings have been brought in an inconvenient forum; and (4) waives the right
to object, with respect to such Proceedings, that such court does not have
jurisdiction over such party. Nothing in this Agreement precludes either party
from enforcing in any jurisdiction any judgment, order or award obtained in any
such court.
ARTICLE XXII. 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 that import the singular
connotation shall be interpreted as plural, and words that import the plural
connotation shall be interpreted as singular, as the identity of the parties or
objects referred to may require.
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PRE-CONSTRUCTION IRU AGREEMENT Page 23 of 30
<PAGE>
B. Unless expressly defined herein, words having well-known technical or
trade meanings shall be so construed.
C. Except as set forth to the contrary herein, any right or remedy of FTV
------
or ELI 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
FTV and ELI.
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.
- --------
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 XXII 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 XXIII. ASSIGNMENT
----------
A. Following the execution of this Agreement, ELI may sell, lease, assign
or swap an IRU in the IRU Fibers as provided in Paragraph II.B. of this
Agreement. ELI may not assign or otherwise transfer this Agreement or its
rights or obligations hereunder to any other party without the prior written
consent of FTV, which consent shall not be unreasonably withheld. Any such
assignee or transferee shall agree in writing to be bound and abide by this
Agreement. ELI shall have the right, without FTV's consent, to assign or
otherwise transfer this Agreement as collateral to any lender or to any parent,
subsidiary or affiliate of ELI or to any person, firm or corporation that shall
control, be under the control of or be under common control with ELI, or any
corporation into which ELI may be merged or consolidated or that purchases all
or substantially all of the assets of ELI; provided, however, that: (1) any
-------- -------
such assignment or transfer shall be subject to FTV's rights under this
Agreement and any assignee or transferee shall continue to perform ELI's
obligations to FTV under the terms and conditions of this Agreement; and (2)
such assignee or transferee shall agree in writing to be bound and abide by this
Agreement. In the event of any permitted partial assignment of any rights
hereunder or in any IRU Fibers, ELI shall remain the sole point of contact with
FTV. ELI, whether or not it receives FTV's permission to assign its rights,
shall guaranty the assignee's payment of the amount described in Article II of
this Agreement entitled Payment; Conveyance of IRU.
--------------------------
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 24 of 30
<PAGE>
B. Until the Completion Date, FTV shall not assign or otherwise transfer
this Agreement or its rights or obligations under this Agreement to any other
party (except to a wholly-owned subsidiary of FTV, one of its members, a wholly-
------
owned subsidiary of one of its members, the corporate parent of one of its
members, or a wholly-owned subsidiary of the corporate parent of one or more of
its members) without the prior written consent of ELI, which shall not be
unreasonably withheld or delayed. FTV shall have the right, without ELI's
consent, to assign or otherwise transfer this Agreement as collateral to any
institutional lender or to any member, parent, subsidiary or affiliate of FTV or
to any person, firm or corporation that shall control, be under the control of
or be under common control with FTV, or to any entity into which FTV may be
merged or consolidated or that purchases all or substantially all of the assets
of FTV; provided, however, that: (1) any such assignment or transfer shall be
-------- -------
subject to ELI's rights under this Agreement and any assignee or transferee
shall continue to perform FTV's obligations to ELI under the terms and
conditions of this Agreement; and (2) such assignee or transferee shall agree in
writing to be bound and abide by this Agreement. In the event of any permitted
partial assignment of any rights hereunder or in any fibers in the Cable, FTV
shall remain the sole point of contact with ELI.
C. This Agreement and the rights and obligations under this Agreement,
shall be binding upon and shall inure to the benefit of FTV and ELI and their
respective permitted successors and assigns.
ARTICLE XXIV. REPRESENTATIONS AND WARRANTIES
------------------------------
A. Each of FTV and ELI represents and warrants to the other 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 or limited liability
company action (as applicable) 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.
B. Neither FTV nor ELI shall cause or permit the Cable or the System to
become subject to any material mechanic's lien, materialman's lien, vendor's
lien, or any similar lien whether by operation of law or otherwise; provided
--------
that FTV may encumber the System in a sale and lease-back or similar financing
transaction in which the purchaser's or creditor's interest in the System is
subordinate to ELI's rights in and to the IRU Fibers. In the event either FTV
or
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PRE-CONSTRUCTION IRU AGREEMENT Page 25 of 30
<PAGE>
ELI breaches its obligations under this Paragraph XXIV.B., it shall immediately
notify the other in writing, shall promptly cause such lien to be discharged and
released of record without cost to the other, and shall indemnify the other
against all costs and expenses (including reasonable attorneys' fees and court
costs at trial and on appeal) incurred in discharging and releasing such lien;
provided that: (1) FTV and ELI shall each have the right to contest such lien
- --------
or the validity thereof in good faith by appropriate proceeding which shall
operate to prevent the collection or foreclosure of the contested lien; and (2)
the contesting party shall cause any such lien to be discharged prior to the
commencement of any foreclosure action on such lien.
ARTICLE XXV. ENTIRE AGREEMENT; AMENDMENT
---------------------------
Except as set forth in Paragraph XVI.A. this Agreement, this Agreement
------
constitutes the entire and final agreement and understanding between FTV and ELI
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 and Attachment referred to herein are integral parts hereof and are
-----------------------
made a part of this Agreement by reference. This Agreement may only be modified
or supplemented by an instrument in writing executed by duly authorized
representatives of FTV and ELI.
ARTICLE XXVI. RELATIONSHIP OF THE PARTIES
---------------------------
The relationship between FTV and ELI 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. FTV
and ELI, 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 XXVII. SEVERABILITY
------------
If any term, covenant or condition in this Agreement 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 XXVIII. COUNTERPARTS
------------
This Agreement may be executed in one or more counterparts, all of which
taken together shall constitute one and the same instrument.
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 26 of 30
<PAGE>
ARTICLE XXIX. CERTAIN DEFINITIONS
-------------------
The following terms shall have the stated definitions in this Agreement.
A. "Basic Maintenance Services" include the following maintenance and
regeneration site elements: (1) general route maintenance, including monthly
visual inspections and routine equipment maintenance to be provided on a
quarterly basis; (2) disaster restoration; (3) minor relocations (including the
first 1000 feet, System wide, per year); (4) concrete pad at each Transmission
Site (sized to accommodate ELI's choice of hut); and (5) access to commercial
alternating current electrical power.
B. "Cable" means the optical fiber cable and the fibers contained therein,
and associated splicing connections, splice boxes and vaults, and conduit, to be
installed by FTV.
C. "Completion Date" shall have the definition set forth in Paragraph D
of Article IV of this Agreement entitled Acceptance and Testing of IRU Fibers.
------------------------------------
D. "Connecting Point" means the point where the network or facilities of
ELI connect to the System. The Connecting Point may be either: (1) the fiber
optic patch panel, if the connection is made in an existing building; or (2) any
other splice point in the Cable created during the construction of the Cable.
E. "Damage or Deterioration" shall have the definition set forth in
Paragraph F of Article VII of this Agreement entitled Operation, Maintenance,
-----------------------
and Repair of the System.
- ------------------------
F. "Deliverables" shall have the definition set forth in Article V of this
Agreement entitled System Documentation.
--------------------
G. "Direct Costs" means actual and related costs accumulated in accordance
with the established accounting procedures used by ELI to bill third parties for
reimbursable projects which costs include, 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: (a) the percentage ELI allocates to its internal projects; or
(b) one hundred thirty percent (130%)); and (2) other direct costs and out-of-
pocket expenses on a pass-through basis (such as equipment, materials, supplies
and contract services). All costs shall be computed in accordance with
generally accepted accounting principles.
H. "Effective Date" means the date first given in the opening paragraph of
this Agreement.
I. "Enhanced Maintenance Services" means a package of maintenance and
regeneration site elements at the Transmission Sites which are in addition to
the Basic Maintenance Services, including: (1) emergency power via generator at
each Transmission Site; (2) Transmission Site structures (huts); (3) HVAC at
each Transmission Site; (4) 48-volt plant at
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 27 of 30
<PAGE>
each Transmission Site capable of providing 100 amps service and equipped with
eight hours of battery reserve; and (5) battery maintenance (including monthly
visual inspection and voltage check, and quarterly internal resistance check,
both to be recorded and reported to ELI).
J. "Fiber Acceptance Testing" means the fiber acceptance testing described
in Exhibit C and in Article IV of this Agreement entitled Acceptance and Testing
--------- ----------------------
of IRU Fibers.
- -------------
K. "Force Majeure Event" shall have the definition set forth in Article
XVIII of this Agreement entitled Force Majeure.
-------------
L. "FTV Required Rights" shall have the definition set forth in Paragraph
A of Article VIII of this Agreement entitled Permits, Physical Plant and
---------------------------
Required Rights.
- ---------------
M. "Indefeasible Right of Use" or "IRU" is an unrestricted indefeasible
right to use the IRU Fibers, as granted by this Agreement, provided, however,
-------- -------
that granting of such IRU does not convey ownership of the fibers.
N. "Initial Term" shall mean the Term excluding any extensions thereof.
---------
O. "Inspection 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: (a) the percentage FTV allocates to
its internal projects; or (b) one hundred thirty percent (130%)); (2) travel
costs incurred by FTV or by its employees and reimbursed in accordance with FTV
policies and Internal Revenue Service regulations (such as air fare, personal
automobile mileage, lodging, meals); and (3) other direct costs and out-of-
pocket expenses on a pass-through basis (such as equipment, materials, supplies
and contract services). All costs shall be computed in accordance with
generally accepted accounting principles.
P. "Installation" means the completion of construction and installation of
the Cable so that it meets all of the specifications detailed in Exhibits A and
--------------
C.
- -
Q. "IRU Fibers" means the twenty-four (24) single mode SMF-28 optical
fibers in the Cable as described in Exhibit B along the entirety of the System
---------
Route in which FTV, pursuant to the terms of this Agreement, grants to ELI an
exclusive IRU.
R. "Present Value" means the value as of a certain date of future or prior
payments using a nine percent (9%) per year simple interest discount rate
prorated (by day) for partial years.
S. "Regulations" shall have the definition set forth in Article XVIII of
this Agreement entitled Force Majeure.
-------------
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PRE-CONSTRUCTION IRU AGREEMENT Page 28 of 30
<PAGE>
T. "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: (a) the percentage FTV allocates to
its internal projects; and (b) one hundred thirty percent (130%)); (2) travel
costs incurred by FTV or by its employees and reimbursed in accordance with FTV
policies and Internal Revenue Service regulations (such as air fare, personal
automobile mileage, lodging, meals); and (3) other direct costs and out-of-
pocket expenses on a pass-through basis (such as equipment, materials, supplies
and contract services). All costs shall be computed in accordance with
generally accepted accounting principles.
U. "Revised Scheduled Completion Date" means the extended date for the
completion of the Installation of Cable which, as provided in Paragraph I.E. of
this Agreement, may not be more than ninety (90) days after the original
Scheduled Completion Date.
V. "R of W Agreements" means all agreements with right of way owners,
property owners, utilities, government entities or other parties that FTV must
reasonably obtain in order to get access to or the authority to undertake
activities on the System Route.
W. "Route Miles" means the actual miles traversed by the Cable (including
spurs) based on as-built surveys.
X. "Scheduled Completion Date" means February 28, 1999, but as described
in Paragraph I.E. of this Agreement, the actual date may be later or earlier.
Y. "Service Interruption" means, with respect to the IRU Fibers, any
interruption in service, failure, disrepair, impairment or other need for repair
or restoration of the IRU Fibers 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.
Z. "System" means the FTV fiber optic telecommunications deployed and to
be deployed by FTV along the System Route.
AA. "System Route" means the corridors in which the Cable for the System
has been or will be deployed as depicted on Attachment 1.
------------
BB. "Term" shall have the definition set forth in the Article VI of this
Agreement entitled Term and any extensions thereof.
----
CC. "Transmission Site" shall mean the regenerator stations, junctions, or
points of presence performing the same function as regeneration stations or
junctions at those locations identified in accordance with Exhibit D.
---------
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PRE-CONSTRUCTION IRU AGREEMENT Page 29 of 30
<PAGE>
ARTICLE XXX. AUDIT RIGHTS
------------
ELI shall have the right to audit FTV's books and records relating to FTV's
costs of Installation, Relocation Costs, Inspection Costs, taxes and fees
relating to the System, and other costs if FTV, under the terms of this
Agreement, seeks reimbursement or contribution thereof from ELI. FTV shall have
the right to audit ELI's books and records relating to ELI's Direct Costs and
other costs if ELI, under the terms of this Agreement, seeks reimbursement
thereof from FTV.
In confirmation of their consent to the terms and conditions contained in
this Agreement and intending to be legally bound hereby, FTV and ELI have
executed this Agreement as of the Effective Date.
"FTV"
FTV COMMUNICATIONS LLC, a Delaware
limited liability company
By: /s/Diane D. Whitaker
-----------------------------------
Name: Diane D. Whitaker
---------------------------------
Title: Manager Representative
--------------------------------
"ELI"
ELECTRIC LIGHTWAVE, INC., a Delaware
corporation
By: /s/David B. Sharkey
-----------------------------------
Name: David B. Sharkey
---------------------------------
Title: President
--------------------------------
________________________________________________________________________________
PRE-CONSTRUCTION IRU AGREEMENT Page 30 of 30
<PAGE>
EXHIBITS
Exhibit A - Cable Installation Specifications
Exhibit B - Fiber Specifications
Exhibit C - Fiber Splicing, Testing, & Acceptance Standards
Exhibit D - Regenerator / Amplifier Site Specifications
Exhibit E - As-Built Drawing Specifications
Exhibit F - Operations Specifications
Exhibit G - Colocation
Exhibit H - Passthrough Provisions
Attachment 1 - Route Map
<PAGE>
EXHIBIT A
Cable Installation Specifications
1. General
The intent of this document is to outline the specifications for
construction of a fiber optic cable system. In all cases the standards
contained in this document, or the standards of the federal, state,
local or private agency having jurisdiction, whichever is stricter,
shall be followed.
2. Material
Steel, PVC conduit with a minimum schedule 40 wall thickness, or HDPE
SDR11 duct.
Any exposed steel conduit, brackets or hardware (i.e., bridge
attachments) shall be hot-dipped galvanized after fabrication.
All split steel shall be flanged.
Handholes shall have a minimum H-15 loading rating.
Manholes shall have a minimum H-20 loading rating.
Buried cable warning tape shall be a minimum of three inches (3") wide
and display "Warning-Buried Fiber Optic Cable," a company name, logo and
emergency One Call 800 number repeated every twenty-four inches (24").
Warning signs will display universal do not dig symbol, "Warning-Buried
Fiber Optic Cable," company name and logo, local and emergency One Call
800 numbers.
3. Minimum Depths
. Minimum cover required in the placement conduit/cable shall be
forty-two inches (42"), except in the following instances:
. The minimum cover in ditches adjacent to roads, highways, railroads and
interstates is forty-eight inches (48 ") below the clean out line or
existing grade, whichever is greater.
. The minimum cover across streams, river washes, and other waterways is
sixty inches (60") below the clean out line or existing grade,
whichever is greater.
. At locations where fiber optic cable crosses other subsurface utilities
or other structures, the fiber optic cable/conduit shall be installed
to provide a minimum of twelve inches (12") of vertical clearance from
the utility/obstacle. The fiber optic cable/conduit can be placed above
the utility/obstacle, provided the minimum clearance and applicable
minimum depth can be maintained; otherwise the fiber optic
cable/conduit will be installed under the existing utility or other
structure.
. In rock, the cable/conduit shall be placed to provide a minimum of
eighteen inches (18") below the surface of the solid rock, or provide a
minimum of forty-two inches (42") of total cover, whichever requires
the least rock excavation.
A-1
<PAGE>
. Where existing pipe is used, current depth is sufficient. However,
either party will exercise commercially reasonable efforts to lower any
exposed pipe to avoid damage to the pipe, interduct and fiber cable due
to foreseeable operations over the affected right-of-way.
4. Buried Cable Warning Tape
All cable/conduit will be installed with buried cable warning tape. The
warning tape shall be laid a minimum of twelve inches (12") above the
cable/conduit. The warning tape shall generally be placed at a depth of
twenty-four inches (24") below grade and directly above the
cable/conduit.
5. Conduit Construction
Conduits may be placed by means of trenching, plowing, jack and bore,
multi-directional bore or directional bore. Conduits will generally be
placed on a level grade parallel to the surface, with only gradual
changes in grade elevation. Steel conduit will be joined with flush
threaded collars, Zap-Lok or welding. (Welding is the preferred method.)
All paved city, county, state, federal and interstate highways, and
railroad crossings will be encased in steel conduit
All longitudinal cable runs under paved streets will be placed in
steel or concrete encased HDPE or PVC conduit.
All cable placed in metro areas will be placed in steel or concrete
covered HDPE or PVC conduit.
Metro areas shall be defined as areas where either of the following
conditions exist:
1) Developed and improved areas.
2) High growth areas.
All crossings of major streams, rivers, bays and navigable waterways
will be placed in HDPE, PVC, steel conduit, or be specially armored
submarine cable. At all foreign utility/underground obstacle crossings,
steel conduit will be placed and will extend at least five feet (5')
beyond the outer limits of the obstacle in both directions.
All jack and bores will use steel conduit.
All directional or mini-directional bores will use HDPE or steel
conduit.
Any cable placed in swamp or wetland areas will be placed in HDPE, PVC
or steel conduit.
All conduits placed on bridges will be steel.
All conduits placed on bridges shall have an expansion joint placed at
each structural (bridge) expansion joint or at least every one hundred
fifty feet (150'), whichever is the shorter distance.
A-2
<PAGE>
6. Innerduct Installation
Innerduct(s) shall be installed in all steel conduits. No cable will
be placed directly in any split/solid steel conduit without innerduct.
Innerduct(s) shall extend beyond the end of all conduits a minimum of
eighteen inches (18").
7. Cable Installation in Conduit
The fiber optic cable shall be installed using either a sealed pneumatic
cable blowing system, or a powered pulling winch and hydraulic powered
assist pulling wheels. The maximum pulling force to be applied to the
fiber optic cable shall be six hundred pounds (600 lbs.). Sufficient
pulling assists will be available and used to insure the maximum pulling
force is not exceeded at any point along the pull. The cable shall be
lubricated at the reel and all pulling assist locations.
A pulling swivel breakaway rated at six hundred pounds (600 lbs.)
shall be used at all times.
Splices will only be allowed at planned junctions and reel ends. The
cable will not be cut and spliced for the contractor's convenience
during the cable pulling operation.
All splices will be contained in a handhole or manhole.
A minimum of twenty meters (20m) of slack cable will be left in all
-------
intermediate handholes and manholes.
A minimum of thirty meters (30m) of slack cable will be left in all
-------
splice locations.
A minimum of fifty meters (50m) of slack cable will be left in all
-------
facility locations, i.e., POP sites, switch sites, regen sites, or
CEV'S.
8. Manholes and Handholes
Manholes shall be placed in traveled surface streets, and shall have
locking lids. Handholes shall be placed in all other areas, and be
installed with a minimum of eighteen inches (18") of soil covering
lid.
9. EMS Markers
EMS markers shall be placed directly below the lid of all buried
handholes. EMS markers fabricated into the lids of the handholes are
acceptable.
10. Cable Markers (Warning Signs)
Cable markers shall be installed at all changes in cable running line
direction, splices, pull boxes, assist pulling locations, and at both
sides of street, highway or railroad crossings. At no time shall any
markers be spaced more than five hundred feet (500') apart in metro
areas or within line of site exceeding one
A-3
<PAGE>
thousand feet (1,000') in non-metro areas. Markers shall be
positioned so that they can be seen from the location of the cable and
generally set facing perpendicular to the cable running line.
Splices and pull boxes shall be marked on the cable marker post.
11. Safety and Environmental
All work will be done in strict accordance with federal, state, and
local applicable private rules and laws regarding safety and
environmental issues, including those set forth by OSHA and the EPA.
A-4
<PAGE>
EXHIBIT B
Fiber Specifications
As attached
B-1
<PAGE>
Pl1036 Corning(R) SMF-28(TM) CPC6
Issued: 3/96 Single-Mode Optical Fiber
Supersedes: 8/95
ISO 9001 Registered
GENERAL
Corning(R) SMF(TM)-28(TM) single-mode fiber is considered the "standard" optical
fiber for telephony, cable television, submarine, and private network
applications in the transmission of data, voice and/or video services. Corning
SMF-28 fiber is manufactured to the most demanding specifications in the
industry.
SMF-28 fiber is optimized for use in the 1310 nm wavelength region. The
information-carrying capacity of the fiber is at its highest in this
transmission window, and it is also where dispersion is the lowest. SMF-28
fiber can also be effectively used in the 1550 nm wavelength region.
Corning's enhanced, dual layer acrylate CPC6 coating provides excellent fiber
protection and is easy to work with. CPC6 can be mechanically stripped and has
an outside diameter of 245 _m. CPC6 is optimized for use in many single and
multi-fiber cable designs including loose tube, ribbon, slotted core, and tight
buffer cables.
SMF-28 fiber is manufactured using the Outside Vapor Deposition (OVD) process,
which produces a totally synthetic, ultra-pure fiber. As a result, Corning SMF-
28 has consistent geometric properties, high strength and low attenuation.
Corning SMF-28 fiber can be counted on to deliver excellent performance and high
reliability, reel after reel.
FEATURES & BENEFITS
.Versatility in 1310 nm and 1550 nm applications.
.Outstanding geometrical properties for low splice loss and high splice yields.
.OVD manufacturing reliability and product consistency
.Optimized for use in ribbon, loose tube, and other common cable designs.
OPTICAL SPECIFICATIONS
Attenuation
Uncabled Fiber Attenuation Cells Point Discontinuity
Attenuation Cells (dB/km) No point discontinuity greater than
0.10 dB at either 1310 nm or 1550 nm.
Wavelength Premium* Standard
(nm)
1310 _0.35 _0.40 Attenuation at the Water Peak
1550 _0.25 _0.30 The attenuation at 1383 plus or
minus 3 nm does not exceed 2.1
dB/km.
*Lower attenuation available in limited quantities.
<PAGE>
OPTICAL SPECIFICATIONS, (continued)
Attenuation vs. Wavelength The attenuation in a given
Range Ref._ Max Increase wavelength range does not exceed the
(nm) (nm) _(dB/km) attenuation of the reference
1285-1330 1310 0.05 wavelength (_) by more than the
1525-1575 1550 0.05 value _.
Attenuation With Bending
Mandrel Number Wavelength Induced The induced attenuation due
Diameter(nm)of Turns (nm) Attenuation(dB) to fiber wrapped around a
32 1 1550 _0.50 mandrel of a specified
75 100 1310 _0.05 diameter.
75 100 1550 _0.10
Cable Cutoff Wavelength (_ccf) Mode-Field Diameter
_ccf _1260 nm 9.30 plus or minus 0.50 _m at 1310 nm
10.50 plus or minus 1.00 _m at
1550 nm
Dispersion
Zero Dispersion Wavelength (_o): 1301.5 nm __ _1321.5 nm
Zero Dispersion Slope (So): _0.092 ps/(nm/2/.km)
Fiber Polarization Mode Dispersion Coefficient (PMD): _0.5 p/s/__km
Dispersion Calculation
ENVIRONMENTAL SPECIFICATIONS
Environmental Test Condition Induced Operating Temperature Range
Attenuation (dB/km) -60(degrees) C
to +85(degrees) C
Temperature Dependence 1310 nm 1550 nm
- -60(degrees) to + 85(degrees) C _0.05 _0.05
Temperature-Humidity Cycling
- -10(degrees) C to + 85(degrees) C, up to 98% RH.
_0.05 _0.05
Water Immersion, 23(degrees) C _0.05 _0.05
Heat Aging, 85(degrees) C _0.05 _0.05
<PAGE>
DIMENSIONAL SPECIFICATIONS
Standard Length (km/reel): 2.2 - 25.2
.Longer spliced lengths available at a premium.
Glass Geometry Coating Geometry
Fiber Curl: _2.0m radius of curvature Coating Diameter: 245 plus or
minus 10 _m
Cladding Diameter: 125.0 plus or minus
1.0_m Coating-Cladding Concentricity_12_m
Core-Clad Concentricity: _0.8_m
Cladding Non-Circularity: _1.0%
Defined as: Min. Cladding Diameter x 100
Max. Cladding Diameter
MECHANICAL SPECIFICATIONS
Proof Test:
The entire length of fiber is subjected to a tensile proof stress _ 100 kpsi
(0.7 GN/m/2/)*.
* Higher proof test available at a premium.
PERFORMANCE CHARACTERIZATIONS
Characterized parameters are typical values.
Core Diameter: Refractive Index Difference:
8.3_m 0.36%
Numerical Aperture: Effective Group Index of Refraction
(Neff):
0.13 1.4675 at 1310 nm
1.4681 at 1550 nm
NA was measured at the one percent
power angle of a one-dimensional
far-field scan at 1310 nm.
Fatigue Resistance Parameter (nd):
_20
Zero Dispersion Wavelength (_o):
1312 nm
Zero Dispersion Slope (So): Coating Strip Force:
0.090 ps/(nm/2/.km) Dry: 07 lbs. (3.2 N)
Wet, 14 days room temperature:
0.7 lbs. (3.2N)
<PAGE>
Refractive Index Profile (typical fiber)
Title: [Table] Graphic
Showing Refractive Index Profile (typical fiber)
D Refractive Index (%) on the Y-axis
- --Radius (um) X-axis
Spectral Attenuation (typical fiber)
Title: [Table]-Graphic
Showing Special Attenuation (typical fiber) Attenuation (dB/Km) on the Y-axis
Wavelength (nm)
COATINGS
.Corning SMF-28 optical fiber also is available with CSB4 500_m coating.
[Table]
Ordering Information
Gives information about the ordering procedure to be followed when ordering
Fiber Type Corning(C) SMF-28(TM)
CORNING
Corning Incorporated
Opto-Electronics Group
Corning, NY 14831 USA
Tel.: 800-525-2524
Fax: 800-FAX-CORNING
Corning Fiber is
Made in the USA.
<PAGE>
EXHIBIT C
Fiber Splicing, Testing, and Acceptance Standards
1. General
This exhibit defines the standard procedures for testing and acceptance
of the fiber and splices. In general, the Constructing Party, will
perform all tests as laid out in Paragraphs 2, 3, and 4. The tests should
follow the requirements and meet the criteria as laid out in Paragraphs 5
and 6. The Constructing Party will use the test equipment and follow the
testing standards as laid out in Paragraph 7. The Constructing Party will
provide test data to the other parties according to the standards as laid
out in Paragraph 8.
2. Initial Testing
Initially, OTDR tests will be taken from one direction because both ends
of the cable may not have connectors. As soon as fiber connectivity has
been achieved to both regen sites, the Constructing Party will verify
and record the continuity of all fibers. During this time, the
Constructing Party will take and record power level readings on all
fibers at both wavelengths in both directions. The Constructing Party
will then begin bi-directional OTDR testing of all fibers. When
requested in the following paragraphs, the Constructing Party will
provide the other party with copies of the OTDR traces on diskette
recorded according to the standards in Paragraph 8.
3. End-to-End Testing
After the contractor has provided end-to-end connectivity on the fibers,
bi-directional end-to-end testing will be done. Continuity tests will be
done to verify that no fibers have been "frogged" or crossed in any of
the splice points. Loss measurements will be recorded using a laser
source and a power meter. OTDR traces will be taken and splice loss
measurements will be recorded. The Constructing Party will also store
OTDR traces on diskette.
A. It is imperative to verify that all fibers have one-to-one
continuity on the new cable. This should be done at the fiber level, not
just the pigtail level. For each pigtail, a HE-NE laser will be used to
verify fiber color and buffer tube color. Once the fiber color and
buffer tube color have been recorded, a laser light source will be
attached and a power meter reading will be taken at the far end. Then at
the far end, a HE-NE laser should be used to verify the fiber color and
the buffer tube color of the fiber receiving the light. Then power level
readings should be taken in the opposite direction. The power
measurements should be made at both 1310 nm and 1550 nm.
B. OTDR traces should be taken in both directions at both 1310 nm and
1550 nm. Loss measurements for each splice point should be measured and
recorded in
C-1
<PAGE>
both directions. These loss values should then be averaged. The traces
for all fibers should be recorded on diskette and provided to the other
party.
4. Bi-directional Test Requirements
The test requirements for the final bi-directional testing are as follows
(for all testing, it is critical that all test connections are clean
during all testing
procedures):
A. The continuity tests should prove that there is a one-to-one
correspondence of all fibers. Any "frogs" or fibers that cross en route
will be remedied by the Constructing Party.
B. Bi-directional OTDR data will be the tool used to make final
acceptance of the fibers. The average loss of each splice should not
exceed 0. IO dB. Any splice points that exceed this value will be marked
Out-of-Spec (OOS) and initialed by the other party's representative on
the data sheet. The other party will then make a decision as to how to
act upon this condition.
5. Optical Time Domain Reflectometry
The OTDRs that are acceptable for testing are the Laser Precision
TD1000A, TD2000 or TD3000, or equivalent. These must have a floppy disk
drive for storing the trace files. Again, it should be noted that it
is vital that during all these tests (OTDR, power meter, etc.) all
connectors are clean. This can dramatically affect results if this is
not resolved. The following settings should be used during the various
tests:
For all OTDRs, the following index of refraction setting should be used:
[Table]
1310 nm 1550 nm
For AT&T fiber 1.4659 1.4666
For Corning SMF-21 1.4640 1.4640
For Corning SMF-28 1.4675 1.4681
For Sumitomo fiber 1.4670 1.4670
For Corning SMF-LS 1.471 1.470
C-2
<PAGE>
[Table]
Bi- TD1000A TD2000 TD3000
Directional
64 km Range 64 km Range 64 km Range
960 ns Pulse @ 1310 Long Pulse @ 1310 1 us Pulse@ 1310
(for high loss use (for high loss use 2 us)
1980 ns)
480 ns Pulse @ 1550 Medium Pulse @ 500 ns Pulse @ 1550
1550
4m Resolution 4m Resolution
Medium Averaging Medium Scan Medium Averaging
1310/1550 nm 1310/1550 nm 1310/1550 nm
Note:
For spans which are longer than 64 km between regens, a TD3000 will be
required set at 128 km range setting. Bi-directional data will only be
required at 1550 nm.
6. Recording Data
Documentation standards and sheets for recording the cable information
are in development.
C-3
<PAGE>
EXHIBIT D
Regenerator/Amplifier Site Specifications
1. General
This specification is still in development. The intent of the span
design is to accommodate either Standard Single Mode Fiber, or Non-Zero
Dispersion Shifted Fiber.
2. Site Spacing
Span spacing will be the minimum to allow optical amplification,
regeneration, or wavelength division multiplexing. Geographic location
of the sites is currently being determined. Preliminary guidelines stand
at forty (40) miles with a seventy (70) mile maximum spacing between
facilities that support regeneration / optical amplification.
3. Site Power
Minimum AC power to the site shall be 240V, 200Arnp service.
4. Building Specifications
Building shall be constructed of armor cast concrete with steel doors.
If not paved, sites will be accessible with four wheel drive vehicles.
Site will be fenced and topped with wire for security.
Building dimensions (currently in design stage)
Dual HVAC units will be installed that can carry the cooling load
independently. Housekeeping alarms will be wired to allow multiple
parties to access the alarms.
5. Specifications and Drawings
Specifications and drawings showing location and groundings and system
design for sites and buildings shall be provided to ELI within thirty
(30) days of selection by ELI of sites for such building. ELI shall make
all building site selection by no later than January 31, 1998.
D-1
<PAGE>
EXHIBIT E
As-Built Drawing Specifications
1. As Built Alignment Sheets
Survey information (either from existing data or new information) will be
put on drawings.
Drawings will contain cable information, splice locations, assist point
locations with permanent structures, survey stations, landowner
information, conduit information, regen locations, and optical distances
to each regen from each splice location.
Drawings will be "blue lines" as such term is understood in the industry
or in CAD format revision 13.
Drawings will be updated with actual field data during and after
construction. Metro areas scale shall not exceed 1 "=200'.
Rural areas scale shall not exceed 1 "=500'.
Cable information shall include manufacturer and type of fiber and
manufacturer and style of cable.
Splice vaults and transmission sites to be GPS coded.
2. Regen/Amplifier Sites
Floor plans showing rack placement and assignment shall be provided
within thirty (30) days after notice from ELI of its selection of
enhanced maintenance on the regeneration/amplifier sites. Such notice
from ELI shall be provided by no later than January 1, 1998.
E-1
<PAGE>
EXHIBIT F
Operations Specifications
1. General
A. FTV as services provider ("Service Provider") shall operate and
maintain a Network Control Center ("NCC") staffed twenty-four (24) hours
a day, seven (7) days a week, by trained and qualified personnel.
Service Provider shall maintain a toll-free telephone number to contact
personnel at the NCC. Service Provider's NCC personnel shall dispatch
maintenance and repair personnel along the System to handle and repair
problems detected through the NCC's remote surveillance equipment, by the
Service Recipient, or otherwise.
B. Service Provider's maintenance employees shall be available for
dispatch twenty-four (24) hours a day, seven (7) days a week. Service
Provider shall use best reasonable efforts to have its first maintenance
employee at the site requiring an emergency maintenance activity within
two (2) hours from the time of alarm identification by Service Provider's
NCC or notification by ELI (the "Service Recipient,"). Emergency
maintenance is defined as any service affecting situations requiring an
immediate response.
C. Service Recipient shall utilize the attached Operations Escalation
List, to report and seek immediate initial redress of exceptions noted in
the performance of Service Provider in meeting maintenance service
objectives.
D. In performing its services hereunder, Service Provider shall take
workmanlike care to prevent impairment to the signal continuity and
performance of the System. The precautions to be taken by Service
Provider shall include notification to Service Recipient. In addition,
Service Provider shall reasonably cooperate with Service Recipient in
sharing information and analyzing the disturbances regarding the cable
and/or fiber facilities.
E. Service Provider shall use its best efforts to notify Service
Recipient ten (10) days prior to the date of any planned non-emergency
fiber activity. In the event that a Service Provider planned activity is
canceled or delayed for whatever reason as previously notified, Service
Provider shall notify Service Recipient at Service Provider's earliest
opportunity and will comply with the provisions of the previous sentence
to reschedule any delayed activity.
F. The Service Provider shall provide Service Recipient new or updated
as built drawings within ninety (90) days of completion for any Cable
relocations or other engineering changes affecting the Cable.
G. In accordance with the Agreement, each party will be responsible for
maintaining its own electronic equipment using company technicians or
contracting with the other party or a third party. The Constructing
Party will
F-1
<PAGE>
provide timely and reasonable access to all Sites where the other party
is responsible to maintain its own electronic equipment on the
Constructing Party's System. If the Constructing Party agrees to
maintain the other party's electronic equipment, the other party shall
provide equipment manuals for each site for all equipment to be
maintained by the Constructing Party.
2. Facilities
A. Service Provider shall provide all power and associated environmental
control systems necessary at the common regenerator/optical
amplifier/junctions buildings ("Buildings") in accordance with the
following common facilities specifications:
D.C. Power - When commercial AC power is present, D.C. voltage will be
maintained at 54.0 VDC +1/-0.5 V and will not exceed 56VDC.
Temperature and humidity in buildings will be controlled by commercially
available HVAC equipment as would be appropriate for a manned site.
Remote high and low temperature alarms will be provided for buildings and
set for 85 degrees F and 65 degrees F respectively.
B. Service Provider shall perform or cause a third party to perform
appropriate routine maintenance on the Cable in accordance with Service
Provider's then current preventative maintenance procedures. Service
Provider's preventative maintenance procedures shall not substantially
deviate from industry practice.
C. Service Provider shall perform appropriate routine maintenance on the
regen/amplifier buildings, DC powerplant and HVAC equipment and basic
building safety equipment including alarms and emergency generators in
accordance with Service Provider then current preventative maintenance
procedures. Service Provider's preventative maintenance procedures shall
not substantially deviate from industry practice.
D. If Service Recipient is collocated in the same physical structure as
Service Provider, Service Provider's NCC shall monitor the same
housekeeping alarms, and in a similar fashion, as it does for the rest of
its network, including, intrusion, high/low temperature, fire or smoke,
toxic/explosive gas (where applicable), DC and commercial AC power, and
high water (where applicable). Upon receipt of an alarm, Service
Provider shall take appropriate action and immediately notify Service
Recipient of a major service jeopardy situation. All housekeeping alarms
will be wired in such a way to allow multiple parties (including the
Service Recipient) to remotely access and monitor alarm status.
E. Service Provider shall use reasonable efforts to provide within four
(4) hours after a power outage at a regenerator site emergency generators
with sufficient capability to restore one (1) unit of all redundant HVAC
systems and a sufficient number of rectifiers to carry the site load and
recharge batteries.
F-2
<PAGE>
F. Service Provider shall by January 1, 1998, deliver an escalation list
to Service Recipient.
3. Fiber and Cable
A. Subject to the provisions of this Agreement and any underlying Right
of Way Agreements that parties have entered into or may enter into,
Service Provider shall maintain or cause a third party to maintain the
Cable in a good and operable condition and shall repair or cause a third
party to repair the Cable in a workmanlike manner.
B. Service Provider shall patrol the route of the buried portion of the
Cable on a reasonable, routine basis and shall perform all required
Cable locates. Service Provider shall have qualified representatives
on site at anytime another company is crossing the Cable or digging
within five (5) feet of the Cable. Service Provider shall belong to a
state or regional one call center when available.
C. Service Provider maintenance employees shall be responsible for
correcting or repairing Cable discontinuity or damage, including, but not
limited to, the emergency repair of the Cable. Service Provider shall
use its best commercially reasonable efforts to repair Cable traffic
discontinuity within four (4) hours after the Service Provider
maintenance employee's arrival at the problem site. Service Provider
shall maintain sufficient capability to teleconference with Service
Recipient during an emergency repair in order to provide continuous
communication. Within twenty-four (24) hours after completion of an
emergency repair, Service Provider shall commence its planning for
permanent repair, shall notify Service Recipient of such plans, and shall
implement such permanent repair within an appropriate time thereafter.
Restoration of open fibers on fiber strands not immediately required for
service shall be completed on a mutually agreed upon schedule. If the
fiber is required for immediate service, the repair shall be scheduled
for the next available Planned Service Work Period (PSWP) weekend.
D. Service Provider shall comply with the Cable splicing specifications
as provided in the Exhibit C entitled "Fiber Cable Splicing, Testing and
Acceptance Standards". Service Provider shall provide to Service
Recipient any modifications to these specifications for Service
Recipient's approval, which shall not be unreasonably withheld, so long
as the modifications do not deviate from industry standards.
E. Service Provider's representatives that are responsible for initial
restorations of a cut Cable shall carry on their vehicles the appropriate
equipment to be usable to quickly put the Cable back together using a
temporary slice. The objective is to get the Cable back in an operating
condition in as little time as possible. Service Provider shall also
maintain an inventory of spare Cable at strategic locations to facilitate
timely restoration.
F-3
<PAGE>
F. The demarcation point is the Fiber distribution panel. Service
Providers responsibility, with respect to maintenance and repair of the
Fiber, will end at the demarcation point.
4. Planned Service Work Period (PSWP)
Non-emergency work which is reasonably expected to produce any signal
discontinuity must be coordinated between the parties. Generally, this
work should be scheduled after midnight and before 6:00 a.m., local
time. Major system work such as fiber rolls and hot cuts will be
scheduled for PSWP weekends. A calendar showing approved PSWP weekends
will be agreed upon in the last quarter of every year for the year to
come. The intent is to avoid jeopardy work on the first and last
weekends of the month and high traffic holidays. Other work such as
power work or work within fiber bays shall be scheduled to occur after
6:00 p.m. local time.
5. Restoration
A. When restoring a cut Cable, the parties agree to work together to
restore all traffic as quickly as possible. The Service Provider,
immediately upon arriving on the site of the cut, shall determine the
course of action to be taken to restore the Cable and shall begin
restoration efforts. The Service Provider shall initially splice a
buffer tube of its choice containing the Service Provider's fibers. Once
continuity is established allowing transmission systems to come back on
line, the Service Provider shall begin splicing a buffer tube chosen by
the Service Recipient. This process will continue until all fibers in
all buffer fibers are spliced and all traffic restored. Service Provider
repair and restoration efforts shall be conducted in a nondiscriminatory
manner whereby no IRU owner, lessor, customer or other System user
(including the System owner) receives preferential repair or restoration
service.
B. Emergency restorations splicing has as its goal to get service up as
quickly as possible. This requires the use of some type of mechanical
splice such as the "3M Fiber Lock" to complete the temporary
restorations. Permanent restorations will take place as soon as possible
after the temporary splice is complete.
C. If at any time it becomes apparent that the service outage is going
to extend beyond eight (8) hours, the corresponding management of each
company will work together to determine a plan to restore the Cable.
6. Addition of Drop / Splice Points
A. Service Recipient will have no right to access Service Recipient IRU
Fibers within the Service Provider Cable other than as provided herein.
Service Recipient will provide Service Provider a request for the
addition of a fiber drop point at an existing splice point (i.e., a point
where a fiber is terminated on a system or where a splice occurs). Such
request will detail the splice location and
F-4
<PAGE>
set forth the work required to be performed. Service Recipient will
provide a spur cable adequate to reach the splice location with an
additional length (minimum 25 meters) sufficient for Service Provider to
splice into the Service Recipient IRU Fibers at the designated splice
location.
B. Service Recipient will obtain the necessary ROW Agreements (or other
rights, if required) and be responsible for the installation of fiber
cable connecting to the drop points.
C. Service Recipient will pay to Service Provider all costs incurred by
Service Provider associated with the addition of drop points within
thirty (30) days of receipt of invoice from Service Provider setting
forth the calculation of and including reasonable supporting
documentation for such costs.
D. Service Provider will not be obligated to add a drop point at a
particular splice location if it determines, in its reasonable
discretion, that there is likely to be a material adverse effect to
its System or a significant technical impediment involved at such splice
location. At Service Recipient's request, the nearest splice location at
which such conditions do not exist will be used as an alternative.
E. Service Recipient will be responsible for all maintenance of spur
fiber cable connecting to the drop point.
F-5
<PAGE>
EXHIBIT G
Colocation
The parties shall enter into colocation agreements containing customary terms
and conditions relating to the colocation of equipment described in this
agreement. Any dispute as to the terms of such agreement shall be resolved
through arbitration as set forth in the Agreement.
G-1
<PAGE>
EXHIBIT H
Passthrough Provisions
ARTICLE I. DISCLAIMER OF WARRANTY
- -----------------------------------
LIMITATION OF LIABILITY [SYSTEM OWNER/PROVIDER] MAKES NO WARRANTY TO THE
OTHER PARTY OR ANY OTHER PERSON OR ENTITY, WHETHER EXPRESS, IMPLIED OR
STATUTORY, AS TO THE INSTALLATION DESCRIPTION, QUALITY, MECHANTABILITY,
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.
IN NO EVENT SHALL [SYSTEM OWNER/PROVIDER] OR ANY CONTRACTOR PROVIDING
MAINTENANCE AND REPAIR SERVICE FOR THE [SYSTEM OWNER/PROVIDER] BE LIABLE TO THE
OTHER PARTY FOR DAMAGES FOR LOST OR PROSPECTIVE PROFITS, OR ANY OTHER SPECIAL,
PUNITIVE, EXEMPLARY, CONSEQUENTIAL, INCIDENTAL OR INDIRECT LOSSES OR DAMAGES AS
A RESULT OF THE PERFORMANCE OR NONPERFORMANCE OF ITS OBLIGATIONS UNDER THIS
AGREEMENT, WHETHER OCCASIONED BY ANY REPAIR OR MAINTENANCE PERFORMED BY, OR
FAILED TO BE PERFORMED BY, THE [SYSTEM OWNER/PROVIDER] OR CONTRACTOR, AND
WHETHER OR NOT ARISING FROM SOLE, JOINT OR CONCURRENT NEGLIGENCE OR STRICT
LIABILITY.
ARTICLE 2. FORCE MAJEURE
- --------------------------
Service provider/owner shall not be in default under this Agreement 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) 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), (vi) war or civil disorder, or (vii) any other cause beyond the
reasonable control of such party. The party claiming relief under this Article
shall promptly notify the other in writing of the existence of the event(s) (I)
through (vii) 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.
Attachment 1
[Map] Western Build Route Map
Shows the physical location of the fiber link network as it extends from
Portland, Oregon to Bend, Oregon; Boise, Idaho; Ogden, Salt Lake City and Provo
Utah; Las Vegas, Nevada; and Los Angeles, California.
H-1
<PAGE>
EXHIBIT 23.1
The Board of Directors and Stockholder
Electric Lightwave, Inc.:
The audits referred to in our report dated September 4, 1997, included the
related financial statement schedule as of December 31, 1996, and for each of
the years in the three-year period ended December 31, 1996, included in the
registration statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits. In our opinion, this
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Summary Financial and Operating Data," "Selected
Financial and Operating Data" and "Experts" in the prospectus.
KPMG Peat Marwick LLP
New York, New York
November 17, 1997
