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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 2000.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FORMUS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 4812 84-1362218
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or organization)
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720 S. COLORADO BLVD., SUITE 600 NORTH
DENVER, COLORADO 80246
(303) 504-3200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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BERNARD G. DVORAK
720 S. COLORADO BLVD., SUITE 600 NORTH
DENVER, COLORADO 80246
(303) 504-3200
FAX: (303) 504-3201
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
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GARTH B. JENSEN, ESQ. NICHOLAS P. SAGGESE, ESQ.
HOLME ROBERTS & OWEN LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1700 LINCOLN, SUITE 4100 300 SOUTH GRAND AVENUE, SUITE 3400
DENVER, COLORADO 80203 LOS ANGELES, CALIFORNIA 90071
(303) 861-7000 (213) 687-5000
FAX (303) 866-0200 FAX (213) 687-5600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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
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PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Class A Common Stock, $.001 par value per share............. $250,000,000 $66,000
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE
ARE PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING
THIS PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM
UNTIL THE DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS
BEEN DECLARED EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
SUBJECT TO COMPLETION -- MAY 5, 2000.
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PROSPECTUS
- ------------, 2000
[FORMUS LOGO]
SHARES OF CLASS A COMMON STOCK
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FORMUS COMMUNICATIONS:
- We provide broadband Internet and data communications services to
business customers in selected European markets.
- 720 South Colorado Blvd.
Suite 600 North
Denver, Colorado 80246
(303) 504-3200
PROPOSED SYMBOL AND MARKETS:
- FMUS
- Nasdaq National Market
- We also intend to list on a European exchange
THE OFFERING:
- - We are offering shares of our Class A common stock.
- - The underwriters have an option to purchase an additional shares
from us to cover over-allotments.
- - This is our initial public offering, and no public market currently
exists for our Class A common stock.
- - We anticipate that the initial public offering price of the shares will
be between $ and $ per share.
- - Closing: , 2000
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Per Share Total
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Public offering price: $ $
Underwriting fees:
Proceeds to Formus:
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This investment involves risks. See "Risk Factors" beginning on page 5.
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NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS DETERMINED WHETHER THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. NOR HAVE THEY MADE, NOR WILL THEY MAKE, ANY
DETERMINATION AS TO WHETHER ANYONE SHOULD BUY THESE SECURITIES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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DONALDSON, LUFKIN & JENRETTE SALOMON SMITH BARNEY
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CREDIT SUISSE FIRST BOSTON DLJDIRECT INC.
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[MAP OF EUROPE WITH ICONS DEPICTING THE TYPES OF SERVICES (PHONE SERVICE, DSL,
FIXED WIRELESS ACCESS (FWA), FWA TEST AND POINT-TO-POINT) OFFERED OR TO BE
OFFERED BY THE COMPANY IN THE RESPECTIVE COUNTRIES WHERE THE COMPANY AND ITS
AFFILIATES HAVE LICENSES. INSET MAP SHOWING LOCATION OF PROPOSED EUROPEAN
BACKBONE NETWORK.]
<PAGE> 4
[Diagram illustrating fixed wireless radio technology, including a central
network operations facility and the fibre connections to the Internet; microwave
point to point and point to multipoint links; rooftop and tower hub stations;
and, dedicated and multipoint channels for three types of customers.]
<PAGE> 5
[Map of Europe identifying the Formus markets, by country and city, and offered
services.]
<PAGE> 6
TABLE OF CONTENTS
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Prospectus Summary.................... 1
Risk Factors.......................... 5
Use of Proceeds....................... 13
Dividend Policy....................... 13
Dilution.............................. 14
Capitalization........................ 15
Unaudited Pro Forma Condensed
Consolidated Statement of Operations
Data................................ 16
Selected Consolidated Financial
Data................................ 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 30
Management............................ 53
Certain Transactions.................. 61
Principal Stockholders................ 63
Description of Our Capital Stock...... 66
Certain United States Federal Income
Tax Considerations for Non-U.S.
Holders of Common Stock............. 69
Underwriting.......................... 71
Shares Eligible for Future Sale....... 73
Legal Matters......................... 75
Experts............................... 75
Additional Information................ 75
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
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There are restrictions on the offer and sale of securities in the United
Kingdom. No action has been taken to permit the shares of our Class A common
stock to be offered to the public in the United Kingdom. This document may only
be issued or passed on in or into the United Kingdom to any person to whom the
document may lawfully be issued or passed on by reason of, or of any regulation
made under, Section 58 of the Financial Services Act of 1986. It is the
responsibility of all persons under whose control or into whose possession this
document comes to inform themselves about and to ensure observance of all
applicable provisions of the Public Offers of Securities Regulations 1995 and
the Financial Services Act of 1986 in respect of anything done in relation to
the shares of our Class A common stock in, from or otherwise involving the
United Kingdom.
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PROSPECTUS SUMMARY
The following summarizes information in other sections of our prospectus,
including our consolidated financial statements and the notes to those
statements. This summary does not contain all of the information that you should
consider before investing in our Class A common stock. You should read the
entire prospectus carefully, especially the risks of investing in the shares
discussed under "Risk Factors." References to "we," "our" and "us" mean Formus
Communications, Inc. and our subsidiaries and affiliates. Certain currency
amounts listed in this prospectus have been converted into U.S. dollars at the
applicable exchange rate in effect on March 31, 2000. References to common stock
mean our Class A common stock and our Class B common stock unless otherwise
indicated.
FORMUS COMMUNICATIONS
We provide broadband Internet and data communications services to business
customers in selected European markets. We also provide virtual private networks
and are developing a broad range of other value-added services for our
customers. We currently deliver broadband services over our fixed wireless
networks using point-to-multipoint and point-to-point technologies. We also plan
to deliver our services using digital subscriber line technology, known as DSL,
to both business and residential customers. We believe that substantial
opportunities exist to provide these and other broadband services throughout
Europe where incumbent providers have not met market demand.
Our wireless networks use radio spectrum, which is regulated by government
agencies and licensed to service providers. We have been awarded spectrum
licenses in Germany, Poland, Finland, Norway, Spain and Switzerland and expect
to be awarded a license in Ireland. We also have trial licenses in France,
Hungary, Belgium and Ireland that allow us to provide services on a
non-commercial basis prior to conclusion of the licensing processes in those
countries. We have spectrum license applications pending in six European
countries and have begun the application process in four other European
countries that have initiated their licensing procedures. In addition to our
spectrum licenses, we hold nationwide telecommunications licenses that allow us
to provide voice and data transmission services over landline networks in
Austria and Germany.
We are launching DSL services in Germany, Denmark and Finland, where access
to the incumbents' local network is available. In light of recent European Union
(EU) published communications, we expect regulators to increase access to
incumbent telecommunication providers' local networks, which will facilitate our
expansion of DSL offerings in other European countries.
The growth of the Internet, e-commerce and bandwidth-intensive applications
has dramatically increased demand for broadband telecommunications connections.
International Data Corporation predicts that Internet access revenues will grow
27.1% annually in Western Europe, from $5.0 billion in 1999 to $13.0 billion in
2003. Until recently, Europe's telecommunications markets have been dominated by
government-owned telephone monopolies that generally have not provided broadband
access at competitive rates, if at all.
OUR PRODUCTS AND SERVICES
We offer bundled and stand-alone communications services that can be
tailored to our customers' needs. Our products and services include:
- high-speed always-on and dial-up Internet access;
- high-capacity data transport via local area and wide area networks;
- virtual private networks;
- e-mail services;
- Internet domain name registration; and
- national, regional and international long distance voice services.
To date, we have commenced commercial operations in Germany and Poland. In
Germany, we are currently offering bundled Internet access and switched
long-distance voice services and hold spectrum
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licenses in areas that represent approximately 45% of the country's population.
We hold spectrum licenses for the ten largest cities in Poland and currently
have 117 business customers in Warsaw to whom we provide a mix of broadband
Internet access, leased capacity over wireless links and virtual private
networks. As of April 20, 2000, we have agreements to service an additional 121
businesses. CEL Polska, which we currently co-manage and have agreed to acquire,
subject to government approval, holds a license that allows it to establish
specific point-to-point wireless broadband connections upon the filing of
requisite documentation. CEL Polska uses this license to provide leased capacity
on high frequency broadband connections to transport data for seven
telecommunications providers. In France, Hungary and Belgium, we are using trial
licenses to offer private voice services, computer networking, broadband
Internet access and Internet-based voice services on a non-commercial basis over
wireless networks.
We have a pending offer to purchase the right to use capacity on Global
Crossing's pan-European and trans-Atlantic fiber optic network, which will
enhance the quality and reliability of our broadband services and lower our
operating costs. This network will provide us with 155 Mbps (megabits per
second) of capacity between Dublin and eight European countries and 620 Mbps of
redundant capacity in a trans-Atlantic ring.
We expect to offer services in Denmark, Finland, Ireland, Norway and
Switzerland in 2000 and in Spain in 2001. In addition, we have a 12.6% interest
in VeloCom Inc., which provides competitive voice services in Brazil and
broadband services in Argentina over wireless networks.
OUR BUSINESS STRATEGY
We intend to capitalize on the increasing demand among business customers
for Internet access and broadband telecommunications services to grow our
revenues. To meet this objective, we will focus on the following strategies:
- rapidly and cost-effectively deploy our wireless and DSL networks;
- aggressively expand the base of customers connected to our broadband
networks;
- serve as the single-source provider of broadband Internet, communications
and information services to our customers;
- retain experienced local management teams;
- obtain additional spectrum and telecommunications licenses;
- develop strategic relationships with industry leaders and local partners;
and
- pursue strategic acquisitions to broaden our service offerings.
OUR HISTORY
We were incorporated in October 1996, and have incurred significant losses
to date as we have focused on forming strategic partnerships, acquiring
telecommunications licenses and building out our networks. We commenced
commercial operations in Poland in May 1999 and in Germany in July 1999 and have
generated approximately $2.3 million in revenues from operations through
December 31, 1999. From the date of our inception through December 31, 1999, we
incurred cumulative net losses of approximately $60.0 million, and we expect to
continue to incur losses for the foreseeable future. We funded losses through
the sale of approximately $203.1 million of equity securities through March 31,
2000. Additionally, in May 2000, we issued or agreed to issue a total of $175.0
million of senior preferred stock and agreed to issue $45.0 million of senior
secured notes.
OUR PRINCIPAL EXECUTIVE OFFICES
Formus Communications, Inc.
720 S. Colorado Boulevard, Suite 600 North
Denver, Colorado 80246
Telephone: (303) 504-3200
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THE OFFERING
Class A common stock
offered.................... shares
Common stock to be
outstanding after this
offering:
Class A common
stock...................... shares
Class B common
stock...................... ____________ shares
Total............ shares
Our Class A common stock and Class B common stock are identical, except
that our Class B common stock has no voting rights.
Use of Proceeds............ We plan to use the net proceeds from this offering:
- to redeem our senior secured notes;
- to fund capital expenditures and operating losses
associated with our rollout of telecommunications
services;
- to acquire additional telecommunications
licenses;
- for continued business development activities;
- for business acquisitions; and
- for general corporate purposes.
Nasdaq National Market
Symbol..................... FMUS
European Exchange Symbol... To be determined
Risk Factors............... You should review the "Risk Factors" section for a
discussion of certain factors about us, the
industry in which we operate and this offering that
you should consider before buying our Class A
common stock.
The number of shares of our Class A common stock to be outstanding after
this offering excludes 4,805,294 shares of common stock issuable upon the
exercise of outstanding options, 1,772,492 shares reserved for future grants
under our equity incentive plan and 1,550,000 shares to be issued upon the
exercise of outstanding warrants.
Generally, the information in this prospectus:
- assumes there is no exercise of the underwriters' over-allotment option;
- gives effect to the conversion of all outstanding shares of preferred
stock into shares of common stock; and
- gives effect to the conversion of all shares of preferred stock
underlying outstanding warrants into shares of common stock.
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SUMMARY CONDENSED CONSOLIDATED BALANCE SHEET DATA
You should read this summary condensed consolidated balance sheet data
together with our audited consolidated financial statements and related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this prospectus. The following condensed
consolidated balance sheet data as of December 31, 1998 and 1999 have been
derived from our audited consolidated financial statements included elsewhere in
this prospectus. The unaudited as adjusted column shows actual data, as adjusted
to give effect to the issuance of our senior preferred stock and senior secured
notes that has occurred or is scheduled to occur prior to the closing of this
offering. The unaudited as further adjusted column shows actual data as adjusted
for our issuance of the senior preferred stock and senior secured notes and as
further adjusted to give effect to the sale of shares of our Class A common
stock offered by us at an assumed initial public offering price of $ per
share, the midpoint of the offering range, less underwriting fees and estimated
offering expenses.
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<CAPTION>
AS OF DECEMBER 31, 1999
AS OF -----------------------------------
DECEMBER 31, AS FURTHER
1998 ACTUAL AS ADJUSTED ADJUSTED
------------ -------- ----------- ----------
(UNAUDITED)
(IN THOUSANDS)
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Cash, cash equivalents and short-term
investments...................................... $22,887 $ 77,091 $293,716 $478,716
Restricted short-term investment................... -- 19,008 19,008 19,008
Telecommunications licenses, net................... 12,176 150,705 150,705 150,705
Investment in affiliate............................ -- 31,725 31,725 31,725
Goodwill, net...................................... -- 81,776 81,776 81,776
Total assets....................................... 54,146 403,174 621,574 804,799
Senior secured notes............................... -- -- 45,000 --
Long-term deferred tax liability(1)................ -- 70,769 70,769 70,769
Total liabilities.................................. 4,154 102,752 147,752 102,752
Minority interests in our subsidiaries............. 10,564 2,560 2,560 2,560
Preferred stock and total stockholders' (deficit)
equity........................................... $39,428 $297,862 $471,262 $699,487
</TABLE>
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(1) This long-term deferred tax liability results from the use of purchase
accounting in connection with the acquisition of the remaining interest in
our German operations as discussed in Note 13 to our consolidated financial
statements.
Our statement of operations data included later in this prospectus shows
our history of losses from operations since our inception.
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should consider carefully the following risks, as well as all of the other
information in this prospectus, before deciding to buy our common stock.
We have a history of losses from operations and expect losses to continue
for the foreseeable future and cannot assure you that we will ever achieve
profitability or generate positive cash flow. We have incurred a loss from
operations for each year since we began our business. The loss from operations
totaled $6.4 million for 1997, $15.9 million for 1998 and $77.5 million for
1999. We commenced commercial services in May 1999 and do not expect to generate
positive operating cash flow and positive earnings for the foreseeable future
and cannot assure you that we will ever achieve profitability or generate
positive cash flow. We expect that our operating losses and negative cash flow
will increase substantially over the next several years from current levels.
Future net losses could cause our stock price to decline. Furthermore, we are
basing our business plans on projections of the growing demand for broadband
services and Internet access. If these markets do not grow as projected, we
cannot assure you that we will ever achieve profitability or generate positive
cash flow.
Our limited operating experience makes evaluating our business and future
prospects difficult. We have limited experience in delivering broadband
telecommunications services, with four installed and operational base stations
in Germany, 15 in Poland, two in Hungary, one in France and one in Belgium.
Since we started operations in late 1996, we have focused primarily on
organizational and start-up activities, such as acquiring licenses, forming
partnerships with locally experienced parties to facilitate license acquisitions
and making strategic investments and dispositions. Our success will depend upon
a number of factors, including our ability to acquire additional spectrum,
acquire or lease transmission sites, acquire rights to co-locate our equipment
in or near the offices of incumbent telecommunications providers, deploy our
technologies, attract and retain an adequate customer base and implement
customer management, billing and collection processes successfully. Because of
our limited operating history, you have limited operating and financial data
about us upon which to base an evaluation of our performance and an investment
in our common stock. You should consider our prospects in light of the risks,
expenses and difficulties we may encounter, including those frequently
encountered by new companies competing in rapidly evolving markets. If we are
unable to execute our strategies and grow our business either as a result of the
risks identified in this section or for any other reason, this failure would
have a material adverse effect on our business, prospects, financial condition
and results of operations.
We may not be able to successfully compete for a limited number of spectrum
licenses, and any licenses granted could contain restrictive terms that may
significantly impact our business prospects. Competition for spectrum licenses
has been, and we believe will continue to be, strong. Our competitors, many of
whom have significantly more resources than we do, include state-owned
telecommunications companies, major international telecommunications entities
and local competitors that may be more successful in obtaining licenses. There
can be no assurance that we will obtain licenses in any of the markets in which
we have trial licenses, pending applications or notification of awards. For
example, we have not received our Irish license because of a legal challenge to
the process by which it was awarded, and the process by which we received our
Norwegian license also has been challenged. If the licensing processes are found
to have been flawed, it is possible that all license awards may be voided and a
new tender or auction might be conducted to redistribute these licenses. Some of
our licenses and future licenses may contain restrictions on the rates we may
charge. Governments may also impose various types of fees as well as onerous
conditions or restrictions on the licenses. For example, Formus Polska's
spectrum license limits provision of voice services to 1,000 subscriber
termination points.
We may not be able to retain the spectrum licenses that we hold. If we
cannot renew our licenses upon expiration on favorable terms, or if governments
unilaterally change them, our business will be negatively impacted, and we may
be forced to cease operations in those countries. In addition, many of our
licenses have buildout or service coverage requirements that we may not be able
to satisfy cost-effectively or at all. For example, we have nearly 380 local
German spectrum licenses in 280 counties, each of which
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requires equipment covering the licensed geographic area to be operational
within one year of issuance. Some equipment will be useful for more than one
spectrum license. We may have difficulty in obtaining sufficient personnel or
equipment to meet this schedule and expect to seek waivers for a significant
portion of the licenses. Our failure to meet this requirement or receive
appropriate waivers may lead to fines or other penalties, including revocation
of the license. Failure to retain or renew licenses could have a material
adverse effect on our business, prospects, financial condition and results of
operations. Also, the majority of our German licenses, those in the 2.6 GHz
band, may be revoked at the end of 2007 to allow the expansion of the spectrum
available for advanced mobile wireless services.
The technologies that we use are relatively new and could become obsolete
as a result of competing technologies or subject us to unanticipated
technological delays that could postpone our introduction of products and
services. Technologies in the telecommunications industry change very rapidly,
and we may not be able to integrate new technologies into our networks. We use
or plan to use broadband wireless and DSL technologies because of the advantages
we perceive over other technologies. However, these technologies have not been
widely used in our markets, and we may encounter unanticipated technological
delays in introducing our products and services, technological failures and more
time-consuming and expensive marketing efforts. We also cannot be sure that
sufficient demand for our services will develop or be maintained, especially if
new competitive technologies are introduced. We will need to anticipate changes
in the telecommunications industry and introduce new or enhanced technology and
services to protect our revenues and remain competitive. Failure to keep our
services competitive from a cost, quality or technological standpoint could have
a material adverse effect on our business, prospects, financial condition and
results of operations.
We may not be able to compete against incumbent carriers and others and may
not be able to connect our networks to the incumbent carriers' networks on
favorable terms. We require interconnection agreements with incumbent carriers
or competitors of incumbent carriers to connect calls or data transmissions
between our customers and non-customers or between our customers in different
cities. We cannot assure you that we will be able to negotiate or renegotiate
interconnection agreements in all of our markets on favorable terms. Even if we
successfully negotiate interconnection agreements, we may not be able to obtain
lines and services through those agreements of sufficient quantity or quality or
in a timely manner to meet our needs.
In each of our markets, we expect to compete principally with incumbent
carriers that are the established providers of local telecommunications services
to all or virtually all subscribers within their service areas. It can be
expensive and difficult for us to switch a new customer to our network because a
potential customer could face switching costs, and the change requires
cooperation from incumbent carriers. We cannot assure you that we will be able
to overcome these disadvantages and compete successfully with incumbent carriers
and others.
Some of our wireless networks need clear line of sight to provide the best
service coverage, and if we are not able to secure appropriate roof installation
rights to ensure such coverage we will experience reception problems. Wireless
transmission using higher band frequencies requires an unobstructed "line of
sight" between radio transmitters and receivers. Our current plan in urban areas
is to install radio equipment on rooftops of tall structures. Where necessary,
we will add additional radio equipment, which would increase our costs. We are
trying to obtain roof rights to desirable buildings in our markets, which may
require fee payments in advance, whether or not we ultimately exercise our
rights. We cannot assure you that we will be able to obtain adequate roof rights
on commercially reasonable terms for clear transmission. We may also experience
reception problems due to weather, hills, buildings, trees and foliage. In
non-urban areas, we plan to use lower band technologies for which an
unobstructed line of sight is not as critical. If we do not have a license for
lower band services, we might experience obstruction problems in non-urban areas
because there are so few structures with sufficient height to clear local
obstructions.
Our DSL service could suffer if the copper telephone lines we require are
unavailable, in poor condition or cost more than we expect. Our ability to
provide DSL-based services depends on the quality, availability and maintenance
of copper lines by incumbent carriers and our ability to get co-location or
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<PAGE> 13
similar rights in or near their central offices. We cannot assure you that we
will be able to obtain the copper lines and the services we require from the
incumbent carriers at prices and quality levels satisfactory to us. In addition,
the incumbent carriers may not maintain the copper lines in a condition that
will allow us to implement our network effectively. DSL also may not be
available in areas served by incumbent carriers that employ technologies other
than copper wire.
We may be unable to expand our DSL network services effectively or to
provide high performance to a substantial number of end users. We may be unable
to scale our DSL network to service a substantial number of end users at high
transmission speeds. While peak digital transmission speeds across our DSL
network can exceed 6 Mbps, the actual data transmission speeds over our network
may be slower due to:
- the type of DSL technology employed;
- the distance of an end user from a central office;
- the configuration of the telecommunications line being used;
- the existence and number of data transmission impediments on the copper
lines;
- the gauge of the copper lines; and
- the existence and severity of interfering transmissions on nearby lines.
As a result, we may not be able to achieve or maintain digital transmission
speeds that are attractive in our markets.
If our network security is breached, it could delay or interrupt service to
our customers. Our network may be vulnerable to unauthorized access, computer
viruses and other disruptive problems. Unauthorized access could also
potentially jeopardize the security of confidential information stored in the
computer systems of our customers, which might cause us to be liable to our
customers and might deter potential customers. Eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to our customers. Any of these factors relating to network
security could have a material adverse effect on our business, prospects,
financial condition and results of operations.
We may not be able to obtain additional funding on satisfactory terms to
operate and grow our business, which could dilute our stockholders or impose
financial restrictions that limit our business activities. Deploying and
operating telecommunications systems is a highly capital intensive business. We
expect to incur substantial capital expenditures for constructing our networks,
deploying customer premise equipment and making acquisitions, which will require
us to raise substantial amounts of capital. We anticipate that our current
financial resources, including funding commitments, will be sufficient to fund
our operations, expansion plans and capital requirements for at least the next
18 months. In a rapidly changing telecommunications environment, however, our
plans may change, our growth rate may be higher than anticipated, or our
assumptions may change or prove to be inaccurate, which might cause us to
require additional funding sooner than we expect. Upon completion of this
offering, we plan to accelerate our expansion plans and capital expenditures. We
may be unable to obtain financing on satisfactory terms when needed, if at all.
If we fail to raise sufficient capital on acceptable terms, we may be required
to change, reduce the scope of, or eliminate our anticipated system deployment
and expansion plans. This could have a material adverse effect on our business,
prospects, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Future Capital Requirements."
Our rapid growth will place a significant strain on our resources and our
growth rate may be slowed if we cannot successfully obtain necessary
resources. Many factors will affect our ability to manage our future growth.
- We are pursuing a strategy of aggressive and rapid growth in both the
geographic coverage of our services and the number of customers. We will
need to continue to enhance our operational,
7
<PAGE> 14
accounting and financial systems to effectively manage this growth. We
also will require additional skilled employees and management.
- We will need to continue to develop strong and effective relationships
with our third-party equipment providers and our installation and
maintenance contractors in order to meet our customers' needs. We do not
plan to manufacture any equipment and will buy our equipment from
multiple vendors. If we are unable to obtain the equipment needed for our
anticipated services or manage our growth successfully, it could have a
material adverse effect on our business, prospects, financial condition
and results of operations.
We conduct all of our business through operating companies located in
Europe, some of which are or will be partly owned by local partners and all of
which are subject to local regulations that limit our ability to transfer funds
and exercise management control. Our only significant assets are the ownership
interests in our operating companies, an equity investment in VeloCom and
existing cash and cash equivalents, which we intend to invest in our operating
companies. We intend to invest or loan a substantial portion of the net proceeds
from this offering in or to those entities. See "Use of Proceeds." Local laws
and contract restrictions may prevent our operating companies from paying us
dividends or transferring other assets, or prevent us from selling our
interests. As a result, our ability to generate any significant cash through
dividends or other transfers, or selling our interests in any of our existing or
future operating companies is severely restricted.
We expect that some of our future investments will be with local partners.
We attempt to structure our investments to retain control over management
decisions within the limits of applicable local law. We cannot guarantee,
however, that we will be able to continue to control the operations, strategies
and financial decisions of all of our current or future operating companies. As
we negotiate future agreements with potential strategic partners, even if they
will hold minority positions, we may be required to grant them veto power over
significant corporate actions.
Our business strategy includes acquiring other businesses, but we may not
be able to identify, fund and successfully integrate acquisitions of other
companies. As part of our business strategy, we intend to acquire other
businesses. We may not be able to obtain acquisition financing when required, or
such financing may only be available on terms and conditions that are
unacceptable to us. If we are unable to fund our acquisition plans on acceptable
terms, our growth will be limited.
Some acquisitions may require regulatory approval or satisfaction of other
conditions that could delay or prevent completion. For example, our pending
acquisition of CEL Polska is subject to governmental approval. Our agreement to
acquire CEL Polska provides both parties with termination rights after May 31,
2000. There is a risk that the agreement may be terminated if the acquisition
has not closed by that date. In addition, there is a risk that we will not be
able to complete the CEL Polska acquisition or other potential acquisitions or
that closing conditions that we chose to waive in some instances will not be
satisfied or that the failure of such condition will have a material adverse
effect on us.
We expect to face competition from larger competitors with substantially
greater financial resources for acquisition candidates and assets, which may
limit the number of acquisition opportunities and may lead to higher acquisition
prices. Also, we may not be able to identify, acquire or manage additional
businesses profitably or to successfully integrate any acquired businesses with
our business. Successfully integrating new businesses will require us to retain
key personnel, transfer required permits and licenses on a timely basis, and
fund the additional capital requirements. Further, businesses that we acquire
may have liabilities that we underestimate or do not discover during our
pre-acquisition investigations. Certain liabilities, even if we do not expressly
assume them, may be imposed on us as the successor to the business.
We have many competitors, and we may not be able to compete against them
successfully. The telecommunications industry in many of our markets is
competitive and changes rapidly. In each of our markets, we will face
competition from existing and new providers of the technologies we provide and
other competing technologies. In addition to incumbent carriers, we expect to
face competition from
8
<PAGE> 15
European cable television systems, satellite service providers and other
broadband wireless or DSL operators. Competition could result in the loss of
existing customers and adversely affect our ability to gain new customers. Many
of our current and future competitors have more experience in providing
telecommunications services, and greater resources to spend on product
development, market expansion and customer service. Many of our competitors may
have greater political influence, larger customer bases and better name
recognition. Our competitors' cost advantages may give them the ability to
reduce their prices for an extended period of time, and we may not be able to
compete effectively against such competitors. We also expect that our prices
will decline over the next few years as competition intensifies in our markets.
Our business operations are subject to extensive government regulations
that entail significant compliance costs and may limit our growth plans and
revenue. In most countries where we have invested or intend to invest, there is
government regulation of our business, including services and spectrum
licensing, network construction, system operations, interconnection services and
foreign ownership. Some countries also regulate our rates. Companies that
violate applicable regulations or the terms of licenses may be fined, required
to restructure their operations or lose all or part of their license rights.
Most countries do not provide exclusive geographic licenses for fixed wireless
services, so that a competitor could build over our coverage, resulting in the
need to re-engineer our network to maintain the quality of service. Some
countries do not provide for automatic renewal of licenses, so that we will have
to re-apply for those licenses upon expiration of the term. We cannot assure you
that we will be able to renew these licenses.
Many countries in which we have licenses or plan to seek licenses have
relatively new telecommunications regulatory systems. Laws can change at any
time, and our ability to operate as planned could be negatively affected by such
changes. Many legal and regulatory issues have not been fully addressed in some
of these markets. Future administrative or judicial interpretations may expand
the scope of regulations or significantly change the interpretation of current
laws and regulations. For example, in Poland, many legal and regulatory issues
have not been interpreted or reviewed by the courts or administrative bodies. We
believe our ownership structure of Formus Polska is consistent with practice and
complies with the current law and terms of Formus Polska's licenses. A change in
the law or a legal interpretation contrary to the current practice could
materially and adversely affect Formus Polska's financial condition or
operations as well as our potential investment in CEL Polska. See "Business --
Operations and Licenses -- Poland -- Licenses" and "-- Regulation -- Poland." We
may incur additional costs and personnel time in complying with government
regulation, including posting of performance bonds and completing required
reports.
As an Internet access provider, we may be subject to government regulations
and may incur liability for information disseminated through our network, which
could cause us to incur increased costs, alter our service offerings or limit
our revenue growth. The Internet access business has, to date, not been
materially restricted by regulation in our markets. The legal and regulatory
environment of Internet access and e-commerce is uncertain, however, and may
change. Uncertainty and new regulation could increase our costs or slow the
growth of e-commerce on the Internet significantly. This could delay growth in
demand for our Internet and data services and limit the growth of our revenues.
New and existing laws may cover issues such as:
- sales and other taxes;
- user privacy;
- pricing controls;
- characteristics and quality of products and services;
- consumer protection;
- cross-border commerce;
- libel and defamation;
9
<PAGE> 16
- copyright and trademark infringement;
- pornography and indecency; and
- other claims based on the nature and content of Internet materials.
As the law in this area develops, the potential imposition of liability
upon us for information carried on and disseminated through our network could
require us to implement measures to reduce our exposure to such liability, which
may require the expenditure of substantial resources or the discontinuation of
certain service offerings. Any costs that are incurred as a result of such
measures, contesting any such claims, or the consequent imposition of liability
could have a material adverse effect on the price of our common stock.
Because we have foreign operations, we are susceptible to global economic
trends, political instability, and international business and labor
practices. We own and plan to acquire additional interests in telecommunications
operations in Europe. Investing in foreign companies, and in U.S. companies
doing business in foreign countries, is risky, especially in emerging markets
where civil unrest can lead to disruptions in the political, regulatory and
economic environment. Governments in emerging markets often have substantial
influence over the private sector, and may control or own our competitors or the
companies we will depend upon to provide our services. There is a risk of
nationalization, and we could lose all or a significant amount of our
investments if any of these governments decided to reverse market-oriented
initiatives. We do not carry insurance to cover the risks of political unrest,
currency convertibility or repatriation of assets. There are certain risks
inherent in conducting our business internationally that could harm operations,
such as:
- export restrictions, tariffs, differing regulatory regimes and other
trade barriers could impede us from adequately equipping our network
facilities;
- challenges in recruiting, retaining, and managing qualified staff who
understand the highly technical aspects of our business could hinder our
ability to grow and compete;
- additional costs and difficulties in managing foreign operations; and
- protectionist laws and business practices favoring local competition may
give unequal bargaining leverage to key vendors in countries where
competition is scarce, significantly increasing our operating costs.
Because it may be difficult to enforce our legal rights in the foreign
countries in which we operate, we could experience disruptions in our business
operations or adverse financial consequences. Many of our strategic agreements
and our operating companies are governed by the laws of the country where the
operating company is located, which, in some cases, may negatively impact our
ability to enforce our contractual rights or obligate us to resolve any disputes
through arbitration or court proceedings in those countries. We cannot
accurately predict whether we will be able to efficiently and fairly resolve any
disputes that might arise, especially in those countries with evolving legal
systems. Even if we prevail in a dispute, we may not be able to enforce our
rights. Our inability to enforce our contractual rights or to obtain enforceable
decisions in our favor may have a material adverse effect on our business,
prospects, financial condition and results of operations.
Because we operate in foreign countries, we are subject to fluctuations in
foreign currency exchange rates, which may cause financial losses. Our operating
companies currently pay some of their suppliers in foreign currencies, which
subjects them to currency fluctuation risks. Our operating companies attempt to
match costs with revenues and borrowings with repayments in their local
currencies. Nonetheless, we expect our operating companies will purchase
equipment in currencies other than their own, and some will have debt and
receivables denominated in other currencies, exposing them to foreign currency
exchange rate fluctuations. In addition, if our operating companies are able to
pay us dividends in the future, the amount of cash we receive will also be
affected by fluctuations in exchange rates and currency devaluations such as
those recently experienced by many Asian and Latin American countries.
10
<PAGE> 17
Since our inception in October 1996 through December 31, 1999, we have had
cumulative foreign currency translation adjustments of approximately $8.4
million. We believe that in the future an increasing portion of our revenues and
costs will be denominated in foreign currencies. We generally do not engage in
foreign exchange hedging activities and, although we have not yet experienced
any material losses due to foreign currency fluctuation, our revenues and costs
are currently subject to the risks of foreign currency fluctuations and such
risks will increase as our international revenues and costs increase.
Our success depends on our ability to attract and retain key personnel, and
the loss of one or more key officers could reduce our business prospects. We
believe that our continued growth and success depends in significant part on the
continued employment of our executive officers named in the section entitled
"Management." We must also continue to attract and retain other key management,
marketing, finance and operating personnel. Experienced management and other
highly skilled personnel are in great demand. If we are unable to attract or
retain key personnel, it could have a material adverse effect on our business,
prospects, financial condition and results of operations.
Because we conduct operations in Europe, we are subject to international
tax laws that may increase our effective tax rate. Distributions of earnings and
other payments received from our operations may be subject to withholding taxes
imposed by the countries where they are operating or are formed. If these
foreign countries do not have income tax treaties with the United States or the
Netherlands, where some of our subsidiaries are incorporated, we could be
subject to high rates of withholding taxes on these distributions and payments.
We could also be subject to being taxed twice on income related to operations in
these non-treaty countries. Because we are unable to reduce the taxable income
of one operating company with losses incurred by another operating company
located in another country, we may have a higher foreign effective income tax
rate than that of other companies in our industry. Although in general we may
claim a credit against our U.S. federal income tax for foreign income taxes and
foreign withholding taxes we pay, the amount of the credit that we may claim is
subject to many limitations which may significantly restrict our ability to
claim a credit for all of the foreign taxes we pay.
Our significant investment in VeloCom is subject to dilution. In September
1999, we purchased a 22.5% economic and voting interest in VeloCom Inc., a
Delaware corporation, for $28.3 million in cash and assets. In December 1999, we
purchased an additional $5.6 million of VeloCom convertible preferred stock and
agreed to purchase an additional $5.6 million of convertible preferred stock in
mid-2000. Due to contributions by other investors, our ownership interest, pro
forma for the issuance of preferred stock in mid-2000 to us and other investors,
is 12.6%. Our equity interest will be further diluted if VeloCom completes any
additional equity financings in which we do not participate.
Our investment in VeloCom is subject to the economic, political and social
instability of Latin American operations. During the past several years, Latin
American countries have been characterized by varying degrees of inflation and
political and economic uncertainty. The high degree of influence over Latin
American economies exercised by Latin American governments and the ongoing
potential for currency fluctuations, price instability, inflation, rising
interest rates, regulatory changes, changes in tax policy and other political,
social and economic developments could affect demand for the services that
VeloCom intends to offer. VeloCom's business, financial condition and results of
operations could be materially and adversely affected as a result of these
risks, as well as more specific risks that may be inherent in operating in any
of the Latin American countries where VeloCom intends to operate. In addition to
risks that are specific to the various Latin American countries in which it
intends to operate, VeloCom is subject to many of the same risks as we are. If
VeloCom does not successfully implement its business and marketing strategy, the
value of our investment in VeloCom could be significantly reduced. See
"Business -- Equity Investment in VeloCom Inc."
You will incur immediate and substantial dilution. The initial public
offering price is substantially higher than the net tangible book value per
share of our common stock immediately after this offering. You will incur
additional dilution if holders of stock options, whether currently outstanding
or subsequently granted, exercise their options. Accordingly, if you purchase
common stock in this offering, you will incur
11
<PAGE> 18
immediate and substantial dilution of approximately $ in the net
tangible book value per share of the common stock you purchase in this offering.
See "Dilution."
Our management has broad discretion in the application of proceeds, which
may increase the risk that the proceeds will not be applied effectively. Our
management will have broad discretion in determining how to spend the proceeds
of the offering. Accordingly, we can spend the proceeds from the offering in
ways which turn out to be ineffective or with which the stockholders may not
agree.
The sale of shares of our Class A common stock in the public market in the
future could negatively affect the market price for our stock. Sales of
substantial amounts of our Class A common stock in the public market following
this offering, or the appearance that such sales may occur, could adversely
affect the market price. The shares of our Class A common stock being sold in
this offering will be freely transferable under the securities laws immediately
after issuance, except for any shares sold to our "affiliates" and shares held
by certain other holders of our common stock that have agreed not to sell or
otherwise dispose of shares for a period of 180 days after the date of this
prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation and Salomon Smith Barney Inc. There will be a large
number of shares available for sale following the lock-up period, or at such
time that Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Smith
Barney Inc. release shares subject to lock-up agreements.
180 days after this offering, the holders of substantially all of our
common stock issued prior to this offering will have the right to require us to
register the sale of their shares. In addition, we intend to file a registration
statement under the Securities Act to register shares of our Class A common
stock subject to outstanding stock options or reserved for issuance under our
equity incentive plan. The sale of these additional shares into the public
market may further adversely affect the market price of our common stock. See
"Shares Eligible for Future Sale."
Our certificate of incorporation and bylaws contain anti-takeover
provisions that could delay or prevent a change in control and therefore could
hurt our stockholders. Provisions of Delaware law and our certificate of
incorporation and bylaws could make it more difficult for a third party to
acquire control of our company, even if a change in control would be beneficial
to stockholders, such provisions could adversely affect the market price of our
common stock. For example, we are subject to Section 203 of the Delaware General
Corporation Law, which restricts some transactions between us and our
stockholders. Our certificate of incorporation allows our board of directors to
issue, without stockholder approval, preferred stock with terms set by the board
of directors. The preferred stock could be issued quickly with terms that delay
or prevent the change in control of Formus or make removal of management more
difficult, even if it is in the best interest of the stockholders. Also, the
issuance of preferred stock may adversely impact the rights of the holders of
our common stock or cause the market price of our common stock to decrease. See
"Description of Our Capital Stock."
This prospectus contains forward-looking statements which may not prove to
be accurate. This prospectus contains forward-looking statements relating to,
among other things, our company and industry, as well as the economic, legal and
political situations in those countries where we do business. We generally
identify such forward-looking statements in this prospectus using words like
"believe," "intend," "expect," "should," "plan," "project," "contemplate,"
"anticipate" or similar expressions. These statements are based on our beliefs
as well as assumptions we made using information currently available to us.
Because these statements involve risks and uncertainties, including those
described under "Risk Factors," and reflect our current views concerting future
events, actual results may differ significantly from the results expressed or
implied in these forward-looking statements. Market data and forecasts used in
this prospectus, including, for example, market size and potential customer
base, are largely the estimates of our management, and to a lesser extent have
been obtained from independent industry sources. Although we believe these
sources are reliable, we have not independently verified these data.
12
<PAGE> 19
USE OF PROCEEDS
We estimate that we will receive approximately $230.0 million in net
proceeds from this offering based upon an assumed initial public offering price
of $ per share, the mid-point of the offering range, or $ million if the
underwriters exercise their over-allotment option in full, after deducting
underwriting discounts and commissions and estimated offering expenses. We
expect to use a substantial portion of the net proceeds from this offering to
fund capital expenditures and operating losses associated with our rollout of
telecommunications services and $45.0 million to redeem our senior secured
notes. We will use the remaining net proceeds, if any, as follows:
- to acquire additional telecommunications licenses;
- for continued business development activities;
- for business acquisitions; and
- for general corporate purposes.
We have issued $45.0 million of our senior secured notes, which was
arranged by affiliates of some of the underwriters of this offering. These notes
will bear interest at adjustable rates ranging between 13% and 17% per annum.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The actual amount of net proceeds we spend on a particular use will depend
on many factors, including our future revenue growth, additional financing
sources, if any, our future capital expenditures, and the amount of cash
generated by our operations. Many of these factors are beyond our control, and
our management will have broad discretion in the use of the net proceeds.
Until we use the net proceeds of this offering as described above, we
intend to invest the net proceeds in short-term investment-grade interest
bearing securities.
DIVIDEND POLICY
For the foreseeable future, we plan to retain our earnings, if any, to
reinvest in our business. We have never declared or paid any dividends. Our
future decisions concerning the payment of dividends on our common stock will
depend upon our results of operations, financial condition, capital expenditure
plans and our ability to receive funds from our operating companies, as well as
such other factors as the board of directors, in its sole discretion, may
consider relevant. We do not anticipate declaring or paying cash dividends in
the foreseeable future.
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<PAGE> 20
DILUTION
Our net tangible book (deficit) as of December 31, 1999, was $(296.9)
million or $(92.12) per share of common stock. In May 2000, we issued or agreed
to issue 14,000,000 shares of Series G senior preferred stock. Pro forma for the
issuance of the Series G senior preferred stock and conversion of all
outstanding preferred stock concurrent with this offering, our net tangible book
value as of December 31, 1999 was $235.6 million or $3.12 per share of common
stock. Net tangible book value (deficit) is the amount of total tangible assets
minus total liabilities, minority interest and mandatorily redeemable preferred
stock. Net tangible book value (deficit) per share is net tangible book value
(deficit) divided by the number of shares of common stock outstanding.
After giving effect to our sale of shares of Class A common stock in
this offering, at an estimated initial public offering price of $ per share,
the mid-point of the offering range, and application of the estimated proceeds
therefrom, our net tangible book value as of December 31, 1999, pro forma for
the issuance of Series G senior preferred stock and the conversion of all
outstanding preferred stock concurrent with this offering, would have been
$ million or $ per share.
This represents an immediate dilution in net tangible book value of
$ per share to new stockholders purchasing our Class A common stock in
this offering. Dilution per share represents the difference between the price
per share paid by new stockholders for the shares issued in this offering and
the pro forma net tangible book value per share immediately after the completion
of the offering. The following table illustrates this net tangible book value
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $
--------
Pro forma net tangible book value per share before the
offering............................................... $ 3.12
Increase in net tangible book value per share attributable
to the offering........................................
--------
Pro forma net tangible book value per share of common stock after this
offering............................................................
--------
Dilution per share of common stock to new investors................... $
========
</TABLE>
The following table summarizes the difference between the existing
stockholders and new investors with respect to the total number of shares of
common stock purchased, the total cash consideration paid and the average price
per share paid to us.
<TABLE>
<CAPTION>
PURCHASED SHARES TOTAL CASH CONSIDERATION
--------------------- ------------------------ AVERAGE PRICE PER
NUMBER PERCENT AMOUNT PERCENT COMMON SHARE
----------- ------- ------------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Existing stockholders:
Common stockholders................. 3,222,811 % $ 3,646,983 0.6% $ 1.13
Series A & B preferred
stockholders..................... 23,280,000 58,200,000 9.3 2.50
Series C & D preferred
stockholders..................... 7,142,858 25,000,003 4.0 3.50
Series E & F preferred
stockholders(1).................. 11,584,817 115,848,170 18.4 10.00
Series G senior preferred
stockholders(2).................. 14,000,000 175,000,000 27.9 12.50
New investors......................... 250,000,000 39.8
----------- ----- ------------ ----- ------
Total....................... 100.0% $627,695,156 100.0% $
=========== ===== ============ ===== ======
</TABLE>
- ------------------------------
(1) Excludes 16,371,552 shares of Series E and F preferred stock, valued at
$10.00 per share ($163.7 million), issued during September 1999 in
consideration for the remaining interest in our German operating company
that we did not own.
(2) Represents senior preferred stock that we have issued or agreed to issue in
May 2000.
These tables assume that none of the stock options or warrants outstanding
upon the closing of this offering will be exercised. As of December 31, 1999,
6,101,865 shares of common stock were issuable upon exercise of outstanding
stock options and a warrant. Options and warrant exercisable for 1,912,361
shares were vested as of that date. We have agreed to issue warrants to purchase
600,000 shares of common stock to the purchasers of our senior secured notes.
Upon the closing of this offering, warrants to purchase 300,000 shares will be
cancelled. If all of the outstanding stock options and the warrants are
exercised, you will experience additional dilution.
14
<PAGE> 21
CAPITALIZATION
The following unaudited table sets forth our cash position and
capitalization as of December 31, 1999:
- on an actual basis;
- as adjusted to give effect to our sale of senior preferred stock and
senior secured notes that has occurred, or will occur, prior to the
closing of this offering; and
- as further adjusted to give effect to:
- the conversion of all of our preferred stock into common stock;
- this offering; and
- the repayment of the senior secured notes from the proceeds of this
offering.
Please read this table in conjunction with our audited consolidated
financial statements and the related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
-------- ----------- ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments, including
a restricted short-term investment of $19,008............. $ 96,099 $312,724 $497,724
======== ======== ========
Senior secured notes........................................ -- 45,000 --
Long-term portion of capital leases......................... 2,782 2,782 2,782
Minority interest........................................... 2,560 2,560 2,560
Preferred stock............................................. 359,061 532,461 --
Stockholders' (deficit) equity
Common stock.............................................. 3 3
Additional paid-in capital................................ 9,033 9,033
Deferred charges.......................................... (1,850) (1,850) (1,850)
Accumulated deficit....................................... (60,001) (60,001) (61,776)
Other cumulative comprehensive loss....................... (8,384) (8,384) (8,384)
-------- -------- --------
Total stockholders' (deficit) equity................... (61,199) (61,199) 699,487
-------- -------- --------
Total capitalization.............................. $303,204 $521,604 $704,829
======== ======== ========
</TABLE>
15
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS DATA
The following unaudited pro forma condensed consolidated statement of
operations data is presented to reflect the pro forma effect of the transactions
described below as if they had occurred on January 1, 1999. The unaudited pro
forma statement of operations and notes thereto do not purport to represent what
our results would actually have been if such transactions had in fact occurred
on such dates. The pro forma adjustments are based upon currently available
information and upon certain assumptions that we believe are reasonable. The
unaudited pro forma condensed consolidated statement of operations data and
accompanying notes should be read in conjunction with our audited consolidated
financial statements and the related notes thereto, the financial statements of
Callino and VeloCom and other financial information, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations," all
of which are included elsewhere in this prospectus.
In September 1998, we acquired an initial controlling interest in Callino
through the purchase of newly issued preference shares in Callino totaling
approximately $12.1 million. The total purchase price was paid over a five-month
period ending in January 1999. In September 1999, we acquired the remaining
equity interest in Callino which we did not own for $163.8 million, consisting
of $100,000 of cash, and 16,371,552 shares of our Series E preferred stock and
Series F preferred stock which are convertible into the same number of shares of
our common stock. We have consolidated the results of Callino since September 1,
1998 and will continue to do so.
In September 1999, we acquired an approximately 22.5% economic and voting
interest (approximately 14% voting common stock interest) in VeloCom for cash of
approximately $20.8 million and assets valued at approximately $7.5 million,
which we account for under the equity method of accounting.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------
PRO FORMA ADJUSTMENTS
--------------------------
CALLINO VELOCOM
ACTUAL ACQUISITION TRANSACTION PRO FORMA
--------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue................................................ $ 2,316 $ -- $ -- $ 2,316
Costs and expenses:
Costs of services.................................... 9,589 -- -- 9,589
Provision on impaired assets......................... 3,186 -- -- 3,186
Selling, general and administrative.................. 61,704 -- (1,636)(3) 60,068
Depreciation and amortization........................ 5,369 3,122(2) -- 8,491
--------- -------- ------- ----------
Total costs and expenses...................... 79,848 3,122(2) (1,636)(3) 81,334
--------- -------- ------- ----------
Income (loss) from operations................. (77,532) (3,122)(2) 1,636(3) (79,018)
Interest income........................................ 2,774 -- (4)(3) 2,770
Gain on sale of investments in WNP and NEXTLINK........ 27,006 -- -- 27,006
Gain on VeloCom transaction............................ 3,061 -- (3,061) --
Foreign currency transaction losses.................... (717) -- -- (717)
Other income (expense), net............................ (174) -- 12(3) (162)
Minority interests in subsidiaries..................... 9,469 (8,793) -- 676
Share in results of affiliated companies............... (3,934) -- (2,385)(4) (6,319)
--------- -------- ------- ----------
Net loss...................................... (40,047) (11,915) (3,802) (55,764)
Accretion of mandatorily redeemable preferred stock.... (449) -- -- (449)
--------- -------- ------- ----------
Net loss attributable to common stock......... $ (40,496) $(11,915) $(3,802) $ (56,213)
========= ======== ======= ==========
Basic and diluted net loss per common share(1)......... $ (13.19) $ (1.06)
========= ==========
Basic and diluted weighted average number of common
shares outstanding(1)................................ 3,069,530 52,838,560
========= ==========
</TABLE>
- ------------------------------
(1) As adjusted for the conversion of all of our mandatorily redeemable
preferred stock which was outstanding as of December 31, 1999, into common
stock in connection with this offering. Basic and
16
<PAGE> 23
diluted weighted-average number of common shares outstanding assumes such
mandatorily redeemable preferred stock had been converted to common stock as
of January 1, 1999, or when subsequently issued. The 16,371,552 shares of
mandatorily redeemable preferred stock related to the Callino acquisition
were assumed to be issued and converted to common stock as of January 1,
1999.
(2) Represents the increase in goodwill amortization expense due to the pro
forma amount of goodwill (DM 141.2 million ($84.2 million)) resulting from
the Callino acquisition assuming the transaction had occurred on January 1,
1999. The goodwill is being amortized over 15 years.
(3) Represents the elimination of our historical expenses related to our Latin
American assets that we transferred in connection with the VeloCom
transaction.
(4) Represents additional share in results of affiliates as a result of the
VeloCom acquisition, and the elimination of the investment in Telelatina.
<TABLE>
<S> <C>
Share in VeloCom equity losses............................. $(3,717)
Share in Telelatina equity losses.......................... 1,332
-------
$(2,385)
=======
</TABLE>
The share in VeloCom equity losses includes pro forma results of the
subsequent event transactions discussed in Note 9 of the VeloCom audited
financial statements included elsewhere in this prospectus.
17
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated balance sheet data as of December 31, 1996,
1997, 1998 and 1999 and related consolidated statements of operations data for
the period from our inception on October 22, 1996 to December 31, 1996, and for
the years ended December 31, 1997, 1998 and 1999 are derived from our audited
consolidated financial statements. You should read the data set forth below
together with our audited consolidated financial statements as of December 31,
1998 and 1999, and for the three years in the period ended December 31, 1999,
and related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1996 1997 1998 1999
------ ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments... $1,177 $21,528 $ 22,887 $ 77,091
Restricted short-term investment.................... -- -- -- 19,008
Other current assets................................ -- 373 2,912 14,018
Total current assets................................ 1,177 21,901 25,799 110,117
Telecommunications licenses, net.................... -- 2,422 12,176 150,705
Property and equipment, net......................... 45 491 4,391 22,704
Investment in affiliates............................ -- -- 11,756 31,725
Goodwill, net....................................... -- -- -- 81,776
Other assets........................................ -- 20 24 6,147
Total assets........................................ 1,222 24,834 54,146 403,174
Total current liabilities........................... 76 1,252 4,154 29,201
Long-term portion of capital leases................. -- -- -- 2,782
Long-term deferred tax liability(1)................. -- -- -- 70,769
Minority interest in our subsidiaries............... -- 230 10,564 2,560
Mandatorily redeemable preferred stock.............. -- 26,830 56,870 359,061
Total stockholders' equity (deficit)................ $1,146 $(3,478) $(17,442) $(61,199)
</TABLE>
- ------------------------------
(1) This long-term deferred tax liability results from the use of purchase
accounting in connection with the acquisition of the remaining interest in
our German operations as discussed in Note 13 to our consolidated financial
statements.
18
<PAGE> 25
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
OCTOBER 22, 1996
(INCEPTION) TO FOR THE YEARS ENDED DECEMBER 31,
DECEMBER 31, ---------------------------------
1996 1997 1998 1999
------------------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................... $ -- $ -- $ -- $ 2,316
Costs and expenses:
Costs of services......................... -- -- 1,168 9,589
Provision on impaired assets.............. -- -- -- 3,186
Selling, general and administrative....... 96 6,266 14,461 61,704
Depreciation and amortization............. -- 128 318 5,369
------- --------- --------- ---------
Total costs and expenses.......... 96 6,394 15,947 79,848
------- --------- --------- ---------
Loss from operations.............. (96) (6,394) (15,947) (77,532)
Interest income............................. 7 328 751 2,774
Gain on sale of investments................. -- -- -- 27,006
Gain on our transaction with VeloCom........ -- -- -- 3,061
Foreign exchange losses..................... -- -- (225) (717)
Other income (expense), net................. -- (101) 511 (174)
Minority interests in our subsidiaries...... -- 20 1,192 9,469
Share in results of affiliated companies.... -- -- -- (3,934)
------- --------- --------- ---------
Net loss.......................... (89) (6,147) (13,718) (40,047)
Accretion of mandatorily redeemable
preferred stock........................... -- -- (182) (449)
------- --------- --------- ---------
Net loss attributable to common
stock........................... $ (89) $ (6,147) $ (13,900) $ (40,496)
======= ========= ========= =========
Basic and diluted net loss per common
share..................................... $ (.13) $ (2.66) $ (4.72) $ (13.19)
======= ========= ========= =========
Basic and diluted weighted-average number of
common shares outstanding................. 685,070 2,314,548 2,943,180 3,069,530
======= ========= ========= =========
</TABLE>
19
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the "Selected Consolidated Financial Data" and our audited consolidated
financial statements and the related notes which are included elsewhere in this
prospectus. All amounts in the tables in this section (except share and per
share data) are stated in thousands.
OVERVIEW
Since our inception in 1996, our principal activities have included
acquiring spectrum and other telecommunications licenses, developing and
constructing telecommunications networks, raising capital, establishing
strategic and local partnerships, and building our management and corporate
infrastructure. We are headquartered in the United States and currently conduct
our principal operations in Germany and Poland. We recently opened an office in
The Netherlands to oversee all of our European operations. In May and July 1999,
we launched our first commercial services in Poland and Germany, respectively,
and generated revenues of approximately $2.3 million for the year ended December
31, 1999. We hold additional commercial telecommunications licenses in other
countries in which we are not yet operational. We are also engaged in
non-commercial operations under trial licenses in three countries and hold
another trial license in a fourth country. Further, we believe that these trials
may give us an advantage in obtaining commercial telecommunications licenses in
the future.
Since our inception, we have generated significant net operating losses and
negative cash flows from operations. We currently expect that we will continue
to incur net operating losses in the future as we continue to deploy our
networks and acquire new spectrum and other telecommunications licenses. Our
prior operating results are not indicative of the anticipated results of
operations which we expect to achieve in the future.
We currently evaluate our business according to the geographic location of
our markets. We identify these markets as Germany, Poland, other geographical
segments, business development and corporate. Other geographical segments
includes our interests in our various consolidated subsidiaries, which are,
among others, France, Hungary and Ireland. Business development costs includes
market assessment and license application costs. The corporate segment includes
our corporate headquarters located in Denver, Colorado and our European regional
office located in The Hague, The Netherlands. The following tables present
information about each of these segments as of and for the years ended December
31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------
CAPITAL TOTAL ADJUSTED
EXPENDITURES ASSETS REVENUES EBITDA(4)
------------ ------- -------- -----------
<S> <C> <C> <C> <C>
Germany......................................... $ -- $ -- $ -- $ --
Poland.......................................... 478 610 -- (57)
Other geographical segments..................... -- 2,647 -- (27)
Business development............................ -- -- -- (2,866)
Corporate....................................... 267 21,576(1) -- (3,316)
---- ------- ---- -------
Total Company......................... $745 $24,833 $ -- $(6,266)
==== ======= ==== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------
CAPITAL ADJUSTED
EXPENDITURES TOTAL ASSETS REVENUES EBITDA(4)
------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Germany........................................ $6,970 $21,736 $ -- $ (1,064)
Poland......................................... 175 726 -- (699)
Other geographical segments.................... 590 5,420 -- (950)
Business development........................... 3 21 -- (5,139)
Corporate...................................... 1,032 26,243(2) -- (7,777)
------ ------- ---- --------
Total Company........................ $8,770 $54,146 $ -- $(15,629)
====== ======= ==== ========
</TABLE>
20
<PAGE> 27
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------
CAPITAL ADJUSTED
EXPENDITURES TOTAL ASSETS REVENUES EBITDA(4)
------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Germany.......................................... $10,120 $250,780 $2,286 $(29,310)
Poland........................................... 8,283 17,459 30 (11,541)
Other geographical segments...................... 1,499 4,626 -- (775)
Business development............................. 10 91 -- (7,744)
Corporate........................................ 1,652 130,218(3) -- (15,350)
------- -------- ------ --------
Total Company.......................... $21,564 $403,174 $2,316 $(64,720)
======= ======== ====== ========
</TABLE>
- ------------------------------
(1) Includes approximately $21.5 million of cash and cash equivalents at
December 31, 1997.
(2) Includes approximately $13.7 million of cash and cash equivalents at
December 31, 1998. In addition, the asset account includes an approximate
$11.8 million investment which was sold in April 1999.
(3) Includes telecommunications licenses with net book values totaling $1.4
million, corporate cash and cash equivalents and short-term investments of
$67.9 million, restricted cash of $19.0 million and an investment in VeloCom
of $31.7 million.
(4) Adjusted EBITDA represents our loss from operations before depreciation,
amortization, asset impairment charges and non-cash compensation expense for
options and warrants. Industry analysts generally consider Adjusted EBITDA
to be a helpful way to measure the performance of communications companies.
We believe Adjusted EBITDA helps investors to assess the cash flow from
operations from period to period and thus to value a company's business.
Adjusted EBITDA should not, however, be considered a replacement for net
income, cash flows or for any other measure of performance or liquidity
under generally accepted accounting principles, or as an indicator of a
company's operating performance. The presentation of Adjusted EBITDA may not
be comparable to similar statistics reported by other companies. Not all
companies and analysts calculate Adjusted EBITDA in the same manner.
Adjusted EBITDA reconciles to the consolidated statements of operations as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Loss from operations................................ $(6,394) $(15,947) $(77,532)
Depreciation and amortization....................... 128 318 5,369
Asset impairment charges............................ -- -- 3,186
Non-cash compensation expense for options and
warrants.......................................... -- -- 4,257
------- -------- --------
Consolidated Adjusted EBITDA.............. $(6,266) $(15,629) $(64,720)
======= ======== ========
</TABLE>
REVENUES
We expect to generate most of our recurring revenues from providing
broadband and value-added Internet, communications and information services. We
commenced commercial operations in May and July 1999 in Poland and Germany,
respectively, and we expect to generate additional revenue from new markets
where we intend to commence operations in 2000.
We intend to price our services competitively. We charge customers a
monthly fee, as well as connection and usage fees for some services. In the
future we expect to also charge customers consulting and management fees for
certain services. As part of our marketing activities, we may offer sales
promotions that include free installation, risk-free trials and price discount
programs, each designed to establish a market presence and address local market
conditions. While pricing will be an important element of our strategy, we
believe that customer care, reliability and consistent quality will also be
critical to obtaining new customers and promoting customer loyalty.
21
<PAGE> 28
EXPENSES
We expect that our expenses will principally include costs of services
resulting from network operations costs and selling, general and administrative
expenses. Our costs of services will include interconnection, network
operations, site lease fees, operating and maintenance costs, roof-rights fees,
co-location costs and license fees. We expect these costs will increase as we
expand our networks and launch commercial services in new markets. Our selling,
general and administrative expenses will include expenses related to our sales
and marketing representatives, support personnel, advertising programs, as well
as general and administrative expenses relating to corporate overhead,
professional fees, salaries and employee benefits. We expect that our costs per
customer will be higher during our initial years of operation and will decline
as our sales and marketing expenses are distributed over a larger customer base.
We expect that interconnection will be a major portion of our costs. We
currently have interconnection agreements with telecommunications providers in
Germany and Poland as well as a pending offer to acquire pan-European and
trans-Atlantic capacity. We anticipate that we will enter into additional
interconnection agreements with other telecommunications providers as we expand
our operations, and that our interconnection costs will grow as our customer
base grows and voice and data traffic increases.
RESULTS OF OPERATIONS
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
Our consolidated net loss, excluding a one-time gain on the sale of our
investment in WNP and NEXTLINK and a gain on the VeloCom transaction, which
together totaled $30.1 million, during the year ended December 31, 1999, was
$70.1 million, compared to $13.7 million in 1998. The change was primarily the
result of substantial start-up costs of our operations in Germany and Poland and
development activities and related expenses.
We expect to continue to generate operating losses and negative cash flows
from operations as we continue to expand our commercial operations and enter new
markets, even if and after we have achieved positive cash flow from operations
in our initial markets.
Revenues. Revenues for the year ended December 31, 1999 totaled $2.3
million. There were no revenues for the year ended December 31, 1998.
Costs of services. Our costs of services for the year ended December 31,
1999, totaled $9.6 million, compared to $1.2 million for the year ended December
31, 1998, an increase of 700.0%. This increase is a result of our operational
activities associated with our commercial and trial telecommunications network
construction and operation.
Provision on impaired assets. In 1999, we recorded $3.2 million in write
downs for certain assets in Ecuador where we decided not to pursue further
business developments.
Selling, general and administrative expenses. For the year ended December
31, 1999, selling, general and administrative expenses totaled $61.7 million
compared to $14.5 million for the same period in 1998, representing a 325.5%
increase. The total $61.7 million of selling, general and administrative
expenses for 1999 is comprised of approximately $31.4 million incurred directly
by our operations, approximately $18.5 million incurred for corporate
activities, approximately $7.7 million for business development activities and
approximately $4.1 million related to a one-time non-cash charge to expense
stock options granted to Mr. Osmo Hautanen, our former chief executive officer,
as part of his resignation. The increase in expenses was primarily due to our
acquisition of Callino effective September 1, 1998, increased business
development costs, including market assessment and license application costs and
an increase in the number of employees and other corporate expenses.
We are assembling locally-based, direct sales forces in our local markets.
To attract and retain a highly qualified sales force, we plan to offer our sales
and customer care personnel a highly competitive incentive-based compensation
package. The number of our employees increased from 80 as of
22
<PAGE> 29
December 31, 1998, to 284 as of December 31, 1999. We expect that our employee
base, including the number of our sales and marketing personnel, will grow
significantly as we offer new services and expand into new markets. We expect
our selling, general and administrative costs will increase as we develop and
expand our operations, acquire additional telecommunications licenses and build
our management and corporate infrastructure.
Depreciation and amortization. For the year ended December 31, 1999, we
have recorded depreciation and amortization expense of $5.4 million, compared to
$318,000 for 1998. This change is primarily due to increases in network
buildouts and the acquisition of telecommunications licenses related to Callino.
Interest income. Interest income for the year ended December 31, 1999 was
$2.8 million. In 1998, interest income was $751,000. The change is due to the
increase in cash and cash equivalents resulting from additional equity financing
activities and the proceeds received from the sale of our interest in WNP and
from the sale of shares in NEXTLINK.
WNP transaction. For the year ended December 31, 1999, we realized a gain
of approximately $27.0 million related to the sale of our investment in WNP. In
1998, we purchased a minority interest in WNP for cash consideration of
approximately $11.8 million. This interest was sold in 1999 and we received
approximately $12.1 million in cash and shares of NEXTLINK common stock, which
we subsequently sold during 1999 for approximately $26.7 million in cash.
VeloCom transaction. For the year ended December 31, 1999, we realized a
gain of approximately $3.1 million related to our investment in VeloCom. In
1999, we contributed cash of approximately $20.8 million and assets valued at
approximately $7.5 million in exchange for a 22.5% ownership interest in
VeloCom. The gain resulted from the difference between the fair value of our
ownership interest received and the book value of our assets transferred.
Foreign currency transaction losses. For the years ended December 31, 1999
and 1998, we recorded $717,000 and $225,000, respectively, of foreign currency
transaction losses due to transactions that were denominated in foreign
currencies. The increase of $492,000 is due to the increased number of
transactions denominated in currencies other than the functional currencies of
each of our operations during 1999.
Other expense. In 1999, net other expense increased $685,000 from 1998 due
primarily to payments made to us by WNP for reimbursements.
Minority interest in subsidiaries. During the years ended December 31, 1999
and 1998, $9.5 million and $1.2 million, respectively, of losses were allocated
to minority shareholders of our consolidated subsidiaries. The increase of $8.3
million in 1999 over 1998 relates to the consolidation of Callino effective
September 1, 1998.
Share in results of affiliated companies. During the year ended December
31, 1999, we recorded $3.9 million in equity losses related to our investments
in affiliated companies. There were no such equity losses recorded related to
affiliated companies in 1998.
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
For the year ended December 31, 1998, we had a net loss of $13.7 million,
compared to a net loss of $6.1 million in 1997.
Costs of services. In 1998, we incurred costs of services of $1.2 million
as a result of operational activities associated with commercial and trial
network buildouts. We did not record any costs of services during the year ended
December 31, 1997.
Selling, general and administrative expenses. In 1998, we increased our
development and corporate activities, including increasing the number of our
employees and our use of outside service providers, and increased our other
general corporate and administrative activities. As a result, our selling,
general and administrative expenses increased $8.2 million, to $14.5 million,
during the year ended December 31, 1998,
23
<PAGE> 30
from $6.3 million during the year ended December 31, 1997. Also contributing to
the increase in expenses was our consolidation of the financial results of
Callino effective as of September 1, 1998.
Depreciation and amortization. Our depreciation and amortization expense
increased $190,000, to $318,000, during the year ended December 31, 1998, as a
result of our network buildout activities and the acquisition of property and
equipment primarily associated with our acquisition of Callino in September
1998.
Foreign currency transaction losses. For the year ended December 31, 1998,
our foreign currency transaction losses were $225,000 compared to $0 for 1997,
due to the increase in transactions that were denominated in foreign currencies.
Interest and other income. In 1998, interest income increased $423,000 to
$751,000 from $328,000 in 1997. Net other income increased $612,000 to $511,000,
compared to a net expense of $101,000 for the year ended December 31, 1997. The
increase was due primarily to payments made to us by WNP for reimbursements.
Minority interest in subsidiaries. As a result of our acquisition of
Callino, our minority interest in net loss of subsidiaries increased to $1.2
million during the year ended December 31, 1998, as compared to $20,000 for the
year ended December 31, 1997.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
We commenced business operations in October 1996. We had three months of
operations in fiscal year 1996 compared to 12 months for fiscal year 1997. For
the year ended December 31, 1997, we had a net loss of $6.1 million, compared to
a net loss of $89,000 in 1996.
Costs of services. We did not record any costs of services in 1997 or 1996.
Selling, general and administrative expenses. Our selling, general and
administrative expenses in 1997 were $6.3 million, compared to $96,000 during
the year ended December 31, 1996. This increase is attributable to our
development activities and hiring personnel.
Depreciation and amortization. In 1997, we recorded depreciation and
amortization expense of $128,000. In 1996, we did not recognize any depreciation
and amortization expense as we did not hold any depreciable assets.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Cash flows from operating activities can vary significantly from period to
period depending upon the timing of operating cash receipts and payments,
prepaid expenses and other assets, accounts payable and accrued liabilities.
From our inception through December 31, 1999, we have experienced net operating
losses, which is the primary cash component of net cash used in operating
activities. Net cash used in operating activities was approximately $56.4
million for the year ended December 31, 1999. This was principally due to our
net loss before non-cash items of approximately $63.0 million with offsetting
increases in cash from changes in assets and liabilities, net of effects of
acquisitions, of approximately $6.6 million.
Net cash used in operating activities was approximately $13.3 million for
the 12 months ended December 31, 1998. This was largely derived from our net
loss of approximately $13.7 million offset by non-cash depreciation and
amortization expenses of approximately $318,000.
Net cash used in operating activities was approximately $6.1 million for
the 12 months ended December 31, 1997, which was largely derived from our net
loss for that period.
24
<PAGE> 31
INVESTING ACTIVITIES
Net cash used in investing activities was approximately $58.7 million for
the year ended December 31, 1999. This was mainly comprised of the cash proceeds
of approximately $38.8 million from the WNP transaction and subsequent sale of
NEXTLINK shares, offset by cash outflows for the purchases of short-term
investments of approximately $24.8 million, the purchase of a restricted
short-term investment of approximately $19.0 million, the purchase of
telecommunications licenses for approximately $1.5 million, the purchase of
property and equipment for approximately $20.1 million and the funding of
capital contributions to affiliates of approximately $31.6 million.
Net cash used in investing activities was approximately $20.1 million for
the 12 months ended December 31, 1998. This was largely comprised of our
investment in WNP of approximately $11.8 million, the purchase of
telecommunications licenses of approximately $4.9 million and purchases of
property and equipment of approximately $3.8 million.
Net cash used in investing activities was approximately $2.1 million for
the 12 months ended December 31, 1997. This was due to our investment of
approximately $1.4 million in our Ecuador business, our purchase of spectrum
license in Poland of approximately $478,000 and our purchase of property and
equipment of approximately $267,000.
FINANCING ACTIVITIES
Net cash from financing activities was approximately $145.5 million for the
year ended December 31, 1999. This was mainly comprised of the net cash proceeds
from our preferred stock issuances in February and September 1999 of
approximately $138.0 million, approximately $6.7 million from capital
contributions by minority shareholders and approximately $704,000 from the
issuance of common stock in connection with our stock option plan.
Net cash from financing activities was approximately $34.9 million for the
12 months ended December 31, 1998. This was largely comprised of the net cash
proceeds from the issuance of a portion of our preferred stock issuances in July
and November 1998 of approximately $29.9 million and approximately $6.0 million
from capital contributions by minority shareholders.
Net cash from financing activities was approximately $28.8 million for the
12 months ended December 31, 1997. This was mainly comprised of the net cash
proceeds from the issuance of a portion of our preferred stock issuances in
August and November 1997 of approximately $26.8 million and approximately $1.7
million from the issuance of common stock.
As of December 31, 1999, we had $96.1 million of cash and cash equivalents
and short-term investments, including $19.0 million of a restricted short-term
investment, and net working capital of $80.9 million.
Since our inception, we have relied on the proceeds from a series of equity
financings as our primary source of capital. We have raised approximately $377.7
million in cash from the issuance of common stock and preferred stock. The
following table shows the shares issued and capital raised from each of these
equity financing transactions:
25
<PAGE> 32
<TABLE>
<CAPTION>
GROSS
SECURITY ISSUED PROCEEDS
- --------------- --------
<S> <C>
Common stock................................................ $ 3,647
Series A & B preferred stock................................ 58,200
Series C & D preferred stock................................ 25,000
Series E & F preferred stock(1)............................. 115,848
Series G senior preferred stock(2).......................... 175,000
--------
Total capital raised.............................. $377,695
========
</TABLE>
- ------------------------------
(1) Does not include 16,371,552 shares, valued at $10.00 per share ($163.7
million), issued in consideration for the remaining interest in Callino that
we did not own.
(2) Represents senior preferred stock issued or to be issued in May 2000.
In April 2000, we obtained a commitment to purchase our senior secured
notes, which was arranged by affiliates of some of the underwriters of this
offering. See "Underwriting." We agreed to issue $45.0 million of our senior
secured notes in May 2000, the maximum amount under this commitment, and we are
required to issue warrants to purchase 600,000 shares of common stock at an
aggregate exercise price of $6.0 million ($10 per share). Upon completion of
this offering, warrants to purchase 300,000 shares will be cancelled and the
exercise price of the remaining warrants will be adjusted to equal the purchase
price in this offering. The notes are payable at the consummation of this
offering. See "Use of Proceeds." Interest, payable quarterly in arrears, will
accrue on the funds borrowed at the greatest of the following rates at the time
of the borrowing: three-month LIBOR plus 6.75%, the treasury rate plus 6.77% or
the DLJ High Yield Index Rate plus 0.91%, with an annual maximum percentage rate
of 17.0% and an annual minimum rate of 13.0%.
Capital expenditures. During the year ended December 31, 1999, we incurred
capital expenditures of $20.1 million for the deployment of our
telecommunications networks. During the same period in 1998, we incurred $3.8
million for similar capital expenditures. We expect that our plans will require
increased capital expenditures. We currently anticipate that our plans to expand
our current commercial operations in Germany and Poland and to build out our
networks in Denmark, Finland, Ireland, Norway, Spain and Switzerland will
require substantial capital expenditures through 2000. Further, if we are
successful in acquiring additional telecommunications licenses, we will require
additional capital to fund the expansion.
Capital requirements. We anticipate that our current financial resources,
including funding commitments, will be sufficient to fund our operations,
expansion plans and capital requirements for at least the next 18 months. Upon
completion of this offering, we plan to accelerate the implementation of our
existing plans and expand into additional markets. See "Risk Factors -- We may
not be able to obtain additional funding on satisfactory terms to operate and
grow our business, which could dilute our stockholders or impose financial
restrictions that limit our business activities."
Completion of this offering will terminate the right of some of our
shareholders to require us to redeem 3,646,286 shares of our Series E and F
preferred stock at an aggregate price of $36.5 million. This redemption right
would have become exercisable on September 30, 2000.
Future capital requirements. Based on our current business plan, we will
need substantial funds for the deployment and operation of our networks,
including requirements to finance capital expenditures, working capital and
operating losses in those markets and to acquire additional spectrum licenses.
The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of, among other things:
- the cost of deploying our networks in each of our target markets;
- the demand for our services;
- changes in the regulatory, technological or competitive environments,
including new market opportunities within or outside of our initial
markets;
26
<PAGE> 33
- changes in our development plans or projections that cause us to alter
our network rollout schedule, or change our markets or service offerings;
- acquisitions or strategic alliances, if any;
- the decision to deploy networks in other markets other than those in our
current business plan; and
- the cost of obtaining spectrum licenses.
Our costs and expenses and revenues may vary from expected amounts,
possibly by a significant degree. Any variation would affect our future capital
requirements. We cannot be sure that we will be able to obtain the additional
financing to satisfy our additional capital requirements, if any, on acceptable
terms or at all. If we cannot obtain such financing on terms acceptable to us,
we may be forced to curtail our planned expansion activities and may be unable
to fund our ongoing operations.
In September 1999, Formus Polska entered into a secured senior facility
agreement with Westdeutsche Landesbank (France) S.A., and other lenders, that
enables it to borrow a total principal amount of EUR120 million (approximately
$115.4 million) in four staggered installments, as follows:
- EUR31 million (approximately $29.8 million) before June 30, 2000;
- EUR31 million, plus any unused amounts from the preceding installment,
during the period between July 1, 2000 and June 30, 2001;
- EUR31 million, plus any unused amounts from the preceding installments,
between July 1, 2001 and June 30, 2002; and
- EUR27 million (approximately $26.0 million), plus any unused amounts from
the preceding installments, between July 1, 2002 and June 30, 2003.
The loans under this facility are secured by a pledge of shares of our
subsidiary that holds our interest in Formus Polska, and that subsidiary pledged
its interest in Formus Polska. Formus Polska has also pledged its assets and
assigned its contracts and bank accounts. In addition, we have agreed to
contribute $46.7 million to Formus Polska by the end of 2000, in accordance with
Formus Polska's business plan, $25.2 million of which has been contributed as of
April 6, 2000.
Interest on the loan accrues and is payable quarterly at an interest rate
based on EURIBOR plus 5% per year, or the European Overnight Interest Rate plus
5.0% per year, depending on the type of advance. Principal on each of the four
staggered installments of the loan is payable in 16 quarterly payments beginning
on the end of the quarter 24 months after that particular installment became
available for borrowing. Under the facility we are subject to restrictive
covenants, including with respect to acquisitions of assets, incurrence of debt
and encumbrances on assets. The facility includes prepayment provisions and does
not allow us to reborrow any re-paid amounts. In January 2000 and April 2000,
Formus Polska borrowed approximately EUR6.2 million (approximately $6.0 million)
and EUR7.6 million (approximately $7.3 million) under this facility at floating
interest rates that are currently 8.4% and 9.0%, respectively. Payments under
this facility are subject to foreign exchange risk. Poland is not currently a
member of the European Union, and movements in the exchange rate between the
Polish zloty and the euro will affect future cash flows as the zloty is not
currently fixed to the euro.
In March 2000, we participated in the Swiss government's auction of several
spectrum licenses. We were successful in obtaining a nationwide spectrum license
for 56 MHz in the 26 GHz frequency range for approximately CHF 55.0 million. We
are scheduled to pay for the spectrum license on May 31, 2000. We purchased a
Swiss franc forward contract locking in the United States dollar equivalent
price that we will have to pay at approximately $33.3 million. We currently have
approximately $19.0 million in a restricted short-term investment, which has
been restricted as part of the auction process and will be used to pay for part
of the spectrum license cost.
We have a pending offer to purchase the right to use capacity on Global
Crossing's pan-European and trans-Atlantic fiber optic network consisting of
eight links throughout Europe and four links to the United
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<PAGE> 34
States. This offer commits us to spend approximately EUR6.3 million
(approximately $6.1 million) before the end of 2001. In addition, we expect to
incur annual maintenance fees not to exceed $150,000 per activated link.
In March 2000, we sold our New Zealand spectrum licenses congruent with our
business strategy of focusing on selected markets in Europe. We sold these
spectrum licenses for cash proceeds of approximately $7.8 million and recognized
a gain of approximately $6.4 million for the first quarter of 2000. These
spectrum licenses were purchased in 1998 for approximately $1.4 million.
INFLATION, FOREIGN CURRENCY EXCHANGE RISKS AND FOREIGN INVESTMENT RISKS
We may conduct business in countries that are experiencing a much higher
rate of inflation than the rate of inflation in the United States. This trend
could have a material adverse effect on our financial results. However,
inflation has not had a significant adverse effect on our historical operating
results.
We are exposed to changes in currency exchange rates and, as a result, our
financial condition and results of operations, as reported in U.S. dollars, may
be affected by a change in the value of the local currencies in which we
transact business as compared with the U.S. dollar. The functional currency of
our foreign subsidiaries is either the applicable local currency or the U.S.
dollar. We determine the functional currency based upon the primary economic
environment in which our foreign subsidiaries operate, typically, this is the
currency in which they will generate and expend cash. The assets and liabilities
of our foreign subsidiaries for which the functional currency is the local
currency are translated into the U.S. dollar at the applicable exchange rate in
effect at the end of the period being reported on, and our revenues and costs
are translated at the average exchange rate during the period being reported on.
In addition, we anticipate that our foreign subsidiaries will have debts or
receivables that are denominated in other currencies, exposing them to foreign
currency exchange rate fluctuations. We believe that in the future we will be
generating an increasing portion of our revenues and costs in foreign
currencies, which could have a negative impact on our earnings and cash flows
and financial condition. See "Risk Factors -- Foreign currency exchange rate
fluctuations may cause financial losses."
We are also affected by the political and economic factors in each foreign
country that could negatively affect our earnings and cash flows. We anticipate
that with the introduction of the euro currency, we may experience a lesser
impact from local political or economic changes in European Union countries such
as Germany.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their then existing sovereign
currencies (the legacy currencies) and the euro and adopted the euro as their
common legal currency on that date. Denmark, Greece, the United Kingdom and
Sweden are not currently participating. The legacy currencies are scheduled to
remain legal tender in the participating countries as denominations of the euro
until January 1, 2002. During the transition period, public and private parties
may pay for goods and services using either the euro or the participating
countries' legacy currency.
We have purchased and specified our business support systems, including
billing, to accommodate euro transactions and dual currency operations during
the transition period. In addition, we intend to require all vendors supplying
third party software to us to warrant compliance.
We will be dependent on banks, customers and other providers to complete
business transactions and we will be exposed to problems inherent in these
third-party systems. During the transition period, to the extent we are
supplying local service, we can continue billings and collections in the legacy
currency to avoid euro conversion problems. However, to the extent we have
international transactions in European Union countries, we will be exposed to
euro-related risks.
The establishment of the European Monetary Union may have a significant
effect on the economies of the participant countries. There can be no assurance
as to the relative strength of the euro against other
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<PAGE> 35
currencies. Since a substantial portion of our net sales will be denominated in
euro or legacy currencies, we will be exposed to that risk.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investment portfolio and interest rate sensitivity. We do not think we are
exposed to significant changes in fair value of our investment portfolio because
of our investment strategy. Under our investment policy, we invest primarily in
financial instruments that meet high credit quality standards and generally have
a maturity of one year or less. These financial instruments include obligations
of the United States government or any European Economic Community member
government or any agency thereof guaranteed by the country, certificates of
deposits, money market deposits, and commercial paper with a rating of A-1 or
P-1, SP1, MIG1 or VMIG1.
Interest income earned on our investment portfolio is affected by changes
in short-term interest rates. We are thus exposed to market risk related to
changes in market interest rates. To date, we have managed these risks by
monitoring market rates and the duration of our investments.
Impact of foreign currency rate changes. We are exposed to foreign exchange
rate changes related to the monetary assets and liabilities and to the financial
results of our foreign operating subsidiaries when their respective financial
statements are translated into U.S. dollars in consolidation.
Our operating subsidiaries' monetary assets and liabilities are subject to
foreign currency exchange risk because purchases of network equipment and
services may be denominated in currencies other than the subsidiary's own
functional currency.
The spot rates and the average spot rate for the period for the euro,
Deutsche mark and Polish zloty are shown below per U.S. dollar.
<TABLE>
<CAPTION>
EURO(1) DEUTSCHE MARK ZLOTY
------- ------------- -----
<S> <C> <C> <C>
March 31, 2000.......................................... 1.04 2.03 4.13
3 months ended March 31, 2000 -- Average................ 1.01 1.98 4.11
December 31, 1999....................................... 0.99 1.95 4.13
12 months ended December 31, 1999 -- Average............ 0.94 1.84 3.96
December 31, 1998....................................... 0.86 1.68 3.50
12 months ended December 31, 1998 -- Average............ -- 1.76 3.49
December 31, 1997....................................... -- 1.79 3.51
12 months ended December 31, 1997 -- Average............ -- 1.73 3.28
</TABLE>
- ------------------------------
(1) The euro was not legal tender before January 1, 1999.
We intend to manage exchange rate risk by causing our operating
subsidiaries to incur financing liabilities denominated in their own functional
currency. In addition, under our agreement with Westdeutsche Landesbank, we may
be required to take actions to hedge currency exchange exposure affecting the
Polish zloty. We will continue to evaluate our exposure to other foreign
currency exchange rate risks and may adopt hedging strategies in the future.
29
<PAGE> 36
BUSINESS
We provide broadband, communications and information services to business
customers in selected European markets. Some of the services we currently offer
include broadband and dial-up Internet access, high capacity data transport,
long-distance voice services and virtual private networks. We intend to be a
single source provider of services to meet our customers' broadband, Internet
and communications needs.
We have commercial operations in Germany and Poland and operations on a
non-commercial trial basis in France, Hungary and Belgium. We hold spectrum
licenses in Germany and Poland, where we are expanding our broadband wireless
networks to deliver our services. We have additional spectrum licenses in
Finland, Norway, Spain and Switzerland and expect to receive a spectrum license
in Ireland. In addition, we have a number of license and development activities
underway in other European countries. We also plan to build DSL networks this
year to deliver broadband services to business and residential customers in
Germany, Denmark and Finland.
INDUSTRY OPPORTUNITY
Broadband services offer companies the opportunity to increase productivity
and manage resources more efficiently by increasing the speed of data transfer
between customers, suppliers, business units and office locations. In addition,
broadband Internet access should allow businesses to exploit the Internet more
efficiently as a distribution channel for goods and services and as a means for
improving customer service and managing information and products. Ovum, Inc.
projects total peak hour traffic for voice, Internet and corporate data in
Europe will grow 87% annually from 43.6 Gbps (Gigabits per second) in 1999 to
1,866.4 Gbps in 2005. Ovum also estimates that corporate data and Internet
traffic accounted for 76% of peak hour traffic in 1999 and will account for 97%
in 2005. Datamonitor, Inc. projects that by 2004, 5.4 million businesses in
Europe, accounting for 65% of all European businesses, will be users of the
Internet.
In addition to an increase in Internet use, revenue for European Internet
access is expected to increase substantially over the next few years. The
following table shows estimated historical and projected Internet access
spending in Western Europe from 1999 to 2003, and illustrates a 27.1% compounded
annual growth rate over that time period.
Projected Internet Access Spending -- Western Europe
($ in billions)
[Table showing European Internet access spending in Western Europe during a
five-year period, including 1999 through 2003]
<TABLE>
<S> <C>
1999 5
2000 6.8
2001 8.8
2002 11
2003 13
</TABLE>
Source: International Data Corporation
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<PAGE> 37
We believe that most businesses in Europe currently have access to the
Internet only through dial-up modem connections. These standard connections are
slow and typically require the user to wait before a connection is established.
Dial-up connections in Europe are generally more expensive than similar services
in the United States, often requiring users to pay for local calls based on the
duration of the call. Fiber optic cable, an alternative to dial-up connections,
is significantly faster, but expensive to install and reaches only the largest
buildings in the more developed markets. We believe that fiber optic cable
penetration in Europe is significantly below that in the United States. We
believe that more cost-effective broadband technologies offer attractive
alternatives to fiber optic cable.
While there is substantial fiber infrastructure connecting major cities and
within many commercial districts in Europe, we believe that very few businesses
have high-speed connections to this infrastructure. Broadband wireless
technology and DSL offer economical solutions to connecting businesses to
existing fiber rings. Our wireless broadband networks are engineered to allow
transmission speeds of up to 30 Mbps, which is 530 times greater than the
fastest available dial-up modem connections. DSL technology, which enables the
transmission of digital signals over existing copper telephone wires, can be
engineered to allow transmission speeds of up to 6 Mbps, which is 106 times
greater than the fastest available dial-up modem connections. Additionally, both
broadband wireless and DSL provide Internet access that is always on, meaning
that users do not need to dial and wait for a connection in order to transmit
and receive data. International Data Corporation reports that broadband access
is currently the fastest growing segment of the Internet access market, and
projects that Europe will exhibit annual growth rates in this segment near, or
over, 100% from 1999 to 2003.
As broadband access is made more readily available, we believe European
businesses will increase their use of the Internet and bandwidth intensive
business applications. This increase in usage should result in a demand for
additional value-added services, which we plan to provide. International Data
Corporation projects that demand in Europe for value-added services such as web
hosting, network management and application hosting will grow at 47.6% annually
from $528 million in 1998 to $3.7 billion in 2003.
OUR STRATEGY
We intend to capitalize on the increasing demand for broadband Internet
communications services in Europe to increase our revenues. To meet this
objective, we will focus on the following strategies:
Rapidly and cost-effectively deploy our wireless and DSL networks. In each
of the markets where we operate or plan to enter, we seek to establish a strong
market presence in the early stages of broadband services competition. Our
strategy includes several elements:
- obtain roof rights for our wireless networks and co-location sites for
our DSL networks, which we generally commence prior to obtaining
licenses;
- deploy our networks in the largest cities in our license areas first;
- commence wireless network operations with initial base stations in the
central business district of a city;
- rollout additional base stations and DSL co-locations in a city as needed
to meet customer demands; and
- expand our services into other cities once we have established a presence
in the largest cities.
Our network deployment strategy allows us to cost-effectively establish
broadband connections without laying underground cable. For our licensed
wireless networks, once we secure building access we are able to quickly install
an antenna and establish a connection to a customer. For our DSL networks, once
we secure space and locate our equipment in or near an incumbent carrier's
central office we can quickly market our services and connect customers and
buildings to the central office using a digital modem at the customer site.
Accordingly, both technologies allow us to tie capital expenditures directly to
demand.
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<PAGE> 38
Aggressively expand the base of customers connected to our broadband
network. In markets with a more developed telecommunications infrastructure,
such as Germany, we intend to focus initially on providing broadband access for
small- and medium-sized businesses that have not accessed such services due to
high costs and limited availability. In markets with a less developed
telecommunications infrastructure, such as Poland, we intend to focus on
business customers of all sizes.
We have begun to market our services aggressively. In Germany, we launched
an advertising campaign in the first quarter of 2000 that offered bundled
dial-up Internet access and long-distance voice services targeting small- and
medium-sized companies. As we deploy our broadband networks, we intend to
migrate customers to our new high-speed network. In Poland, we have already
connected 124 buildings to our wireless network, and we are aggressively
marketing our services to businesses in those buildings with our direct sales
force and third party distributors. We continue to connect our wireless network
to buildings that have potential customers.
Serve as a single-source provider of broadband Internet, communications and
information services to our customers. European businesses are increasing their
use of the Internet, other web-based applications and services and
wide-area-networks that connect multiple offices or connect businesses with
their customers or suppliers. To capitalize on this trend, we intend to offer
our customers a full suite of integrated Internet, communications and
information services. We believe that our customers will benefit from being
served by a single source provider as we expect to reduce their costs of
managing vendors, hardware and software. By providing our customers with a
single source solution, we believe we can increase customer satisfaction, reduce
customer churn and better leverage our network infrastructure and sales and
marketing resources.
Retain experienced local management teams. We select our local management
teams based on their knowledge of the market and ability to effectively develop
new businesses. We believe that business customers seek service providers that
are readily available to respond to service requests and with which they can
build long-term relationships. We have local managers who understand the culture
of their markets, have existing business relationships in those markets and can
design services and marketing campaigns to target local business customers'
needs. Our local managers retain day-to-day operating control of their
businesses.
Obtain additional spectrum and telecommunications licenses. As the demand
for broadband services has increased, governments, in an effort to increase the
capacity of telecommunications networks and allow new competitive carriers to
provide advanced and traditional telecommunications services, have begun
allocating previously unlicensed spectrum and requiring incumbent carriers to
provide competitors with access to their local networks. The process of
licensing spectrum in Europe is generally different than in the United States,
where spectrum is licensed through an auction process with licenses generally
awarded to the applicants that submit the highest bids. In most cases, European
government agencies make licenses available through a tender process that
requires applicants to submit detailed business plans, demonstrate their
qualifications for building broadband wireless networks and otherwise prove that
they are the best candidate for spectrum awards. The fees associated with the
tender process are significantly less than the costs of acquiring a license in
an auction process. We have applied for spectrum licenses in seven countries
that have awarded licenses and were granted licenses in six of them. We also
recently received a nationwide spectrum license in Switzerland through an
auction. Through participating in the tender processes, we have gained
substantial experience and knowledge that will facilitate our preparation of
future applications. We have pending applications in six additional European
countries and are preparing applications in four European countries that have
initiated their licensing application procedures. In addition, we have qualified
to participate in an auction process for 26 GHz spectrum licenses in Austria.
Develop strategic relationships with industry leaders and local
partners. We partner with strong local strategic investors who assist us with
the licensing process and reduce the uncertainties of local political and
regulatory issues. In addition, we seek partners who have strong market presence
and can help us quickly deploy our networks and market our services. We intend
to pursue strategic relationships in our
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<PAGE> 39
target markets to access equipment, sales channels, services, skilled
installation and engineering personnel and equipment financing.
Pursue strategic acquisitions to broaden our service offerings. We intend
to continue evaluating opportunities to acquire licensed telecommunications
companies. We also may acquire companies that have value-added products, such as
web-based services, that will enhance our service portfolio and allow us to
provide new and innovative solutions to our customers. To increase our presence
in Poland, we agreed to acquire CEL Polska, a company that uses point-to-point
wireless licenses to provide leased capacity. We plan to use CEL Polska's
nationwide wireless license to provide broadband connections to large business
customers and lease broadband capacity to other telecommunications providers. In
addition, CEL Polska would provide us with existing customers, roof rights and
additional experienced managers.
PRODUCTS AND SERVICES
We are developing a broad range of innovative products and services for our
customers. We determine the specific products we offer in each market based on
the needs of the local customers, regulations and competition. In aggregate,
across our markets, we currently offer bundled and stand-alone communications
products and services that include:
- Broadband Internet Access. Our always-on service combines an Internet
Protocol, or IP, link from customer premises to our high-speed network
with Internet access. We offer access bandwidth from 64 Kbps to 2 Mbps.
Our Internet access service currently includes leased line access and
corporate dial-up connectivity for customers who are off-location. We
install a full range of hardware and software products required for
Internet connections, including routers, servers, browsers and other
products.
- Digital Leased Circuits and Virtual Private Networks. Business customers
may lease dedicated circuits to establish links to suppliers or
customers, or to establish private networks between locations. Services
will feature both fractional and full 2 Mbps access speeds. Connections
may be within a single city or may span several cities. These networks
can be used for data and voice communications.
- E-mail. We provide e-mail services that enable our business customers to
outsource their e-mail requirements and e-mail management to our trained
systems administrators and support staff. We establish e-mail accounts,
manage the associated mail servers and provide full accessibility to
e-mail for our customers while saving them the investment in additional
servers and staff. We also provide Internet services such as Internet
domain name registration.
- Business and Residential Voice Telephony. In markets where regulatory
authority permits, we provide voice telephony services to businesses and
residential customers. These services are high-quality voice services,
provided over traditional delivery systems. We plan to deliver these
voice services using IP when the technology is commercially viable.
In addition to our current products and services described above, we plan
to offer the following enhanced services:
- Web hosting and co-location. We plan to provide customers a full range of
web hosting services, including hosting, design, site maintenance and
ongoing consulting services through a combination of internal efforts and
the use of independent partners. We also plan to offer web site
co-location, where a customer-owned web server is located at one of our
points of presence for higher reliability. We will enable our web hosting
customers to take advantage of the marketing, customer service, internal
company information and other benefits offered by this presence. We also
intend to implement emerging content distribution technologies such as
content replication, also known as mirroring, and caching for enhanced
end user performance.
- Security. Security solutions are a vital component for most businesses
connected to the Internet. Our security solutions will provide customers
with the ability to prevent unauthorized users from
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<PAGE> 40
accessing their corporate network and with secured transmission of
company data over the Internet using encryption and other technologies.
- Electronic commerce solutions. We intend to provide secure e-commerce
solutions that will allow our customers to sell products or services
directly to customers, purchase supplies, coordinate inventory systems
with suppliers, process electronic payments, track shipments and perform
other business functions.
- Managed professional services. Our target customers typically do not have
the internal resources or personnel to design and maintain IP networks,
Internet service and web sites. As more businesses use the Internet, we
expect they will rely on outside support for management of their
information technology applications. As a result, we believe it will be
increasingly important for us to offer onsite technical consulting and
managed network solutions customized for each subscriber.
- Enhanced products and services. Customers are increasingly seeking to
tailor the use of the Internet to their businesses. We plan to serve
these needs through the packaging and configuration of third-party
applications, such as data storage and retrieval, IP telephony, which
permits users to make voice calls on the Internet, Internet faxing, and
other applications that may be developed. Additionally, we intend to
explore offering our customers content-related services such as audio and
video servers for streaming media, audio and video conferencing, shared
application services and transaction billing.
OPERATIONS AND LICENSES
We are actively growing our business and have operations and projects at
various stages of development. These consist of commercial operations,
non-commercial trial operations and development work associated with licenses
that we have been awarded. The tables below summarize information about our
spectrum and other licenses and demographics for countries in which we have
licenses:
<TABLE>
<CAPTION>
BROADBAND WIRELESS SPECTRUM LICENSES
------------------------------------------------------- CLEC(1)-VOICE
38GHZ ---------------------
2.6GHZ 3.5GHZ 10.5GHZ 24-28GHZ (POINT-TO-POINT) FACILITIES SERVICES
------ ------ ------- -------- ---------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Germany.............. X X X X X
Spain................ X
Poland............... X X(2)
Austria.............. X X
Switzerland.......... X
Finland.............. X X X
Norway(3)............ X
Ireland(4)........... X
</TABLE>
- ---------------
(1) Competitive Local Exchange Carrier
(2) This license is held by CEL Polska, which we have agreed to acquire.
(3) We have received a license in Norway but an unsuccessful applicant has
challenged the Norwegian tender process. See "-- Other Licenses
Awarded -- Norway."
(4) Finalization of the Irish licensing process has been postponed pending the
outcome of a legal challenge to the Irish tender process by an unsuccessful
applicant. See "-- Other Licenses Awarded -- Ireland."
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<PAGE> 41
In addition, we have licenses in France, Belgium, Hungary and Ireland to
provide services on a trial basis.
<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED PERCENTAGE NUMBER OF
ESTIMATED POPULATION OF POPULATION BUSINESSES ESTIMATED
TOTAL COVERED BY COVERED BY COVERED BY TELECOMMUNICATIONS
COUNTRY OUR SPECTRUM OUR SPECTRUM OUR SPECTRUM REVENUES IN
POPULATION LICENSES LICENSES LICENSES 1999(1)
---------- ------------ ------------- -------------- ------------------
(IN MILLIONS) (IN THOUSANDS) (IN BILLIONS)
<S> <C> <C> <C> <C> <C>
Germany(2)............ 82.1 37.3 45.4% 1,069 $36.2
Spain................. 39.2 39.2 100.0 2,475 11.3
Poland(3)............. 38.6 38.6 100.0 2,300 3.8
Austria(4)............ 8.1 -- -- -- 3.3
Switzerland........... 6.9 6.9 100.0 373 3.8
Finland............... 5.2 2.0 38.5 85 2.3
Norway(5)............. 4.4 4.4 100.0 115 2.0
Ireland(6)............ 3.6 3.6 100.0 146 2.2
----- ----- ----- -----
Total....... 188.1 132.0 6,563 $64.9
===== ===== ===== =====
</TABLE>
- ------------------------------
(1) Amounts converted from euros using the March 31, 2000 exchange rate for
Germany, Spain, Sweden, Austria, Finland and Ireland. 1998 data converted
from local currencies using the March 31, 2000 exchange rate for Switzerland
and Norway. Poland data is for 1998.
(2) In Germany, we have licenses in various spectrum bands. Population covered
is derived by eliminating overlapping coverages.
(3) This estimate represents CEL Polska's nationwide license for
intra-provincial services. CEL Polska's license allows it to use spectrum on
a link by link basis as it acquires customers. Formus Polska's
point-to-multipoint licenses cover an estimated population of 6.7 million
and 722,000 businesses in 11 Polish cities. Poland data is for 1998.
(4) Our Austrian switched voice licenses cover approximately 250,000 businesses.
(5) We have received a license in Norway but an unsuccessful applicant has
challenged the Norwegian tender process. See "-- Other Licenses
Awarded -- Norway."
(6) Finalization of the Irish licensing process has been postponed pending the
outcome of a legal challenge to the Irish tender process by an unsuccessful
applicant. See "-- Other Licenses Awarded -- Ireland."
GERMANY
Overview. During 1999 and 2000 we were granted spectrum licenses to provide
wireless broadband services in certain regions of Germany. The table below
outlines the spectrum we were granted and the population and businesses covered.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
SPECTRUM POPULATION COVERED BUSINESSES COVERED
- -------- ------------------ ------------------
(IN MILLIONS) (IN THOUSANDS)
<S> <C> <C>
2.6 GHz............................ 31.0 877
3.5 GHz............................ 11.6 364
26 GHz............................. 10.6 326
</TABLE>
These licenses cover 37.3 million in total population and approximately
1,069,000 businesses, respectively, adjusted for overlap. Our licenses cover
primarily commercial areas in metropolitan vicinities as well as smaller cities
where there are fewer telecommunications competitors. In addition, we hold
nationwide competitive local exchange carrier (CLEC) licenses, which allow us to
own and operate telecommunications facilities and provide telecommunications
services over networks constructed by third parties. These licenses enable us to
offer local and long distance telephone services and data transmission services
to a population of approximately 82 million.
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<PAGE> 42
Market opportunity. The German telecommunications market is Europe's
largest and is estimated to be approximately $36.2 billion for 1999. This market
has also become one of the most liberalized in Europe since January 1998, when a
new regulatory program was adopted that allows new entrants to compete with
Deutsche Telekom. Germany represents an attractive market for broadband
telecommunications due to the following factors:
- Europe's largest economy with a GDP of $1.8 trillion in 1998;
- liberalized telecommunications regulatory environment that favors
competition from new entrants and mandates interconnection with the
incumbent carrier on reasonable terms;
- robust national infrastructure on which to build local connections;
- population density of approximately 235 people per square kilometer;
- revenues for data services, including Internet access, that are expected
to grow at a compounded annual growth rate of approximately 30% compound
through 2005; and
- over nine million estimated Internet users in 1999.
Rollout plan. We currently provide our customers with Internet access and
voice services over wired networks. Customers can currently select us for the
following services on a bundled or stand-alone basis: Internet dial-up service,
pre-selected long distance telephone service and call-by-call long distance
telephone service using a prefix code to obtain our reduced rate. We were the
first German operator to bundle long distance voice and Internet services.
As of March 31, 2000, we had deployed four wireless base stations
connecting a total of twelve buildings within Hamburg, Rosenheim, Landshut and
Hildesheim. Using our wireless network, we are providing trial customers with
high-speed Internet access, virtual private networks and voice services using
IP. We plan to offer these services on a commercial basis in the third quarter
of 2000 and to deploy additional base stations. We will expand our broadband
services to include web-hosting and virtual private network services. In order
to support the rollout in major German cities, we have established six regional
operating centers with sales and technical staff.
We also plan to launch DSL service later this year in markets where we may
not have wireless licenses or where we believe the combination of wireless and
DSL provides the best opportunities for growth. To this end, we are establishing
co-location space in 130 of Deutsche Telekom's central facilities for use by our
customers. German regulations obligate Deutsche Telekom to provide co-location
space within four months of application. We plan to launch our DSL service
initially in those cities in which we have, or will later this year, deploy our
voice and IP network services, including Munich, Frankfurt, Stuttgart,
Dusseldorf, Hamburg and Berlin.
We have installed digital telephone switches in Munich, Hamburg and
Stuttgart, where we currently offer long distance voice and dial-up Internet
access services as a facilities-based CLEC. Currently, we have 10 points of
interconnection with Deutsche Telekom and one with another carrier. We initiated
commercial services in July 1999, and as of March 31, 2000, had approximately
5,500 pre-select long distance and dial-up Internet customers.
We expect to install three additional digital telephone switches in
Frankfurt, Dusseldorf and Berlin during 2000. In order to optimize our sales
structure and reduce interconnection costs, we plan to add 13 additional points
of interconnection by December 31, 2000. We expect to build a national digital
telephone switching network, targeting other major cities and subsequently their
surrounding areas. We have an interconnection agreement with Deutsche Telekom
that has an indefinite term and is subject to termination by either party by the
end of each year if six months' notice is given. We also have interconnection
agreements with several other German telecommunications operators.
Subscriber Management. To date, we have marketed our prefix dialing
telephone services, "call by call" and "surf by call," through coordinated print
and television advertising campaigns. The prefix dialing
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services enabled potential customers to test our services, as these services do
not require service contracts. For contract services, such as preselected
carrier voice, Internet services, and, in the future, wireless broadband and
DSL, we plan to use inbound and outbound telemarketing sales agents and a direct
salesforce.
To provide customer service and support, we have established a centralized
customer service center in Munich. The center's operations consist of staffed
telephone lines for new business inquiries, customer care and technical support.
The center also has a complete order management system that handles the entire
subscriber order process, including credit checks, order entry and activation.
Our regional sales representatives and dealers also use this customer service
center to process the orders they generate.
Licenses. We have been allocated nearly 380 spectrum licenses that entitle
us to use 28 MHz of spectrum in the 2.6 GHz frequency band, 28 MHz of spectrum
in the 3.5 GHz frequency band and 56 MHz of spectrum in the 26 GHz frequency
band. The frequency permits for the 3.5 GHz and 26 GHz bands have an indefinite
term. The 2.6 GHz frequency allocations may expire at the end of 2007, if the
German telecommunications regulatory agency determines that these frequencies
should be used to expand the spectrum available for advanced mobile wireless
service. Our frequency permits have several requirements, including a
requirement to use the spectrum within one year after grant. We could be fined
or possibly lose our permits if we fail to meet these requirements in those
areas where we do not yet have operations. At the time we acquired our initial
interest in Callino, our German operating company, it held licenses to provide
national switched voice and data transmission services. These licenses currently
cover the entire country of Germany and have an indefinite term with no buildout
requirements.
We pay a single fee for each frequency channel that has been allocated
based on the population covered by the permit. We must also pay a small annual
fee for each radio device installed and file an annual report on our general
operations.
Ownership and management. We own 100% of Callino. We acquired our interests
through a number of transactions between September 1998 and September 1999.
POLAND
Overview. In 1997, we and our Polish partner formed Formus Polska and
obtained a license to provide broadband services in the ten largest cities in
Poland. Formus Polska's license areas contain an estimated population of 6.7
million and approximately 722,000 businesses. We currently hold a 91.1% economic
interest in Formus Polska.
In July 1999, we agreed to purchase 100% of CEL Polska for $2.7 million and
have funded its operations since that time through a bridge loan. CEL Polska
provides intra-provincial leased capacity to transport data for
telecommunications carriers pursuant to a license that covers all provinces.
This potential acquisition is subject to receiving governmental approval. The
agreement provides both parties with termination rights if the acquisition is
not closed by May 31, 2000. If the acquisition is not consummated by May 31,
2000, a portion of the outstanding principal and unpaid interest on the bridge
loan becomes immediately due and payable.
Market opportunity. Poland is one of the world's largest emerging markets
with a population of over 38 million. Poland represents an attractive market for
broadband telecommunications due to the following factors:
- few competing operators;
- stable, growing economy with estimated GDP growth of 4.1% in 1999 and
projected GDP growth of 5.2% in 2000;
- an underdeveloped telecommunications infrastructure;
- 1.5 million Internet users at the end of 1999, projected to grow to as
many as 7.0 million by 2004; and
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- liberalization of telecommunications regulation due to Poland's expected
entry into the European Union.
While some telecommunications infrastructure projects have been initiated, we
believe the emerging business market is still significantly underserved. In
particular, broadband communication capabilities are generally unavailable.
Rollout plan. Our operations are initially focusing on network deployment
in Warsaw, followed by other cities, and are expected to cover 6.7 million
people by the end of 2000. We have eight operational base stations in Warsaw,
three in Lodz, two in Gdansk-Gydnia-Sopot, one in Katowice and one in Poznan. In
total, we plan to establish 38 base stations to cover 10 cities in our licensed
areas. We plan to launch service in the remaining five cities by the end of
2000.
We launched commercial operations of our network in Warsaw in May 1999.
Currently, 117 business customers are using our services, and we have agreements
with another 121 business customers that we are in the process of activating. We
offer our customers high-speed Internet access, virtual private networks, basic
e-mail service and domain name registration. CEL Polska currently has 160 links
to transport data for seven telecommunications providers and has agreements to
provide 11 additional links. CEL Polska has a number of antenna site leases,
including roofs of government-owned buildings, some of which may require further
governmental approval.
Formus Polska currently has roof rights for 311 buildings, 36 of which are
for base stations. Formus Polska has 124 terminal stations deployed connecting
buildings to its base stations. As demand dictates, we will expand the network
to cover more businesses and a larger area within each city.
Initially, we intend to provide customers with both broadband Internet
access and local- and wide-area network connections at a variety of connection
speeds and capacities. We anticipate that we will provide our customers with
higher capacity connections over time as their usage of the Internet and the
availability of more bandwidth-intensive products increases. In addition, we
believe that providing these basic services will give us an advantage as we
market incremental value-added services to our customers.
Formus Polska has an interconnect agreement with TEL-ENERGO that provides
data transport capacity between the cities where we are deploying our wireless
network. The agreement is terminable upon 12 months' notice or with shorter
notice periods in the event of breach.
Supply agreements. In May 1999, we entered into an agreement with Alcatel
for the purchase, supply and installation of equipment for our broadband
network. This agreement also provides that Alcatel will furnish support,
maintenance and training services and will process our applications for
frequency for those sites where it supplies equipment. Under this agreement, we
have agreed to purchase 80.0% of our base station and terminal station equipment
requirements in Poland from Alcatel at specified rates subject to standard
commercial terms and conditions. The agreement provides for equipment purchases
in several stages and terminates in June 2003. We may decide at any time not to
proceed with further stages. We have a EUR120 million ($115.4) financing
facility for equipment and services.
Licenses. In October 1997, the Ministry of Telecommunications granted
Formus Polska a 10-year license, subject to extension, to provide
telecommunications services in 11 cities, including the ten largest cities in
Poland, covering an aggregate population of approximately 6.7 million. The
license authorizes Formus Polska to provide telecommunications services,
including Internet access, data transmission services and private network voice
services limited to 1,000 termination points and to build a telecommunications
network. The private networks for voice are limited to companies operating in
the areas of finance or insurance services or entities and branches of
government administration. The license allows Formus Polska to use 1.3 GHz of
spectrum from the frequency band spanning 27.5-29.5 GHz for point-to-multipoint
links as well as for interconnection of base stations in its network. Although
the license provides that spectrum has been set aside for Formus Polska's use,
it must apply to the Polish State Radio Communications Agency for definitive
allocation of this spectrum when its network is in place. Formus Polska has
obtained this definitive allocation for its Warsaw network and some
point-to-point links in
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Warsaw, Gdansk and Gdynia, and it expects to obtain similar definitive
allocations in each of its other licensed areas as it activates its network.
In April 1998, the Polish Ministry of Telecommunications granted CEL Polska
a 15-year license, subject to extension, to provide intra-provincial wireless
communications service to network operators over point-to-point connections
using spectrum in the 38 GHz band. The license permits CEL Polska to offer
intra-provincial services, covers all of the provinces in Poland and allows CEL
Polska to establish specific broadband connections upon the filing of requisite
documentation. The license does not allow CEL Polska to offer services that
cross area code zones. During the first half of 1999, CEL Polska applied for
additional wireless licenses that would allow it to provide its services to
retail customers and to install equipment on residential buildings. We cannot
assure you that CEL Polska will obtain these additional licenses.
Ownership and management. We own 49.0% of the voting securities of Formus
Polska. Under Polish telecommunications law and Formus Polska's license, our
capital share and voting interest in Formus Polska cannot exceed 49.0%, and a
majority of both Formus Polska's management and supervisory boards must be
Polish citizens domiciled in Poland. We currently hold a 91.1% economic interest
in Formus Polska, which reflects our proportion of shareholder funding of this
company to date.
Through Formus Polska's organizational documents and shareholders'
agreement, we have significant voting and other rights with respect to
supervisory board and shareholder decisions affecting Formus Polska. The
supervisory board oversees Formus Polska's affairs, while the management board
is responsible for the day-to-day operations of the company. Formus Polska's
charter provides that two of its five supervisory directors be elected directly
by us and that the remaining three supervisory directors be elected by all of
the shareholders. We and the other shareholder have agreed that one of the three
remaining supervisory directors will be a director designated by us.
Representation on the management board is proportionate to the shareholders'
economic interests.
In connection with a supply agreement and a financing arrangement, we have
granted Alcatel an option to obtain a 2.0% voting and economic interest in
Formus Polska for a nominal amount. If the option conditions and legal
requirements are met, the option may be exercised after September 15, 2000, and
it expires on the earlier of September 15, 2005, or the listing for trading of
Formus Polska's common shares.
Prior to closing our planned purchase of 100% of CEL Polska, a four-person
transition committee has been established to review the operation of CEL Polska
and consider strategies for integrating CEL Polska's and our businesses. We
appointed two members to the transition committee and the selling parties
appointed two members.
OTHER LICENSES AWARDED
In addition to our operations in Germany and Poland, we have been awarded
licenses for other European countries that we intend to develop as quickly as
practicable.
Austria. We hold nationwide landline telecommunications licenses that
provide us access to a population of approximately 8.1 million and an estimated
250,000 medium- to small-sized businesses. We are registered as one of eighteen
companies that will participate in a 26 GHz spectrum auction that is scheduled
to commence in mid-2000.
Finland. In July 1999, we obtained broadband spectrum licenses that allow
us to provide services using 3.5, 10.5 and 26 GHz frequencies in 15 cities
covering a population of approximately 2.0 million and an estimated 85,000
businesses. Our licenses allow us to be one of the first market entrants to
provide fixed wireless access services. Because we have obtained licenses for a
total of 336 MHz in high- and low-frequency bands, we will be able to provide
telecommunications services to a wide variety of customers, including large-,
medium- and small-sized businesses and potentially some residential customers.
Our licenses require us to begin operations by the end of 2000.
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Ireland. In September 1999, we were notified of our right to a nationwide
broadband spectrum license for 112 MHz of spectrum in the 26 GHz frequency band.
This license covers approximately 3.6 million people and an estimated 146,000
businesses. We do not know all of the terms and conditions that would be
included in this license. Because of a legal challenge by an unsuccessful
applicant for a license awarded to another company, the Irish telecommunications
regulator has postponed finalization of the issuance of all spectrum licenses
until the courts have ruled on the challenge. We believe the court will issue
its ruling by the end of 2000.
Norway. In March 2000, we obtained a broadband spectrum license for 112 MHz
in Norway in the 26 GHz frequency range. Our license covers a total population
of approximately 4.4 million and an estimated 116,000 businesses. Because our
license is in the high-frequency band, we expect that we will target large- and
medium-sized businesses in Norway's major cities. Our 12-year license requires
us to commence operations in nine cities within one year from the grant of the
license and in another 15 cities within two years from the grant. An
unsuccessful applicant has challenged the license process but, pending the
outcome of the legal challenge, we are allowed to offer services under our
license.
Spain. In March 2000, Abrared, S.A., a consortium we and our local partners
formed to apply for wireless licenses in Spain was awarded a nationwide license
for 40 MHz in the 3.4 to 3.6 GHz frequency range covering approximately 39.2
million people and a total of approximately 2,475,000 businesses. Abrared
expects to use this license to provide broadband Internet and data
communications services to small- and medium-sized businesses and residential
customers. The terms of our award require us to start operations in 22 cities
within the first twelve months of receiving the award. Our partners include a
Spanish utility company, a Spanish cable company and regional savings and loan
companies. We and our partners are finalizing the legal formation of Abrared, in
which we expect to have a substantial minority ownership interest.
Switzerland. In March 2000, we participated in the Swiss government's
auction of several spectrum licenses. We were successful in obtaining a
nationwide license for 56 MHz in the 26 GHz frequency range for $33.3 million
covering a population of approximately 6.9 million and an estimated 372,000
businesses. To accelerate our deployment and entry strategy in Switzerland, we
purchased a CLEC operator for approximately CHF 8.1 million ($4.9 million) in
April 2000. This acquisition will accelerate our plans to begin building
wireless networks in Geneva and Zurich, Switzerland's largest commercial cities,
by the end of 2000.
TRIAL LICENSES
We are engaged in non-commercial trial operations in three countries in
cooperation with their regulatory agencies in order to prove the viability of
broadband wireless technology in those countries. We also have a trial license
in a country where we have not yet commenced trial operations. We are using
these trials to develop close relationships with the local regulators and
believe that by doing so we may gain an advantage when submitting applications
for commercial license awards. Receiving a trial license does not assure receipt
of a commercial license.
France. In April 1999, our 85%-owned subsidiary obtained a trial license to
provide broadband wireless communications services in Strasbourg. The services
include Internet access, high-speed data and streaming video capabilities. We
currently provide Internet access with speeds of up to 2 Mbps to 12 customers
and expect to provide 15 to 20 business customers with broadband Internet access
until the telecommunications regulators award commercial licenses.
Hungary. In September 1998, we obtained a trial license to provide
broadband wireless services in Budapest. The initial trial provided broadband
data communication service to four customers at 12 locations and broadband
Internet access to one. We have added additional customers to the broadband
Internet access service, including an Internet cafe, a cable television operator
and a business hotel that allows its guests to have individual direct access to
the Internet from their rooms. During the trial, we plan to provide broadband
Internet access and leased broadband digital circuits for up to 20 customers at
approximately 30 locations. We expect the trial to last until the Hungarian
telecommunication authority
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awards commercial licenses, anticipated in late 2000. We also have initiated a
test of voice services over the Internet between Budapest and Denver, Colorado.
Belgium. In November 1999, we launched a telecom-IP services field trial in
the city of Oostende. The trial network, which operates in the 26 GHz band,
currently supports leased line, Internet access and voice over IP services to
several business customers. Over the next few months we expect to expand the
trial to include high-speed wide-area network connectivity by adding two new
clients with two sites each. The new customers will use Internet access in
addition to the wide-area network connections. We expect our Belgian trial to
continue until the regulatory authority awards commercial licenses, which is
anticipated in late 2000. The initial term of the trial license expires in June
2000.
Ireland. In December 1999, we obtained a trial license to allow end-to-end
functionality testing of our proposed Irish broadband wireless network. Our
trial license permits us to develop testing, construction, design, layout,
functioning, installation and maintenance processes and procedures in
preparation for our final spectrum license. Under license terms, we are not
limited in the services we may trial over the system and we are in the process
of installing equipment. We plan to test our high speed Internet access and IP
virtual private network services at speeds of at least 2 Mbps.
DSL DEPLOYMENT
We plan to use DSL to expand our customer base by servicing customers that
do not require the capacity offered by our wireless networks. DSL is a viable
competitive entry strategy in those markets where we do not have wireless
spectrum. In some countries we must obtain regulatory approvals to offer DSL.
According to International Data Corporation estimates, Europe will make up at
least 34% of the worldwide DSL market by 2003.
We are currently launching DSL services in Germany, Denmark and Finland.
Our DSL deployment will target small- and medium-sized businesses, as well as
residential customers, in areas outside of large metropolitan centers. In
Denmark, where we have not been awarded spectrum licenses and where we do not
need a telecom license to deploy DSL, we have obtained co-location rights in 17
central offices in Copenhagen. We intend to deploy our DSL network and begin
commercial operations in Denmark in mid-2000. We are also in the process of
preparing applications in a number of countries. For example, we have submitted
applications for co-location space in 314 central offices in the Netherlands. In
Germany, we are deploying our first DSL networks in three cities: Munich,
Hamburg and Stuttgart. We also plan to have equipment in 60 central offices in
Germany by the end of 2000.
In some markets, an incumbent may not be required to provide co-location
space in its central offices even though it has granted access to its local
network. This is the case in Finland, where we are planning to lease space for
our equipment in buildings next to the central offices. We will connect our
equipment to the incumbent's central office by purchasing or leasing fiber
connections. Because some incumbents charge very high fees for co-location
space, our strategy of locating equipment in nearby buildings will make the
deployment less costly.
DEVELOPMENT OPPORTUNITIES
We are aggressively pursuing additional telecommunications licenses across
Europe. In general, these licenses are awarded based on reputation, financial
condition and build-out plans. We believe that our broadband wireless expertise
improves our credibility and makes us a more attractive applicant to governments
considering license awards. We have filed applications for spectrum licenses and
other telecommunications licenses in six additional European countries. We
cannot assure you that we will be awarded licenses in any of these countries.
EQUITY INVESTMENT IN VELOCOM INC.
Pro forma for the issuance of preferred stock in mid-2000 to us and other
investors, we own 12.6% of VeloCom. VeloCom's strategy is to become a
facilities-based provider of integrated communications
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services to businesses and residential customers in major Latin American markets
that its management believes have high growth potential, lack of
telecommunications infrastructure and have favorable regulatory environments.
VeloCom has significant ownership interests in operating companies with licenses
in Brazil, including the Sao Paulo and Rio de Janeiro metropolitan areas. The
Brazilian licenses provide for public switched fixed voice telephone,
circuit-switched data, dial-up data and Internet services. VeloCom has a duopoly
with the incumbent provider for local voice services in its licensed territories
through at least December 31, 2001.
VeloCom holds licenses for the provision of voice and/or data services in
Brazil, Argentina and Uruguay. VeloCom began offering services in Brazil in
January 2000 and in Argentina in March 2000. VeloCom partners with multinational
companies with substantial in-country operating experience, such as Bell Canada
International, Inc. and Qualcomm Incorporated, as well as with South American
groups that it believes bring significant local operating experience. Under a
three-year technical services agreement with VeloCom, we will provide network
design, strategic planning and consulting services to VeloCom for a monthly fee.
In September 1999, we acquired our interest in VeloCom for $20.8 million in
cash and assets valued at approximately $7.5 million. In December 1999, we
purchased an additional $5.6 million of convertible preferred stock and have
agreed to purchase an additional $5.6 million of convertible preferred stock in
mid-2000. VeloCom currently plans to raise additional equity financing. Our
ownership interest will be diluted if VeloCom successfully completes any
additional equity financings in which we do not participate. See "Certain
Transactions -- The VeloCom Transaction."
SALES AND MARKETING
For each market we enter, we plan to have a tailored entry strategy and a
customized product menu. We intend to use a highly trained direct sales force to
identify and market our products to businesses. Generally, we plan to locate the
first radio site and DSL equipment near a central business district where most
businesses are clustered. As we expand our networks' coverage and our sales
force develops, we will begin to offer services to businesses in the areas
outside the central business district. We intend to design our network in each
city so that, once it is fully deployed, approximately 80.0% of the potential
customer base will be within the coverage area of our network. As our customer
base broadens, we intend to use other distribution channels for our services,
such as the marketing relationship in Poland that we have undertaken with Intel
Corporation and other technology companies. Pursuant to our agreement with
Intel, it will provide non-exclusive marketing assistance to us in certain
re-seller channels in specific cities in Poland. As a complement to our sales
force, we plan to use a number of print and advertising media to reach our
potential customers.
Initially, we intend to provide customers with broadband Internet access
and local- and wide-area connections for their data networks. We anticipate that
we will provide our customers with higher capacity connections over time as
their usage of the Internet and more data-intensive products increases. In
addition, we believe that providing these basic services will give us an
advantage as we market incremental value-added services to our customers, such
as web-hosting, co-location and applications hosting.
We sell our products and services through local sales efforts, supported by
local, regional and national advertising and promotion programs. Our local
direct sales and marketing forces act as our primary sales tools, but we also
maintain significant distribution capabilities through local resellers and
referral channels. We plan to continue expanding both our direct and indirect
sales capabilities.
Direct sales. Each of our local operations has a direct sales force.
Depending on the market, the local sales forces may include both telemarketing
and field representatives. Typically, telemarketing representatives handle both
inbound and outbound sales of basic services, and field sales representatives
handle sales
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of more complex services. We believe our sales personnel will position us in the
market as a full-service telecommunications provider of choice for our target
customers by:
- demonstrating how information technology systems are key strategic assets
for their businesses;
- offering competitive and innovative pricing that is simple and flexible;
and
- providing levels of customer service that exceed those of our
competitors.
Our local operations collect and maintain extensive customer and prospect
data that is used to identify likely users of existing and new services. To help
us identify these potential customers, we are developing a powerful database of
demographic information and geographical interfaces. This database, along with
network planning software, will allow our marketing department to quickly
identify potential customers in buildings in our coverage area. Depending on the
accepted practices and regulations of individual markets, we will contact
potential customers through outbound telemarketing, seminars, trade shows and
direct mail or fax.
Indirect sales. We believe indirect sales channels represent a significant
source of revenue and revenue growth. Our operating companies have various
indirect sales channels within their markets. These include selling end-user
services through a broad variety of channels, chosen on the basis of suitability
to specific market sectors. Channels include system integrators, telecom
equipment suppliers, telecom installers and service companies.
In addition, we plan to market our services in partnership with companies
that provide applications which are facilitated by high speed access. These
applications are key drivers for the demand for local access bandwidth. Examples
include e-commerce hubs, secure backup services, data warehousing providers,
managed applications providers, media providers and graphic design companies.
CUSTOMER CARE STRATEGY
Our customer care operations are decentralized, with locally responsive
service centers. In each region of operation, we will create uniform operational
procedures and supporting operational systems such as network operations,
customer care and billing. This concept minimizes the cost and time to market
and maximizes the uniformity of business structures across cities and regions.
We endeavor to allow sufficient flexibility for local legal, regulatory, and
marketing requirements.
We will establish account-based teams to support key accounts from sales to
customer care to network operations. We aim to build brand loyalty on recognized
standards of service and consistency. By creating a personal relationship with
our customers, we intend to become more familiar with their particular needs and
will customize our services to meet those needs.
SERVICE QUALITY GUARANTEE
We provide customers with a "Service Quality Guarantee." This guarantee
includes not only network and local loop availability, but also latency,
proactive outage notification and installation lead times. Our guarantee is an
integral part of our service and provides us with a competitive advantage over
many of our competitors that do not offer such guarantees.
We guarantee our customers that all connections provided are available at
their contracted capacity 99.7% of the time. We will credit a customer's account
a portion of the monthly fee if we fail to meet this guarantee during any given
calendar month. In addition, we guarantee our customers service start dates once
service has been ordered. If installation does not occur within a specified
period, customers are credited a portion of the installation cost.
COMPETITION
We intend to continue pursuing additional telecommunications licenses in
various European markets. Many of the bidders for the types of licenses we are
seeking are large European telecommunications
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providers and multinational companies. Often these other bidders have
significantly more resources and more extensive operating histories than we do.
United Pan-European Communications and other companies have demonstrated their
interest in providing broadband wireless services across Europe and, alone or
with local partners, may compete with us for the spectrum licenses we are
pursuing. The license application process generally is becoming more
competitive, and we expect this competition will continue to intensify as
additional European countries begin their license application processes. Some
countries have chosen to allocate spectrum through auctions. This may increase
competition as bidders who would generally not be successful in an application
process may seek to bid for licenses.
In markets where we have or obtain telecommunications licenses, we will
face competition from telecommunications providers using a variety of
technologies, including copper wire, coaxial cable, fiber optic cable, satellite
microwave, and other wireless systems. One of the areas of competition is the
ability to obtain roof-rights and co-location space with the incumbent carrier.
We anticipate significant competition in both of these areas. Some of these
competitors are major multinational companies and state-owned or privately-owned
incumbent telecommunications providers. Many of these companies have
substantially more financial resources and operating experience than we do.
MCIWorldCom, Versatel, and KPNQwest have already announced significant DSL
deployment plans for the European market.
Germany. We face competition from a number of established companies in
Germany. Our chief competitors include Deutsche Telekom, Mannesmann Arcor AG and
ViagInterkom GmbH & Co. Deutsche Telekom, the largest European telecom operator,
is 66.0% government-owned. It has invested heavily in recent years in a new
nationwide broadband network. In addition to traditional telephone services,
Deutsche Telekom offers data transport, high-speed residential data line and
online services, and it is developing DSL and Internet Protocol telephone
technologies. We also compete with over 100 licensed providers of telephone
services and over 100 licensed network services providers competing in the
regional and national telecommunications markets.
Poland. In Poland, we compete with several operators, including TPSA,
Telbank and Netia. TPSA is the state-owned telecommunications provider and, at
the end of 1998, had approximately 8.4 million voice subscribers. TPSA has
invested substantially in network development and traditionally has provided
broadband services to the largest customers in Poland.
Spain. We will compete with the incumbent carrier and with the five other
entities that were also awarded spectrum licenses in March 2000.
Switzerland. We will compete with the incumbent carrier and with FirstMark
and United Pan-European Communications, which also won national licenses in the
March 2000 auctions, as well as with up to five regional license holders in each
region of the country.
TECHNOLOGY
We currently deliver our broadband services through wireless networks and
soon plan to deliver them using DSL. These broadband technologies provide a
quickly deployed, cost-effective and high quality alternative to existing
telephone, data and video delivery systems.
WIRELESS TECHNOLOGY
Our wireless networks use radio equipment to transmit and receive high
frequency radio waves. Broadband wireless technology is based on coverage areas,
the size of which depends on the frequency used. Our optimal strategy is to
acquire licenses in a number of spectrum ranges. The 24 GHz to 38 GHz spectrum
range frequencies have a high data carrying capacity, but they can effectively
transmit only over relatively short distances of up to five kilometers. As a
result, these frequencies work well in dense urban areas. The lower frequencies,
in the 2.4 GHz to 10.5 GHz range, do not have as much capacity as higher
frequencies but they transmit over greater distances of up to 12 kilometers,
making them more effective in suburban areas. In many markets, we have only been
successful in acquiring licenses in one range of frequencies.
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We have concentrated on broadband wireless methods of service delivery for
several reasons:
- Millimeter-wave bands in the range of 20 GHz to 50 GHz have the capacity
to provide data access at speeds up to 622 Mbps to several customers at a
time, or at lower speeds to thousands of customers at a time.
- Radio technology is easily and quickly deployed without the need for
digging up streets, deploying cable lines or, in many cases, acquiring
zoning permissions.
- Radio technology is very flexible, allowing any combination of channels
with constant or variable data rates and channels with equal or different
upstream and downstream bandwidths, and it can be easily reconfigured as
the market changes.
- With suitable technical configurations, such as using multipoint radio
sites and shared access to channels, the cost per customer of providing
services can be much lower than in conventional, land line
configurations.
We intend to deploy three types of radio technologies:
(1) Point-to-point. With this technology, each customer or
multi-tenant building is connected to our network through a point-to-point,
two-way radio link that is set up between a pair of narrow-beam antennae
pointing at each other.
This approach has been used for decades throughout the world, and
equipment is currently available off-the-shelf. We will use point-to-point
links to connect our network to large customers with high data throughput
and to connect our radio sites to our network wherever fiber is not
available for this purpose.
(2) Leased-line multipoint. Here, constant data-rate channels for each
customer or building are retained, but the network side of the radio link
is connected through a "multipoint transceiver" in which an antenna with a
larger beam, typically 45 to 180 degrees, communicates with several
customer terminals simultaneously. The following diagram illustrates this
concept.
[Diagram of base station located on office building roof top transmitting to
receiver stations on buildings for multi-dwelling unit subscribers and
commercial customers.]
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We have acquired leased-line multipoint equipment from several vendors. We
began deploying this equipment for customer use beginning in May 1999. The
equipment is best suited to connect medium-sized to large corporate and
institutional customers to our network.
(3) Multiple access multipoint. This utilizes the intermittent demand
nature of data communications to layer in multiple customers with smaller
data throughput into the same data channel as users with larger data
throughput when those users are idle. This approach extends the multipoint
concept to include the use of packet communication technology that will
allow many users to access a common channel, as illustrated in the diagram
below.
[Diagram of base station located on office building roof top transmitting to
receiver stations on buildings for multi-dwelling unit subscribers and
commercial customers using packet communication technology.]
Multiple access multipoint equipment is currently commercially available
from several vendors. This equipment allows small- and medium-sized businesses,
small office/home office and telecommuter customers to be connected to our
network. Eventually, we may offer service to residential customers, if
economically feasible. With few exceptions, we will service only multiple-family
dwellings because of the difficulty of establishing line of sight visibility to
the rooftops of single family residences.
We provide our customers with high quality digital transmission with signal
quality and reliability comparable or superior to competing technologies. Our
networks are engineered to deliver specifications that are superior to most
copper wire networks and an alternative to fiber-optic technology. For example,
we expect our network to operate at least 99.99% of the time. This availability
equates to less than 53 minutes of downtime per year. Our networks are designed
to transmit, on average, one trillion bits of uncorrupted data for every one bit
of corrupted data, a bit error rate of 10(-12). We intend that our operations
will grow consistently and efficiently, and have created uniform operational
procedures and customer support systems, including network operations centers,
customer care centers and billing systems.
DSL TECHNOLOGY
DSL technology has recently become commercially available to address the
performance bottlenecks of the public switched telephone network. DSL technology
enables the transmission of packets of digital
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data over traditional copper telephone lines, allowing multiple users to
simultaneously receive and transmit data over a single connection. DSL
equipment, when deployed at each end of standard copper telephone lines,
increases the data carrying capacity of these lines from analog modem speeds of
56.6 Kbps for the fastest modems and ISDN speeds of 128 Kbps to DSL speeds of 1
to 6 Mbps depending on the length and condition of the copper line.
We intend to use DSL to offer services to our customers in markets where we
do not have spectrum licenses or where the DSL technology will increase our
flexibility to offer these services. Through our use of DSL technology, we can
effectively leverage the existing telephone network copper infrastructure to
deploy service more quickly. Use of DSL technology does not require spectrum
licenses. We believe that DSL networks are complimentary to our wireless
networks and can serve customers that do not need the bandwidth capacity
available on our wireless networks. In some cases, the ability to use DSL will
also allow us to manage the capacity on our wireless networks.
Recent advances in semiconductor technology and digital signal processing
algorithms and falling equipment prices have made the deployment of DSL
technology on a widespread basis more economical. We anticipate that equipment
prices will continue to fall as a result of continued advances in semiconductor
technologies and increases in equipment production volumes.
Because DSL technology uses existing copper telephone lines, a broad
network deployment can be implemented rapidly and requires a lower initial fixed
investment than some existing alternative technologies such as fiber, cable
modems and satellite communications systems. A significant portion of the
build-out of a DSL-based network is directly related to the demand of paying
subscribers, resulting in a success-based deployment of capital. We plan to use
symmetrical DSL, or xDSL, for business customers and asymmetrical DSL, or ADSL,
which has less capacity, for residential customers. Symmetrical service allows
data to flow upstream and downstream at equal speeds, while asymmetrical
restricts the upstream flow from the customer to a slower speed than the
downstream.
DSL will allow us to offer:
- A range of speed options. We plan to offer a selection of data transport
speeds, each with a combination of price and performance that we believe
is superior to traditional options.
- Scaleable services. End users can upgrade service to higher performance
levels without adding hardware.
- Always-on connectivity. Traditional networks require a user or system to
dial a phone number and wait while the modem connects to a data service
provider such as an Internet service provider. Our always on service will
provide instantaneous connections and the capability to receive or
transmit information continuously.
- Reliability. We will be able to remotely monitor and troubleshoot an end
user's connection to ensure reliable performance.
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NETWORK ARCHITECTURE
Our planned network architecture is illustrated below. It will include a
central facility containing switches, routers, servers and other data
communications devices, together with customer care, billing, and network
operations systems. The central facility is connected to the Internet, and where
necessary, to the incumbent local or long-distance telephone company or
alternate backbone transmission provider(s) through broadband fiber or microwave
connections. We have already implemented some components of this network
architecture in Germany and Poland.
[Diagram showing central facility, fiber or copper backhaul, higher frequency
rooftop hub station serving urban area (5 km coverage radius) lower frequency
tower hub station serving suburban area (12 km coverage), DSL co-location site]
SCALABILITY
An important advantage of our network technologies is that they facilitate
highly scalable network deployment. A broadband wireless business can begin with
coverage focused only on those areas deemed to have the highest customer traffic
density, and thus the highest profitability. From this initial coverage area,
additional cells can be built according to customer demand to increase coverage.
This is in contrast to mobile wireless networks, which require a large coverage
area at service launch in order to be competitive. Also, the portion of the
network capital expenditures associated with the equipment installed at the
customer building does not need to be incurred until customer orders have been
received for that building. DSL networks are deployed in much the same manner,
by targeting a specific service area and then expanding the network as demand
dictates. Together, these characteristics of fixed wireless and DSL access
technologies enable a "success-based" capital expenditure structure where
network expenditures are more closely tied to customer demand.
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BACKBONE NETWORK
In addition to our local networks, we have a pending offer to purchase the
right to use capacity on Global Crossing's "pan-European crossing" and "Atlantic
crossing" fiber networks. When we purchase this capacity we would gain the
ability to connect our local access networks, which will give us increased
flexibility in providing pan-European services and reduce our overall backhaul
expenses. This agreement would reduce our need to lease capacity from other
carriers on an ad-hoc basis at a recurring and significantly higher cost. This
network would allow us to backhaul Internet traffic throughout Europe and the
United States and would give us a managed platform for implementing virtual
private networks and voice over Internet protocol services.
The following illustration represents our planned initial network layout.
While we plan to use Global Crossing lines from Dublin to Frankfurt, Madrid,
Copenhagen, Oslo and Amsterdam, we have not selected the other cities for Global
Crossing lines and have not secured lines from other carries for backhaul
connections to our main Global Crossing lines. Helsinki will be connected
through Copenhagen on another carrier's line. The final configuration will be
modified based on additional countries in which we establish operations and on
the traffic forecasts for each local network.
[Map of Europe showing 'Initial Plan for European Backbone Network': Dublin
Network Hub; four Global Crossing STM-1 lines to New York NAP; Global Crossing
STM-1 lines from Dublin to Madrid, Paris, London, Milan, Frankfurt, Amsterdam,
Copenhagen and Oslo; and E1 or E3 lines from other carriers connecting Brussels,
Warsaw and Helsinki]
The pending Global Crossing agreement would provide for the installation of
eight managed connections to cities within European countries from Ireland, each
with 155 Mbps of capacity. In addition, we would have four connections from
Ireland to the United States, each with 155 Mbps of capacity. We would have the
flexibility to revise the configuration of this network over time and order
links to be activated as we continue to obtain licenses or our traffic
requirements grow. A number of these links are expected to be in service by the
end of 2000. We also anticipate purchasing capacity or leasing additional
capacity from other carriers to complete fully redundant loops as required. We
plan to install a regional network operating center in one of our local
operations that will monitor and manage this backhaul network. This agreement
also would give us the option to purchase additional capacity on favorable
terms.
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LIMITATIONS OF OUR TECHNOLOGIES
Wireless technology. The routers, switchers, multiplexes and other network
devices we use to build our network are selected from the same range of
equipment as are used by our landline competitors. We therefore expect that the
reliability of those parts of our network that use this equipment will be
similar to any other telecommunications provider.
Radio links are subject to degradation during rainstorms, and
millimeter-wave systems, such as our higher-frequency links, are particularly
affected. In good weather our links would have a range exceeding 10 kilometers
(6.25 miles), but in heavy rain the range may be reduced to two to four
kilometers (1.25 to 2.5 miles) depending on the intensity of the rainfall.
The International Telecommunications Union (ITU) publishes maps showing the
statistics of rainfall in each area of the world. In some cases we can obtain
additional, more accurate rainfall data from local sources. We use these data to
assure that the maximum range of a base station (i.e., the maximum distance from
base station to customer terminal) is limited to ensure that the radio link is
available 99.99% of the time in a year when rainfall adheres to the ITU's
"average" rainfall statistics. This corresponds to less than 53 minutes of
outage per year. Users closer to the base station will receive a correspondingly
lower outage rate. However, we cannot predict that in any given year the
rainfall in a given region will adhere to the ITU statistics, and there may be
installations where link availability falls below our 99.99% criterion due to
unusually heavy rain.
Centimeter-wave links, such as our lower-band links, are almost unaffected
by rain at the ranges we use. Snow, hail and fog have a lesser effect than rain
at any frequency we are likely to use.
Wireless transmission using higher band frequencies requires an
unobstructed line of sight between radio transmitters and receivers. An
unobstructed line of sight is not critical for lower band technologies.
DSL technology. The quality of the copper telephone line affects the
distance from the central office for which a DSL connection can be provided. The
transfer speeds at which DSL can be provided also are affected by the quality of
the copper telephone line as well as the distance from the central office.
REGULATION
Our fixed wireless telecommunications services and systems are subject to
regulation by various governmental agencies in the countries in which we operate
or plan to operate. These laws and regulations often control, among other
things:
- license application and renewal procedures;
- allocation of spectrum;
- specific country build-out and service requirements;
- the quality of service to be provided;
- foreign ownership of licenses and providers;
- technology specifications and service quality; and
- interconnection to other telecommunications providers.
In addition to national laws and regulations, there may be local regulations
governing telecommunications services providers and network installations.
The scope and type of regulation varies from country to country, although
in some significant respects regulations are harmonized in EU countries.
Austria, Belgium, Denmark, France, Finland, Germany, Ireland and Spain are all
member states of the EU. Poland is scheduled to become a member of the EU by
2003. Although not an EU member state, Hungary has generally implemented or is
implementing the same principles on the same timetable as EU member states.
Switzerland and Norway are not members.
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Central aims of the EU's telecommunications policy have been to liberalize
the telecommunications industry in the EU member states and to reduce the
monopoly power of the incumbent telecommunications operators in order to
introduce competition in the European market. Liberalization measures have been
adopted under the EU's competition rules and harmonization measures have been
put in place through the adoption of the so-called Open Network Provision and
Licensing directives. These directives set out the framework for procedures for
granting licenses to provide telecommunication services and the installation and
operation of related infrastructure. Under the framework specified by these
directives, providers of telecommunications services generally require either no
authorization or a general authorization that is conditional upon "essential
requirements," such as the security and integrity of a network's operation.
Licensing conditions and procedures must be objective, transparent and non-
discriminatory. Another directive sets forth the general framework for
interconnection, including general obligations for public telecommunication
network operators to negotiate interconnection agreements on a
non-discriminatory basis. Operators with dominant market share, such as the
incumbent national telecommunications providers, are prohibited from
discriminating between operators that offer similar services and their
interconnection charges must follow the principles of transparency and be based
on the actual cost of providing the interconnection.
On April 26, 2000, the EU released a communication describing proposals for
new directives for telecommunications regulation. The proposed regulatory
framework would attempt to decrease national variations in telecommunications
regulations and licensing systems and increase market competition. The proposals
seek to harmonize licensing procedures, reduce the conditions that can be
attached to authorizations, limit authorization fees and ease access and
interconnection. In addition to current measures, the EU would impose an
obligation to provide access to unbundled elements of the local loop on
operators with significant market power in the relevant markets. The EU also
indicated that it may use competition laws to prevent abuses by carriers with
significant market power, including abuses related to access and
interconnection. In addition, the EU will propose that communications networks
and services be assigned by general authorizations, with specific authorizations
for assignment of spectrum. The proposals would also allow member states to
introduce secondary trading of radio spectrum.
The April 26, 2000 communication noted that there has been strong support
for an earlier recommendation which encouraged national regulatory agencies to
adopt rules requiring incumbent telephone companies to unbundle their local
loops by December 2000 and to allow the co-location of DSL equipment in their
service centers. Individual countries may adopt regulations to facilitate the
expansion of competitive DSL services.
Although we believe we have complied with all necessary and appropriate
regulatory processes to date, changes in existing laws, rules and regulations
governing our services, including those relating to obtaining necessary
licenses, could have a material adverse effect on our business, prospects,
financial condition and results of operations. See "Risk Factors -- Adverse
government regulations could limit our growth plans and revenues."
Germany. As a new carrier, we must report our tariff structure and pricing
of services in the official gazette, the Office of Regulation of
Telecommunications and Post for publication. Our rates are not subject to
regulation.
German law does not restrict foreign ownership of telecommunications
companies, and new competitors are building networks and infrastructure to
compete with Deutsche Telekom. In order to offer broadband wireless services,
operators need a license based on transmission method as well as the frequency.
Our transmission license, combined with our broadband wireless licenses, satisfy
this requirement.
Under German law, Deutsche Telekom is subject to regulation of its tariff
structure and the prices it can charge for the telecommunications services that
it provides to private and business customers. Deutsche Telekom is also limited
by a maximum price it can charge other companies, such as Callino, to lease its
lines and provide competitive telecommunications services. We expect Deutsche
Telekom to modify its retail pricing structure to become more competitive.
Deutsche Telekom has entered
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interconnection agreements with a number of companies. The terms of our German
interconnection agreement are subject to resolution of Deutsche Telekom's
ongoing legal challenge to the new German regulatory regime.
Poland. Polish law permits interconnection with data services and with
private networks for voice, video and data services, but not with public
switched voice transmission. While the user connection of networks is not
regulated, service such as the transfer of data from one person to another
requires a license. Poland is preparing for inclusion in the EU and has
announced plans to privatize its state telephone monopoly. TPSA retains its
monopoly over international services, which is currently scheduled to end in
2003, but local services have been liberalized to allow competition. In January
2000, the Minister of Telecommunications announced the winners of three
long-distance telephone licenses. The procedure to award these licenses is still
pending. TPSA will compete with the three license winners until January 2001,
when additional competitors will be allowed into the long-distance market.
Deregulation of Poland's telecommunications industry may be delayed, however,
because of delays in reaching general agreements on the terms under which Poland
will join the EU or negotiated changes in connection with Poland's admission to
the EU.
Polish law regulates the foreign ownership of some types of
telecommunications companies. Under Polish telecommunications law and Formus
Polska's license, our capital share and voting interest in Formus Polska cannot
exceed 49.0%, and a majority of both Formus Polska's management and supervisory
boards must be Polish citizens domiciled in Poland. Under a shareholders'
agreement, upon the liberalization of foreign ownership restrictions, the
management boards will take whatever action is necessary for the issued capital
stock of Formus Polska to be adjusted to the maximum extent then permitted to
reflect the economic interests of the shareholders. See "-- Operations and
Licenses -- Poland -- Ownership and Management." The Minister of
Telecommunications must approve certain transfers of shares of Formus Polska.
Since CEL Polska is limited to intra-provincial services, foreign ownership
restrictions do not apply, and we can own 100.0% of the voting interest in CEL
Polska, subject to approval of the transfer by the appropriate governmental
agency. See "Risk Factors -- Our business operations are subject to extensive
government regulations and changes in these regulations which entail significant
compliance costs and may limit our growth plans and revenue." We believe our
ownership structure of Formus Polska is consistent with practice and complies
with the current law and terms of Formus Polska's licenses. A change in the law
or a legal interpretation contrary to the current practice could materially
adversely affect Formus Polska's financial condition or operations as well as
our potential investment in CEL Polska.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings, nor are we currently
aware of any threatened material legal proceedings. From time to time, we may
become involved in litigation relating to claims arising out of our operations
in the normal course of our business.
EMPLOYEES
As of March 31, 2000, we had 412 employees. None of our employees are
covered by collective bargaining agreements. We believe that our relations with
our employees are good.
INCORPORATION
We were incorporated in 1996 in Delaware.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
We have a board of 12 members. The current directors, executive officers
and other key employees of Formus, along with their backgrounds, are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ---- --------
<S> <C> <C>
William J. Elsner..................... 48 Chairman of the Board of Directors
Bernard G. Dvorak..................... 40 Interim Chief Executive Officer,
Senior Vice President, Chief Financial
Officer and Secretary
Andre De Montigny..................... 47 Director
Steven C. Halstedt.................... 54 Director
Michael R. Hannon..................... 39 Director
Osmo A. Hautanen...................... 45 Director
Michael Honig......................... 49 Director
William A. Johnston................... 48 Director
Kevin J. Maroni....................... 37 Director
Jeffrey D. Montgomery................. 46 Director
Trygve E. Myhren...................... 63 Director
Frederick A. Vierra................... 68 Director
James F. Wade......................... 44 Director
Vernon F. Kenley...................... 60 President and Chief Development
Officer
John F. Knoeckel...................... 44 Senior Vice President, General Counsel
and Assistant Secretary
Raymond W. Nettleton.................. 55 Senior Vice President and Chief
Technology Officer
Derek S. Van Keuren................... 45 Senior Vice President of Human
Resources
Dale N. Holter........................ 59 Vice President of Operations and
Interim General Manager of Formus
Europe
Matthias Weber........................ 52 Chief Executive Officer, Callino
Jaroslaw M. Mulewicz.................. 46 President of Management Board, Formus
Polska
Theresa C. McNulty.................... 57 Chief Executive Officer, Formus
Ireland
Juha Silvennoinen..................... 40 Chief Executive Officer, Formus
Finland
</TABLE>
William J. Elsner is our Chairman of the Board. Since November 1997, Mr.
Elsner has been a managing member of Telecom Management, an affiliate of Telecom
Partners. From October 1995 until November 1997, he was a private investor. From
July 1991 until September 1995, Mr. Elsner was the Chief Executive Officer of
United International Holdings (now UnitedGlobalCom, Inc.), an international
cable television operator he co-founded. He is currently a director of VIA
NET.WORKS, Inc., VeloCom Inc., OneSecure, Inc. and CityNet Telecommunications,
Inc.
Bernard G. Dvorak joined us in April 1999. He has served as Interim Chief
Executive Officer since February 2000, and Senior Vice President, Chief
Financial Officer and Secretary since April 1999. From February 1998 through
March 1999, Mr. Dvorak served as President and Chief Executive Officer of
Cordillera Communications, a company providing wireless communications services
to businesses in Latin America. He also served as Chief Financial Officer of
Cordillera Communications from February 1997 to January 1998. He currently
serves as a member of the board of directors of Cordillera Communications. Mr.
Dvorak served as Chief Financial Officer and a member of the Office of the
Chairman as well as a co-founder of UnitedGlobalCom, Inc., from May 1989 to
December 1996. He currently serves as our designee on the board of directors of
VeloCom.
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Andre De Montigny has served as one of our directors since May 2000. He
currently serves as Vice President of Capital Communications CDPQ, a position he
has held since 1998. For the two years prior to joining Capital Communications
CDPQ, from 1996 to 1998, Mr. De Montigny served as Vice President of Business
Development at Videotron. From 1987 to 1996, Mr. De Montigny worked at Teleglobe
Canada, first as Supervisor of Financial Analysis and Budget control and
subsequently as Manager of Planning and Financial Analysis, Manager of Finance
and Business Development and Assistant to the Vice President of Finance.
Steven C. Halstedt has served as one of our directors since our inception
in November 1996. He is a General Partner of Centennial Fund IV, L.P.,
Centennial Fund V, L.P. and Managing Principal of Centennial Fund VI, LLC, each
a part of Centennial Ventures, a firm he co-founded in 1981. Centennial Ventures
is a venture capital firm that focuses its investment activities on
communications convergence. Mr. Halstedt is a member of the board of directors
of SiteShell Corp., Agilera.com, VeloCom and Venture eCommerce. He is also
Chairman of the Board of Verio Inc., Cordillera Communications and Venture
eCommerce.
Michael R. Hannon has served as one of our directors since April 1997. He
is a General Partner of Chase Capital Partners (CCP), a general partnership with
approximately $7.5 billion under management. CCP invests in a wide variety of
international private equity opportunities including management buyouts, growth
equity, and venture capital situations. CCP's chief limited partner is The Chase
Manhattan Corporation, one of the largest bank holding companies in the United
States. He worked at Morgan Stanley & Co. Incorporated prior to joining CCP in
1988. Mr. Hannon chiefly focuses on the media/telecom and financial services
industries at CCP. He is a member of the boards of directors of TeleCorp PCS,
Inc., Entercom Communications and Financial Equity Partners.
Osmo A. Hautanen has served as one of our directors since July 1998. He was
our Chief Executive Officer from July 1998 until December 1999. From July, 1996
until June, 1998, Mr. Hautanen was President-Americas of Philips Consumer
Communications, a Fortune 50 company, and also a member of the Philips' Americas
Board of Presidents. Prior to Philips, Mr. Hautanen held several executive
positions over an 18-year period with Nokia.
Dr. Michael Honig has served as one of our directors since September 1999.
During the past five years, Dr. Honig has been a senior partner of Honig
Rechtsanwalte, a Munich, Germany-based law firm representing clients in mergers
and acquisitions and financial transactions in Germany, several other European
countries and the United States. He joined our board in connection with our
acquisition of the remaining equity interests of Callino GmbH. Dr. Honig
formerly owned a minority equity interest in Callino, which he sold to us in
September 1999.
William A. Johnston has served as one of our directors since September
1998. Since January 1997, he has served as Managing Director of both Hancock
Venture Partners and its affiliate, HarbourVest Partners, LLC. He joined Hancock
Venture Partners, Inc. as a vice president in 1983 after working in the
corporate finance department of John Hancock from 1981. Prior to 1981, he was
Assistant Vice President for State Street Bank in Boston. He serves on the
advisory council of Centennial Ventures and the advisory committee of Highland
Capital Partners. Additionally, he is a member of the board of directors of the
following companies: Adesemi Communications International, Inc., Benchmark
Media, Inc., Epoch Networks, Inc., Golden Sky Systems, Inc., The Marks Group,
Inc., Pangea, Ltd. and VIA NET.WORKS, Inc.
Kevin J. Maroni has served as one of our directors since March 1997. Mr.
Maroni is a General Partner of Spectrum Equity Investors. Spectrum is a leading
private equity firm which manages over $1 billion of capital for investment in
telecommunications companies. Prior to joining Spectrum in 1994, Mr. Maroni
worked at Time Warner, Inc. and Harvard Management Company. Mr. Maroni is a
director of CTC Communications Corp., Adero, Inc., Pathnet, Inc., and GlobeNet
Communications, Ltd.
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Jeffrey D. Montgomery has served as one of our directors since May 2000.
For the last five years, he has served as a Managing Partner of Baring
Communications Equity Limited. Since December 1999, Mr. Montgomery also has
served as a Managing Partner of GMT Communications Partners Limited.
Trygve E. Myhren has served as one of our directors since November 1998.
Since 1996, he has served as President of Myhren Media, Inc., a private
investment firm concentrating in media, telecommunications, software, and
Internet-related companies. From 1990 to 1996, he served as president of The
Providence Journal Company, which owned and managed the Journal-Bulletin
newspapers, broadcast television stations, cable television systems, a number of
programming networks for multichannel delivery systems, and significant
positions in other programming, interactive and multimedia ventures. From 1975
to 1988, he was employed by American Television and Communications Corporation
(ATCC), the publicly-traded cable television subsidiary of Time, Inc. and served
as Chairman and Chief Executive Officer of ATCC from 1980 to 1988. From 1986 to
1987, he also served as Chairman of the National Cable Television Association.
Currently he serves on the boards of J.D. Edwards, Inc., Verio, Inc., Advanced
Marketing Services Inc., CableLabs, Inc., Peapod, Inc. and Dreyfus Founders
Fund, Inc. and is a trustee and executive committee member of the University of
Denver.
Frederick A. Vierra has served as one of our directors since March 1998.
Since 1998, he has served as a consultant to Liberty Media. From October 1994 to
1997, he served as the Chief Executive Officer of Tele-Communications
International, Inc. and served as Chairman of its Board of Directors from
October 1994 to May 1995, and Vice Chairman of its Board from May 1995 to
November 1998. Mr. Vierra has served as an Executive Vice President of
Tele-Communications, Inc. (TCI) from January 1994 to October 1994, and as an
Executive Vice President of TCI from December 1991 to October 1994. Prior to
joining TCI, he was President and Chief Operating Officer of United Artists
Entertainment Company, where he directed the activities of both the cable
television and theater division presidents. Mr. Vierra is also Chairman of the
Board of VeloCom Inc. and eVentures and a director of Flextech p.l.c., Jones
International Networks, Ltd. and AboveNet Communications, Inc.
James F. Wade has served as one of our directors since November 1997. He is
the Managing Partner of M/C Venture Partners, a private equity fund, and has
been a General Partner in a series of predecessor funds since 1987. M/C Venture
Partners invests solely in the telecommunications and information technology
sectors. Mr. Wade serves on the boards of directors of TeleCorp PCS, ACME
Paging, Cavalier Telephone, Trumper Communications, Digital Access, Novaless,
City Signal Communications and Carolina Broadband.
Vernon F. Kenley has been our President since December 1996 and, since
August 1999, he has also served as our Chief Development Officer. Before joining
us, he was President of Global Telecom Associates, a telecommunications
consulting company, from September 1996 to December 1996. From March 1994 until
August 1996, Mr. Kenley was Executive Vice President-Telecommunications &
Technology of UnitedGlobalCom, Inc. Prior to joining UnitedGlobalCom, Mr. Kenley
was employed by U S WEST from October 1985 to March 1994. At U S WEST, Mr.
Kenley served in various business development capacities in the company's
international operations, and as President and Chief Executive Officer of U S
WEST Knowledge-Engineering, Inc., a company co-founded by Mr. Kenley and
subsequently sold to U S WEST.
John F. Knoeckel joined us in September 1997. He serves as Senior Vice
President, General Counsel and Assistant Secretary. Prior to joining us, Mr.
Knoeckel was in the private practice of law for fifteen years. From June 1987 to
September 1997, Mr. Knoeckel practiced law with Holme Roberts & Owen LLP where
he was a partner from January 1990 and focused primarily on overseas
acquisitions and dispositions of telecommunications-related businesses and
related strategic relationships, securities law and mergers and acquisitions.
Raymond W. Nettleton is our Senior Vice President and Chief Technology
Officer, a position he has held since July 1997. He also served as a consultant
to us from December 1996 to July 1997. Before joining us, from February 1994 to
July 1997, Dr. Nettleton was President of NettWork Consulting, which provided
strategic technical consulting services to major telecommunications entities
worldwide. From 1991
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until founding NettWork Consulting in 1994, Dr. Nettleton was Director and
Distinguished Member, Technical Staff, at U S WEST, where his responsibilities
included the evaluation of broadband wireless technology. Prior to that, from
1988 to 1991, he worked with Booz, Allen and Hamilton, where he advised various
national and international cellular and PCS commercial clients.
Derek S. Van Keuren joined us in August 1998 and is our Senior Vice
President of Human Resources. From October 1996 to July 1998 he was Vice
President of Human Resources for Philips Consumer Communications, a global
company that designs, manufactures and sells a full line of consumer
telecommunications equipment. Prior to that, from September 1993 to October
1996, he was Director, Human Resources at FoxMeyer Drug Company.
Dale N. Holter joined us in October 1997 as Vice President of Operations, a
position that he still holds. In February 2000, Mr. Holter was named Interim
General Manager at Formus Europe. From January 1996 until joining us, Mr. Holter
served as the senior technical consultant to AT&T and Time Warner
Communications, where he was responsible for planning, developing, and pricing
the network configuration for replacing the existing military telephone system
in Hawaii. From 1965 to 1995, Mr. Holter worked for U S WEST, where he most
recently served as a director for the planning and deployment of broadband
networks.
Matthias Weber joined Callino as Chief Executive Officer in January 1999.
Mr. Weber was President of Deutsche Telekom Asia Pte. Ltd., Singapore from
September 1997 until August 1998. From September 1995 to September 1997, Mr.
Weber served as a member of the Board of International Affairs of DeTeMobil,
Deutsche Telekom MobilNet GmbH.
Jaroslaw M. Mulewicz joined us in October 1999 as President of the
Management Board of Formus Polska. From January 1999 until joining us, Mr.
Mulewicz was senior account director at NCR Poland. From January 1998 to
September 1998, Mr. Mulewicz served as sales director at Compaq Poland, and from
August 1997 to December 1997, he was the Chief Executive Officer of Tandem
Poland. Mr. Mulewicz was the country manager of Sanchez Computer Associates from
September 1996 to July 1997. From November 1994 to August 1996, he served as
business development manager for the country management team at Digital
Equipment Poland.
Theresa C. McNulty has served as Chief Executive Officer for Formus Ireland
since September 1999. From July 1997 until assuming the position in Formus
Ireland, Ms. McNulty directed customer care and sales support and managed the
customer care and billing system used for all of our operations. From December
1995 to May 1997, she served as the Executive Director of U S WEST International
in London, England, and from October 1991 to November 1995, Ms. McNulty was
employed at Telewest Communications as Customer Operations and Business Systems
Director.
Juha Silvennoinen joined us in December 1999 as Managing Director of our
operations in Finland. From August 1997 until joining us, Mr. Silvennoinen
served as the country manager of CANAL + Finland. From January 1998 to December
1999, Mr. Silvennoinen also served as Managing Director of CANAL Digital Finland
and Deuterium OY. From January 1996 to July 1997, he was with NRJ Energy Finland
as Managing Director.
COMPENSATION OF DIRECTORS
Our non-employee directors are reimbursed for the expenses they incur in
attending meetings of our board or our board committees. In addition, Messrs.
Vierra and Myhren each receive $1,500 for attending each board meeting. All
non-employee directors are eligible to participate in our Equity Incentive Plan.
In 1998, two of our non-employee directors, Messrs. Vierra and Myhren, each
received a stock option to purchase 75,000 shares of our common stock pursuant
to the terms of this plan that will vest in equal increments on each of the
first four anniversaries of the date of grant.
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<PAGE> 63
COMMITTEES OF THE BOARD OF DIRECTORS
We have a number of standing committees of the Board, including the
following:
Audit Committee. The audit committee currently consists of two directors,
Messrs. Myhren and Vierra. We plan to appoint an additional member, prior to the
closing of this offering. The audit committee is responsible for recommending
annually to the board of directors the independent auditors to be retained,
reviewing with our independent auditors the scope and results of the audit
engagement, reviewing our system of internal accounting controls and directing
investigations into matters within the scope of its functions.
Compensation Committee. The compensation committee consists of three
directors. Currently the members of our compensation committee include Messrs.
Johnston, Myhren and Wade. The compensation committee is responsible for
determining executive compensation policies and guidelines. It also administers
our Equity Incentive Plan and establishes the terms and conditions of all stock
option grants.
Finance Committee. The finance committee consists of four directors.
Currently the members of our finance committee include Messrs. Halstedt, Elsner,
Hannon and Maroni. The finance committee reviews our budgets and approves
acquisitions and capital raising activities.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
earned by our chief executive officer and by each of our four most highly
compensated executive officers for the fiscal year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION:
-------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- --------------------------- --------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Osmo A. Hautanen(1)............................. $410,000 $50,000 545,000 --
Former Chief Executive Officer
Vernon F. Kenley................................ $200,000 -- 75,000 --
President and Chief Development Officer
Raymond W. Nettleton............................ $180,000 -- 40,000 --
Senior Vice President and Chief Technology
Officer
Derek S. Van Keuren............................. $150,000 -- 100,000 --
Senior Vice President of Human Resources
John F. Knoeckel................................ $148,333 -- 100,000 --
Senior Vice President, General Counsel and
Assistant Secretary
</TABLE>
- ------------------------------
(1) Mr. Hautanen resigned his employment with us effective December 31, 1999.
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<PAGE> 64
STOCK OPTION INFORMATION
The following table discloses information regarding stock options granted
to our executive officers that are named in the Summary Compensation Table
during 1999. See "-- Equity Incentive Plan" below.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS AWARDS POTENTIAL REALIZABLE
------------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS SHARE PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE OR FOR OPTION TERM(1)
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE 5.0% 10.0%
- ---- --------------- ------------ ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Osmo A. Hautanen..... 545,000 24.1% $ 2.50 -- -- (2) $2,219,369 $3,533,974
Vernon F. Kenley..... 75,000 3.3 10.00 November 2009 1,221,671 1,945,307
Raymond W.
Nettleton.......... 40,000 1.8 10.00 November 2009 651,558 1,037,497
Derek S.
Van Keuren......... 100,000 4.4 10.00 November 2009 1,628,895 2,593,742
John F. Knoeckel..... 100,000 4.4 10.00 November 2009 1,628,895 2,593,742
</TABLE>
- ------------------------------
(1) Represents the potential value of options granted at assumed 5% and 10%
rates of compounded annual stock appreciation for ten years from the date
the options were granted, calculated based on the mid-point of the range of
the offering price.
(2) These options expire on the earlier of December 2004, or 90 days after a
change in control or an underwritten public offering of our stock.
We have not granted any stock options to our executive officers who are
named in the Summary Compensation Table in the current fiscal year.
The following table provides, for our executive officers listed in the
Summary Compensation Table, information on the number of shares represented by
unexercised options owned by them at December 31, 1999 and the value of those
options as of the same date.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT FISCAL YEAR VALUE OF UNEXERCISED
END IN-THE-MONEY OPTIONS(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Osmo A. Hautanen(2)........ 80,000 $200,000 545,000 375,000 $ $
Vernon F. Kenley........... -- -- 251,562 423,438
Raymond W. Nettleton....... -- -- 172,916 267,084
Derek S. Van Keuren........ -- -- 31,250 168,750
John F. Knoeckel........... 2,250 5,625 52,750 167,250
</TABLE>
- ------------------------------
(1) The value of the unexercised in-the-money options represents the difference
between $ , the mid-point of the range of the initial offering
price in this offering, and the exercise price of the options.
(2) Mr. Hautanen resigned his employment with us effective December 31, 1999.
EQUITY INCENTIVE PLAN
The Formus Communications, Inc. Equity Incentive Plan effective April 15,
1997, as currently amended, permits the grant of non-qualified stock options,
incentive stock options, restricted stock and
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<PAGE> 65
other stock grants to our key employees, key consultants and non-employee
directors, except that incentive options may be granted only to employees. Key
employees, key consultants and non-employee directors of our affiliated
companies also are eligible to receive options under the plan. We have reserved
for issuance 7,000,000 shares of common stock which may be subject to awards
under the plan. The number of shares is subject to adjustment on account of
stock splits, stock dividends and other dilutive changes in the number of
outstanding shares of our common stock. We can re-grant shares of common stock
covered by unexercised non-qualified or incentive stock options that expire,
terminate or are forfeited, together with shares of common stock that are used
to pay withholding taxes or the option exercise price.
The plan is administered by our compensation committee. The compensation
committee must be structured at all times so as to permit the plan to comply
with Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act")
and Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code").
Our compensation committee has the sole discretion to determine the
employees, consultants and non-employee directors to whom awards will be granted
and the terms and conditions of such awards, although all awards granted to
non-employee directors must first be approved by our board of directors. In
addition, the maximum aggregate fair market value of stock that may become
exercisable by any one employee under incentive stock options during any
calendar year is $100,000. The aggregate fair market value is determined on the
date the option is granted.
Our compensation committee determines the exercise price for each option.
However, incentive stock options must have an exercise price that is at least
equal to the fair market value of our common stock on the date the incentive
stock option is granted, or at least equal to 110.0% of fair market value in the
case of an incentive stock option granted to an employee who owns 10.0% or more
of the outstanding common stock. Option holders who are subject to the
withholding of federal and state income tax as a result of exercising an option
may satisfy the income tax withholding obligation through the withholding of a
portion of the common stock to be received upon exercise of the option. Options
and restricted stock awards granted under the plan are not transferable other
than by will or by the laws of descent and distribution.
Options granted under the plan may immediately vest upon any "change in
control" as defined by the Compensation Committee if so provided in the
individual agreement with the option holder.
With limited exceptions, upon the occurrence of (i) a reorganization,
merger or consolidation, (ii) the sale of all or substantially all of our
assets, or (iii) our dissolution or liquidation, all outstanding options will
terminate automatically upon 30 days' written notice, unless such options or
awards may be assumed in a merger or consolidation on terms comparable to the
outstanding options or awards. When the notice is given, all outstanding options
fully vest and can be exercised prior to the event requiring such notice and
other awards become exercisable and payable. All payments made in such event are
subject to reduction in the event Section 280G of the Code would be triggered.
Our board of directors may amend the plan in any respect at any time
provided shareholder approval is obtained when necessary or desirable, but no
amendment can impair any option or award previously granted or deprive an option
holder, without his or her consent, of any common stock previously acquired.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
We have entered into the following agreements with several members of our
senior management group:
- On November 30, 1999, we entered into an agreement with Osmo A. Hautanen
relating to his resignation effective December 31, 1999. The agreement
provides for:
- severance pay of $420,000;
- continuation of benefits for a maximum of eighteen months after
separation;
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<PAGE> 66
- post-employment office support and other benefits in the amount of
$25,000;
- relocation assistance in the event that he sells his home; and
- modification of his stock option agreement. As of December 31, 1999,
250,000 options immediately vested, resulting in a total of 545,000
unexercised vested options. He may vest in the remaining unexercised
375,000 options upon a change of control in our ownership structure
during 2000. The additional 375,000 options expire by one-twelfth for
each month in 2000 during which a change of control has not occurred.
The exercise date of all vested options will be extended to within 90
days after the closing of this offering. His outstanding loan in the
principal amount of $200,000 will be payable to us at the earlier of (i)
the date on which he sells any shares of our common stock which are
secured by the loan, (ii) five years from the date of the loan or (iii)
within 90 days after this initial public offering.
- On May 1, 1999, we entered into a letter agreement with Vernon F. Kenley
relating to his severance benefits. The agreement provides for:
- continuation of his salary and benefits for 12 months if his employment
is terminated by us without cause or by him for good reason (as defined
in the agreement);
- acceleration of unvested stock options upon a change of control (as
defined in the agreement) occurring within one year of his termination;
- indemnification in connection with litigation arising after his
termination in which he is named as a result of his position as a former
officer; and
- agreements not to compete with us or solicit our employees or customers
during the term of the agreement and for a period of 12 months following
his termination.
In addition, all of our employees and consultants, including the members of
our senior management group, have signed letter agreements. These agreements
obligate our employees and consultants not to disclose confidential information
concerning us and not to compete with us or solicit our employees or customers
during the term of employment and for 12 months following termination. The
agreements also give us all of the ownership rights to the work produced by our
employees and consultants.
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<PAGE> 67
CERTAIN TRANSACTIONS
THE VELOCOM TRANSACTION
In September 1999, we completed a transaction with VeloCom Inc., a Delaware
corporation, which provides telecommunications services in Latin American
countries. Some of our stockholders and their affiliates also own VeloCom stock,
including Telecom Partners II, L.P., three of the Centennial Funds, and
Crescendo World Fund, LLC and one of its affiliates. Another Crescendo affiliate
also owns VeloCom stock, but does not own our stock. Before our transaction with
VeloCom, we had three of the same directors as VeloCom: William J. Elsner, Fred
A. Vierra and Steven C. Halstedt. Bernard G. Dvorak, our acting chief executive
officer, is a member of VeloCom's board as our designee pursuant to rights
granted as part of the transaction. A special committee of our board evaluated
and approved the transaction with VeloCom. See "Business -- Equity Investment in
VeloCom Inc."
Under the purchase agreement among VeloCom, Formus and one of our
subsidiaries, we transferred the following assets to VeloCom in exchange for an
initial 22.5% ownership interest in VeloCom:
- our subsidiaries or affiliates in Argentina, Bolivia, Chile, Colombia,
Peru, and Venezuela;
- the Colorado limited liability holding companies for the Latin American
license holding companies;
- our rights and obligations under memoranda of understanding with local
partners in Colombia and Uruguay; and
- approximately $20.8 million in cash.
The VeloCom transaction involved all of our Latin American subsidiaries or
affiliates. In separate transactions, VeloCom acquired some of the Latin
American assets of SLI Wireless S.A. and PCN do Brasil S.A., our former partners
in Argentina, and Taquari Participacoes S.A., one of VeloCom's partners in
Brazil. VeloCom now owns 100% of Telelatina Management Company LLC, in which we
formerly owned a minority interest, and has consolidated its ownership interests
in its Brazilian operating companies with those of SLI and Taquari.
In December 1999, we purchased an additional $5.6 million of VeloCom
convertible preferred stock. We have agreed to purchase an additional $5.6
million of convertible preferred stock in mid-2000. On a pro forma basis, we
expect to hold a 12.6% ownership interest in VeloCom following this and other
investor contributions.
The Amended and Restated Investors Agreement. Under an Amended and Restated
Investors Agreement, the stockholders of VeloCom have demand registration rights
after January 26, 2002. Holders of 33.0% of VeloCom's stock may request
registration of their securities four times on a Form S-1, and an unlimited
number of times on a Form S-3. All of VeloCom stockholders have piggyback
registration rights under the agreement. Both the demand and piggyback
registration rights expire in 2005.
We are entitled to appoint one member of VeloCom's 14-member board of
directors and to have a non-voting observer as long as we own at least a 2.0%
equity interest. These rights expire upon an initial public offering by VeloCom.
Two beneficial owners of 5.0% or more of our shares, Telecom Partners II, L.P.
and Centennial Ventures, are also significant shareholders of VeloCom and are
entitled to designate some of VeloCom's directors.
THE CALLINO TRANSACTION
In September 1999, we acquired our minority partners' direct and indirect
equity interests in Callino GmbH. The direct and indirect selling shareholders
of Callino included two affiliates of Chase Capital Partners, one of our
shareholders, Dr. Michael Honig, who currently serves as one of our directors,
and Matthias Weber, who currently serves as chief executive officer of Callino.
We issued 16,371,552 shares of our Series E and F preferred stock valued at
approximately $163.7 million, convertible into the same number of shares of
common stock, and paid $100,000 in cash to acquire these equity interests.
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<PAGE> 68
Concurrently, we issued 11,584,817 Series E and F preferred shares, valued at
approximately $115.8 million in the aggregate, to new and existing investors.
In connection with our acquisition of the remaining shares of Callino, the
selling shareholders entered into non-competition agreements with Callino.
Callino also renegotiated and extended its consulting and other agreements with
Matthias Weber, the chief executive officer of Callino and one of the selling
shareholders.
Callino's direct and indirect selling shareholders have entered into the
Fourth Amended and Restated Investors' Rights Agreement. See "Description of Our
Capital Stock -- Registration Rights."
THE INTEL AGREEMENTS
On September 9, 1999, we entered into a marketing activities agreement with
Intel Corporation pursuant to which Intel will provide non-exclusive marketing
assistance to us in certain reseller channels in specific cities in Poland in
exchange for a warrant to purchase shares of preferred stock convertible into
1,250,000 shares of common stock at an exercise price of $13.50 per share, which
vests incrementally: 25.0% has vested and the remaining 75.0% will vest in three
equal increments upon achievement of certain performance milestones. In addition
to Poland, we and Intel will select a second country in which Intel will provide
similar marketing assistance.
INVESTOR AGREEMENTS
We have entered into a Fifth Amended and Restated Investors' Rights
Agreement with all of our stockholders except stockholders who are parties to an
Employee Stockholders Agreement. Each of these agreements provides for demand
registration rights. See "Description of Our Capital Stock -- Registration
Rights." Certain other rights and obligations under these agreements will
terminate upon the closing of this offering.
OTHER
Many of our directors are also officers of some of our significant
stockholders.
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<PAGE> 69
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of May 5, 2000, adjusted to reflect our recent
issuance of Series G senior preferred stock, by:
- each stockholder known to us to own beneficially more than 5.0% of our
outstanding common stock;
- each of our directors;
- each of our named executive officers; and
- all directors and executive officers as a group.
The amounts and percentage of common stock beneficially owned are reported
on the basis of regulations of the SEC governing the determination of beneficial
ownership of securities. Under the SEC's rules, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which that person has a right to acquire beneficial
ownership within 60 days. Under these rules, more than one person may be deemed
a beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which such person has no economic interest.
Because Class B common stock is convertible into Class A common stock, holders
of Class B are deemed to beneficially own Class A common stock. The information
set forth in the following table excludes any shares purchased in the offering
by the respective beneficial owner:
<TABLE>
<CAPTION>
PERCENTAGE
NO. OF SHARES -------------------
OF CLASS A PRIOR TO AFTER
BENEFICIAL OWNER(1) COMMON STOCK OFFERING OFFERING
- ------------------- ------------- -------- --------
<S> <C> <C> <C>
Chase Capital Partners and affiliates(2).................... 13,644,441 17.7%
Centennial Fund V, L.P. and affiliates(3)................... 8,199,652 10.6
Telecom Partners II, L.P. and affiliates(4)................. 10,348,384 13.4
Spectrum Equity Investors II, L.P. and affiliates(5)........ 5,220,796 6.8
Media/Communications Partners III Limited Partnership and
affiliates(6)............................................. 4,196,036 5.4
Capital Communications CPDQ Inc.(7)......................... 4,000,000 5.2
William J. Elsner........................................... 421,000 * *
Bernard G. Dvorak(8)........................................ 90,500 * *
Andre De Montigny........................................... -- -- --
Steven C. Halstedt.......................................... -- -- --
Michael R. Hannon........................................... -- -- --
Osmo A. Hautanen(9)......................................... 625,000 * *
Michael Honig............................................... 2,029,601 2.6
William A. Johnston......................................... -- -- --
Kevin J. Maroni............................................. -- -- --
Jeffrey D. Montgomery....................................... -- -- --
Trygve E. Myhren(10)........................................ 167,270 * *
Frederick A. Vierra(11)..................................... 142,187 * *
James F. Wade............................................... -- -- --
Vernon F. Kenley(12)........................................ 461,562 * *
John F. Knoeckel(13)........................................ 70,000 * *
Raymond W. Nettleton(14).................................... 222,916 * *
Derek S. Van Keuren(15)..................................... 44,750 * *
All directors and executive officers as a group (18
persons)(16).............................................. 3,016,684 5.6
</TABLE>
- ------------------------------
* Less than one percent.
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<PAGE> 70
(1) Unless otherwise indicated, the address of each person named in the table
is Formus Communications, Inc., 720 South Colorado Blvd., Suite 600 North,
Denver, Colorado, 80246.
(2) Represents shares of common stock and Class B common stock owned by
investment funds affiliated with Chase Capital Partners, including:
- 4,835,772 shares of Class B common stock owned by Chase Equity
Associates, L.P.
- 2,096,594 shares of Class B common stock owned by Chase European Equity
Associates II LLC.
- 5,199,186 shares of Class B common stock owned by Chase Capital Partners
(CCP) Germany B.V.
- 1,512,889 shares of common stock owned by Chase Capital Investments L.P.
The address for Chase Capital Partners and its affiliates is 380 Madison
Avenue 12th Floor, New York, New York 10017.
(3) Represents shares of common stock owned by investment funds affiliated with
Centennial Fund V, L.P., including:
- 4,852,810 shares of common stock owned by Centennial Fund V, L.P.
- 149,600 shares of common stock owned by Centennial Entrepreneurs Fund V,
L.P.
- 2,734,928 shares of common stock owned by Centennial Fund VI, L.P.
- 68,373 shares of common stock owned by Centennial Entrepreneurs Fund VI,
L.P.
- 201,941 shares of common stock owned by Centennial Holdings I, LLC.
- 192,000 shares of common stock owned by Centennial Strategic Partners
VI, L.P.
The address for Centennial Fund V, L.P. and its affiliates is 1428
Fifteenth Street, Denver, Colorado 80202.
(4) Represents shares of common stock owned by investment funds affiliated with
Telecom Partners II, L.P. and Telecom Partners III, L.P., including:
- 1,528,750 shares of common stock owned by Telecom Partners, L.P.
- 4,769,634 shares of common stock owned by Telecom Partners II, L.P.
- 4,000,000 shares of common stock owned by Telecom Partners III, LP
- 50,000 shares of common stock owned by Telecom Management II, LLC
The address for Telecom Partners II, L.P. and its affiliates is 4600 South
Syracuse, Suite 1000, Denver, Colorado 80237.
(5) Represents shares of common stock owned by investment funds affiliated with
Spectrum Equity Investors II, L.P., including:
- 4,035,595 shares of common stock owned by Spectrum Equity Investors II,
L.P.
- (1,185,201) shares of common stock owned by Spectrum Equity Investors,
L.P.
The address for Spectrum Equity Investors II, L.P. and its affiliates is 1
International Place, 29th Floor, Boston, Massachusetts 02110.
(6) Represents shares of common stock owned by investment funds affiliated with
Media/Communications Partners III Limited Partnership, including:
- 3,966,234 shares of common stock owned by Media/Communications Partners
III Limited Partnership.
- 229,802 shares of common stock owned by M/C Investors L.L.C.
The address for Media/Communications Partners III Limited Partnership
and its affiliates is 75 State Street, Boston, Massachusetts 02109.
(7) The address for Capital Communications CPDQ Inc. is 1981, avenue McGill
College, Montreal (Quebec) H3A3C7.
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<PAGE> 71
(8) Includes 87,500 shares of common stock issuable under options granted
pursuant to the terms of our equity incentive plan, which are exercisable
within 60 days after the closing of this offering.
(9) Includes 470,000 shares of common stock issuable under options granted
pursuant to the terms of our equity incentive plan, which are exercisable
within 60 days after the closing of this offering.
(10) Includes 42,187 shares of common stock issuable under options granted
pursuant to the terms of our equity incentive plan, which are exercisable
within 60 days after the closing of this offering.
(11) Includes 42,187 shares of common stock issuable under options granted
pursuant to the terms of our equity incentive plan, which are exercisable
within 60 days after the closing of this offering.
(12) Includes 326,562 shares of common stock issuable under options granted
pursuant to the terms of our equity incentive plan, which are exercisable
within 60 days after the closing of this offering.
(13) Includes 25,000 shares of common stock issuable under options granted
pursuant to the terms of our equity incentive plan, which are exercisable
within 60 days after the closing of this offering.
(14) Includes 222,916 shares of common stock issuable under options granted
pursuant to the terms of our equity incentive plan, which are exercisable
within 60 days after the closing of this offering.
(15) Includes 43,750 shares of common stock issuable under options granted
pursuant to the terms of our equity incentive plan, which are exercisable
within 60 days after the closing of this offering.
(16) Includes 1,281,977 shares of common stock issuable under options granted
pursuant to the terms of our equity incentive plan, which are exercisable
within 60 days after the closing of this offering.
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DESCRIPTION OF OUR CAPITAL STOCK
This section contains a summary of the material provisions of our Fourth
Restated Certificate of Incorporation and Bylaws. We encourage you to read the
entire certificate of incorporation and bylaws, which are attached as exhibits
to the registration statement filed with the Securities and Exchange Commission.
Our authorized capital stock consists of 213,540,888 shares, including
100,000,000 shares of common stock, par value $0.001 per share, 20,000,000
shares of Class B common stock, par value $0.001 per share and 93,540,888 shares
of preferred stock, par value $0.001 per share.
After this offering and the conversion of our preferred stock into common
stock, we will have outstanding:
- shares of Class A common stock if the underwriters do not
exercise their over-allotment option, or shares of Class A
common stock if the underwriters exercise their over-allotment option in
full;
- shares of Class B common stock; and
- no shares of preferred stock.
COMMON STOCK
Our Class A common stock and Class B common stock are identical except that
Class B common stock has no voting rights. We are issuing only Class A common
stock in this offering. The holders of Class B common stock are prohibited by
law from owning more than a specified percentage of our voting stock. Class B
common stock automatically converts to common stock if sold to a buyer who is
not prohibited from owning more than a specified percentage of our voting Class
A stock or if restrictions on the holder are lifted.
Each holder of record of Class A common stock is entitled to one vote for
each outstanding share owned on every matter properly submitted to the
stockholders for their vote. Class B common stock has no voting rights except as
required by law. After satisfaction of the dividend rights of holders of
preferred stock, holders of Class A common stock and Class B common stock are
entitled to any dividend declared by the board of directors out of funds legally
available for this purpose. After the payment of liquidation preferences to
holders of any outstanding preferred stock, holders of our Class A common stock
and Class B common stock are entitled to receive, on a pro rata basis, all our
remaining assets available for distribution to the stockholders in the event of
our liquidation, dissolution, or winding up. Holders of our Class A common stock
and Class B common stock do not have any preemptive rights. The rights,
preferences and privileges of holders of our Class A common stock and Class B
common stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock that we may designate and
issue in the future.
PREFERRED STOCK
Our certificate of incorporation allows the board of directors to issue,
without stockholder approval, one or more series of preferred stock having such
rights, including voting rights, dividend rights, redemption rights, and such
preferences, including liquidation preferences, as our board of directors may
determine.
Our issuance of preferred stock could decrease the amount of earnings and
assets available for distribution to the holders of our Class A common stock or
Class B common stock or could adversely affect the rights and powers, including
voting rights, of the holders of our Class A common stock or Class B common
stock. The issuance of preferred stock could have a negative effect on the
market price of our common stock.
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<PAGE> 73
REGISTRATION RIGHTS
We have entered into a fifth amended and restated investors' rights
agreement with most of our shareholders and an employee stockholders agreement
with our employee stockholders. Under these agreements, on the earlier of August
1, 2003 or this offering, holders of substantially all of our common stock can
require us to register the sale of their shares up to four times, or include
their shares in other registrations, subject to customary conditions under the
Securities Act. Subject to limitations and the lock-up agreements with the
underwriters, we must register the sale of these shares if at any time after
this offering, the holders of 25.0% or more of these shares request
registration. Subject to limitations, these holders may require us to file an
unlimited number of registration statements on Form S-3 when we are eligible to
use Form S-3, generally one year after this offering. The other provisions of
the investors' rights agreement and employee stockholders agreement terminate
when we complete this offering.
LIMITATION OF LIABILITY; INDEMNIFICATION OF OUR OFFICERS AND DIRECTORS
As permitted by the Delaware General Corporation Law, our certificate of
incorporation limits our directors' liability for breach of fiduciary duty,
except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, relating to
unlawful payment of dividends or unlawful stock purchase or redemption of
stock; or
- for any transaction from which the director derives an improper personal
benefit.
In the event the Delaware law is amended to allow more extensive
limitations on directors personal liability, our certificate of incorporation
provides that we will exculpate our directors to the fullest extent permitted by
law. Our certificate of incorporation and bylaws provide for the indemnification
of our directors and officers to the fullest extent authorized by the Delaware
General Corporation Law, as amended.
Under our certificate of incorporation and bylaws, we have the power to
purchase and maintain insurance on behalf of any director, officer, employee or
agent, or anyone serving, at our request, as a director, officer, employee or
agent of another entity against any liability as a result of serving in such
capacities, and related expenses, whether or not we would have the power to
indemnify the person against the claim under our certificate of incorporation.
POSSIBLE ANTI-TAKEOVER EFFECTS
Classified board. Our bylaws provide for a classified board of directors.
One-third of the directors will be elected at each annual meeting of
stockholders to serve for three-year terms. Because the stockholders never elect
a majority of the board members at one time, the classified board could delay or
prevent the change in control or make removal of our management more difficult.
Preferred stock issuances. Our certificate of incorporation allows our
board to issue, without stockholder approval, preferred stock with terms set by
the board. The preferred stock could be issued quickly with terms that delay or
prevent the change in control or make removal of our management more difficult.
Also, the issuance of preferred stock may cause the market price of our common
stock to decrease. See "Description of Capital Stock" for more information.
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Special stockholders' meetings. Our bylaws provide that special meetings of
stockholders, unless otherwise prescribed by statute, may be called only:
- by the board of directors or by our chairman; or
- by the holders of at least 30.0% of our securities outstanding and
entitled to vote generally in the election of directors.
Upon the consummation of this offering, special meetings of the stockholders may
only be called by a majority vote of the board of directors.
Section 203 of Delaware law. We are subject to the provisions of Section
203 of the Delaware General Corporation Law which generally prohibits publicly
held Delaware corporations from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
transaction in which the stockholder became an "interested stockholder" or the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other similar transactions
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15.0% or more of a
corporation's voting stock.
These provisions and the provisions of our certificate of incorporation and
bylaws described above could have the effect of delaying, deferring or
preventing a proxy contest or an acquisition of control of our company by a
holder of a substantial block of our stock, or the removal of the incumbent
board of directors. Such provisions could also have the effect of discouraging
an outsider from making a tender offer or otherwise attempting to obtain control
of us, even though such an attempt might be beneficial to us and our
stockholders. The existence of these provisions may reduce the price that
certain investors might be willing to pay in the future for shares of our common
stock.
TRANSFER AGENT AND REGISTRAR
serves as the transfer agent and registrar for our
common stock.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF COMMON STOCK
The following summary sets forth the U.S. federal tax consequences that are
anticipated to be material in the acquisition, ownership, and disposition of our
common stock by a holder that, for U.S. federal income tax purposes, is not a
"United States person" (as defined below) (a "Non-U.S. Holder"). This summary
does not address every aspect of U.S. federal income taxation that may be
relevant to a particular Non-U.S. Holder under special circumstances or who is
subject to special treatment under applicable law (including without limitation,
financial institutions, insurance companies, broker-dealers, and tax-exempt
organizations). PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS
REGARDING THEIR PARTICULAR TAX CONSEQUENCES OF ACQUIRING, OWNING, AND DISPOSING
OF OUR COMMON STOCK.
For purposes of this summary, a "United States person" means:
- a citizen or resident of the United States;
- a corporation, partnership, or other entity created or organized under
the laws of the United States or any State or political subdivision
thereof;
- an estate the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source; or
- a trust (A) the administration of which is subject to the primary
supervision of a United States court and which has one or more United
States persons who have the authority to control all substantial
decisions of the trust or (B) that was in existence on August 20, 1996,
was treated as a United States person on that date, and elected to
continue to be so treated.
A "Non-U.S. Holder" is a person other than a United States person.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations of the Code as of the date of
this registration statement, all of which are subject to change, including
changes with retroactive effect.
This discussion does not address all aspects of U.S. federal taxation and,
in particular, is limited in the ways that follow:
- The discussion assumes that you hold your common stock as a capital
asset, and that you do not have special tax status.
- The discussion is based on current law. Changes in the law may alter the
tax treatment of the common stock, possibly on a retroactive basis.
- The discussion does not cover state, local or foreign law.
DIVIDENDS
Dividends received by a Non-U.S. Holder with respect to our common stock
will generally be subject to withholding of U.S. federal income tax at the rate
of 30.0%. If the distribution received by a Non-U.S. Holder with respect to our
common stock is effectively connected with the conduct of a trade or business in
the United States by the Non-U.S. Holder, the dividend will not be subject to
withholding but instead will be subject to U.S. federal income tax imposed on
net income on the same basis that applies to U.S. persons generally. In
addition, a corporate Non-U.S. Holder receiving effectively-connected dividends
may be subject to a branch profits tax of 30.0% on the corporation's
effectively-connected earnings and profits, subject to certain adjustments.
Non-U.S. Holders should consult any applicable income tax treaties that may
provide for a reduction of or exemption from U.S. withholding tax or, in the
case of a corporate Non-U.S. Holder, the branch
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profits tax. A Non-U.S. Holder may be required to satisfy certain certification
requirements in order to claim such treaty benefits.
GAIN ON DISPOSITION
A Non-U.S. Holder will generally not be subject to U.S. federal income or
withholding tax on gain recognized on a sale or other disposition of our common
stock, unless the gain is:
- effectively connected with the conduct of a trade or business in the
United States by the Non-U.S. Holder, or
- in the case of Non-U.S. Holder who is a nonresident alien individual and
holds our 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
disposition, and certain other requirements are met.
Gain that is effectively connected with the conduct of trade or business in
the United States by the Non-U.S. Holder will be subject to U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally (and, with respect to corporate holders and under certain
circumstances, the branch profits tax). Non-U.S. Holders should consult any
applicable income tax treaties that may provide for different rules.
UNITED STATES FEDERAL ESTATE TAX
An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in our common stock at the time of
death will be required to include the value thereof in his gross estate for U.S.
federal estate tax purposes, unless an applicable estate tax treaty applies.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report annually to the United States Internal Revenue
Service and to each Non-U.S. Holder the amount of dividends paid to such holder,
and the tax withheld on such dividends, regardless of whether any tax has been
actually withheld. This information may also be made available to the tax
authorities of a country in which the Non-U.S. Holder resides.
Under current United States Treasury regulations, United States information
reporting requirements and backup withholding tax will generally not apply to
dividends paid on our common stock to a Non-U.S. Holder at an address outside
the United States. Payments by a United States office of a broker of the
proceeds of a sale of our common stock are subject to both backup withholding at
a rate of 31.0% and information reporting unless the holder certifies its
Non-U.S. Holder status under penalties of perjury or otherwise establishes an
exemption.
Payments of the proceeds from the disposition of our common stock by
foreign offices of United States brokers, or foreign brokers with certain types
of relationships to the United States, will not be subject to backup
withholding, but will be subject to information reporting, unless the broker has
documentary evidence in its records that the holder is a Non-U.S. Holder and
certain other conditions are met, or the holder otherwise establishes an
exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If backup withholding results in an overpayment of tax, a refund may
be obtained, provided that certain required information is furnished to the
Internal Revenue Service.
The United States Treasury Department has promulgated final regulations
regarding the withholding and information reporting rules discussed above. In
general, such regulations do not significantly alter the substantive withholding
and information reporting requirements but unify current certification
procedures and forms and clarify reliance standards. The final regulations are
anticipated to become effective for payments made after December 31, 2000,
subject to certain transition rules.
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UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
dated , 2000, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith Barney Inc.,
Credit Suisse First Boston Corporation and DLJdirect Inc., have severally and
not jointly agreed to purchase from us the number of shares of common stock
shown opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Salomon Smith Barney Inc. ..................................
Credit Suisse First Boston Corporation......................
DLJdirect Inc. .............................................
-------
Total.............................................
=======
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
included in the offering are subject to approval of certain legal matters by
their counsel and to certain other conditions. The underwriters are obligated to
purchase and accept delivery of all the shares, other than those covered by the
over-allotment option described below, if they purchase any of the shares.
The underwriters propose to initially offer some of our shares directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and some of the shares to certain dealers at the public offering
price less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share on sales to certain other dealers. After the initial offering of the
shares to the public, the representatives may change the public offering price
and such concessions. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with the offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.
<TABLE>
<CAPTION>
PAID BY FORMUS
COMMUNICATIONS, INC.
----------------------
FULL
NO EXERCISE EXERCISE
----------- --------
<S> <C> <C>
Per share................................................... $ $
Total............................................. $ $
</TABLE>
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $2.5 million.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to additional shares at
the initial public offering price less the underwriting fees. The underwriters
may exercise such option solely to cover over-allotments, if any, made in
connection with the offering. To the extent that the underwriters exercise their
option, each underwriter will become obligated, subject to certain conditions,
to purchase a number of additional shares approximately proportionate to that
underwriter's initial purchase commitment.
We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the underwriters may be required to make in respect of any of
those liabilities.
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We, our executive officers and directors, and certain of our stockholders
have agreed that, for a period of 180 days from the date of this prospectus,
neither we nor they will, without prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation and Salomon Smith Barney Inc.:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock.
In addition, during the same period, we have agreed not to file any
registration statement, except for the registration statement on Form S-8
covering shares of common stock underlying options in our stock option plan,
with respect to, and each of our executive officers, directors and stockholders
entitled to registration rights has agreed not to make any demand for, or
exercise any right with respect to, the registration of any shares of our common
stock or any securities convertible into our exercisable or exchangeable for
common stock without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation and Salomon Smith Barney Inc. Either of the foregoing
transaction restrictions will apply regardless of whether any of these
transactions is to be settled by the delivery of common stock, or such other
securities, in cash or otherwise. The lock-up agreements with persons other than
Formus cover an aggregate of shares, and an additional
shares issuable upon exercise of outstanding options and warrants.
Prior to the offering, there has been no established public market for our
common stock. The initial public offering price for the shares of our common
stock has been determined by negotiation between us and the representatives of
the underwriters. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which we compete; our past and present operations; our historical results of
operations; our prospects for future earnings; the recent market prices of
securities of generally comparable companies and the general condition of the
securities market at the time of the offering.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to of the shares included in the offering,
to be sold to certain of our directors, officers, employees and other
individuals associated with us and related persons. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares that are not
confirmed for purchase within one day of the consummation of the offering will
be offered by the underwriters to the general public on the same terms as the
other shares offered hereby. An electronic prospectus is being made available on
web sites maintained by DLJdirect. Other than the prospectus in electronic
format, any information on those web sites relating to this offering is not part
of the prospectus and has not been approved or endorsed by us or any underwriter
and should not be relied upon by prospective investors.
Application has been made to list the common stock on the Nasdaq National
Market under the symbol "FMUS." In order to meet the requirements for listing
the common stock on the Nasdaq National Market, the underwriters have undertaken
to sell lots of 100 or more shares to a minimum of 2,000 beneficial owners.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisement in connection with the offer and sale of any such shares be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of such
jurisdiction. Persons who receive this prospectus are advised to inform
themselves about and to observe any restrictions relating to the offering of the
common stock and the distribution of this prospectus. This prospectus is not
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<PAGE> 79
an offer to sell or a solicitation of an offer to buy any shares of common stock
included in the offering in any jurisdiction where that would not be permitted
or legal.
In connection with the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock. Specifically, the underwriters may overallot the offering,
creating a syndicate short position. The underwriters may bid for and purchase
shares of our common stock in the open market to cover such syndicate short
position or to stabilize the price of the common stock. These activities may
stabilize or maintain the market price of our common stock above independent
market levels. In addition, the underwriting syndicate may reclaim selling
concessions from syndicate members if Donaldson, Lufkin & Jenrette Securities
Corporation and Salomon Smith Barney Inc. repurchase previously distributed
common stock in syndicate covering transactions, in stabilizing transactions or
otherwise if Donaldson, Lufkin & Jenrette Securities Corporation and Salomon
Smith Barney Inc. receive a report that indicates that the clients of such
syndicate members have "flipped" the common stock. The underwriters are not
required to engage in these activities and may end any of these activities at
any time.
Affiliates of Donaldson, Lufkin & Jenrette Securities Corporation, Salomon
Smith Barney Inc. and Credit Suisse First Boston Corporation will receive 10% or
more of the net proceeds of this offering as repayment of the senior secured
notes arranged by them. Consequently, the offering has been conducted in
accordance with Conduct Rule 2710(c)(8) of the National Association of
Securities Dealers, Inc., which requires that the public offering price of any
equity security be no higher than the price recommended by a qualified
independent underwriter that has participated in the preparation of the
registration statement and performed its usual standard of due diligence with
respect thereto. has agreed to act as qualified independent
underwriter with respect to the offering, and the public offering price of the
common stock is no higher than that recommended by .
Certain of the underwriters have performed and continue to perform
investment banking and advisory services for us from time to time, for which
they receive customary fees. Donaldson, Lufkin & Jenrette Securities Corporation
acted as the financial advisor for the sale of our Series E and F preferred
stock in September 1999 and for the sale of our shares of Series G senior
preferred stock in May 2000 and received compensation for these services.
Affiliates of Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith
Barney Inc. and Credit Suisse First Boston Corporation arranged the issuance of
our senior secured notes in May 2000 and received compensation for these
services, including warrants to purchase shares of our common stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common
stock issued and outstanding, or shares if the underwriters exercise
their over-allotment option in full. We will have 4,805,294 shares of common
stock issuable on exercise of outstanding options, 1,813,438 of which will be
vested as of completion of the offering. We will have 1,550,000 shares of common
stock issuable upon exercise of outstanding warrants, 612,500 of which will be
vested as of the completion of the offering. All of the shares we sell in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, except that any shares purchased by our "affiliates,"
as that term is defined in Rule 144, may generally only be sold in compliance
with the limitations of Rule 144 described below.
Of the remaining shares of common stock outstanding after this offering,
shares also will be freely tradeable without restriction in the public
market, and shares may be sold publicly only if registered under the
Securities Act or sold in accordance with an exemption from the Securities Act,
such as Rule 144.
Prior to this offering, there has been no public market for our common
stock. We are unable to estimate the number of shares that may be sold in the
future by our existing stockholders or the effect, if any, that sales of shares
by such stockholders, or the availability of the shares for sale, will have on
the
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market price of the common stock prevailing from time to time. Sales of
substantial amounts of our common stock in the public market could adversely
affect prevailing market prices.
For purposes of 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. In general, under
Rule 144, a stockholder including an "affiliate," who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period,
a number of "restricted" shares that does not exceed the greater of:
- one percent of the then outstanding shares of common stock, or
approximately shares expected to be outstanding
immediately after this offering; or
- the average weekly trading volume during the four calendar weeks
preceding the sale.
Sales under Rule 144 are subject to manner of sale limitations, notice
requirements and the availability of current public information about the
issuer. Rule 144(k) provides that a person who is not deemed an "affiliate" and
who has beneficially owned shares for at least two years is entitled to sell
such shares at any time under Rule 144 without regard to the limitations
described above. We estimate that 13,983,180 outstanding shares fall in this
category. Of the 75,832,650 shares outstanding before this offering, affiliates
beneficially own over % of such shares. See "Risk Factors -- Future sales
of our Class A common stock in the public market could depress our stock price."
Any employee, officer, director, advisor or consultant who purchased his or
her shares pursuant to a written compensatory plan or contract is entitled to
rely on the resale provisions of Rule 701, which permits non-affiliates to sell
their Rule 701 shares without having to comply with the public information,
holding period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after we
become subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934.
As of December 31, 1999, there were outstanding stock options to purchase
an aggregate of 4,851,865 shares of common stock, of which 1,841,772 are
presently exercisable or exercisable within 60 days. These outstanding stock
options are held by our executive officers, employees, directors or consultants.
Following the offering, we intend to file a registration statement on Form S-8
covering the 7,000,000 shares of common stock issuable under our stock option
plan, including shares subject to outstanding options. Of the
outstanding shares and shares issuable upon exercise of outstanding options and
warrants not subject to lock-up agreement, only of such shares will be
freely tradable immediately following the offering under Rule 701 as discussed
above. Under Rule 144, the remaining shares will be available for
resale subject to the limitations of Rule 144 beginning 90 days following the
offering.
As of December 31, 1999, there was an outstanding warrant to purchase an
aggregate of 1,250,000 shares of Series E Preferred Stock.
We have granted registration rights to substantially all of our
stockholders. See "Description of Our Capital Stock -- Registration Rights."
We and our officers, directors, certain of our other stockholders have
entered into lock-up agreements relating to the transfer of shares of our
capital stock for a period of 180 days after this date of the prospectus. See
"Underwriting."
In addition, during the same period, we have agreed not to file any
registration statement with respect to, and each of our executive officers,
directors and stockholders entitled to registration rights has agreed not to
make any demand for, or exercise any right with respect to, the registration of
any shares of our common stock or any securities convertible into or exercisable
or exchange for common stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation and Salomon Smith Barney Inc.
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<PAGE> 81
Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Smith
Barney Inc. have advised us that they have no current intention of waiving any
of the agreements described in the immediately preceding paragraph. Donaldson,
Lufkin & Jenrette Securities Corporation and Salomon Smith Barney Inc. have
further advised us that in determining whether to grant any requested waiver,
they would consider the market prices and trading volumes of our common stock at
that time, market conditions generally, the size and timing of the requested
waiver and any special circumstances of the requesting person.
LEGAL MATTERS
Holme Roberts & Owen LLP, Denver, Colorado, will pass upon the validity of
the shares of common stock on our behalf. Skadden, Arps, Slate, Meagher & Flom
LLP, Los Angeles, California, will pass upon certain legal matters for the
underwriters.
EXPERTS
The consolidated financial statements of Formus Communications, Inc. and
subsidiaries as of December 31, 1998 and 1999, and for each of the three years
in the period ended December 31, 1999 included in this prospectus and elsewhere
in the registration statement, have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The consolidated financial statements of Callino GmbH and subsidiaries as
of August 31, 1998 and December 31, 1997 and for the period from inception on
July 7, 1997 to December 31, 1997, for the eight months ended August 31, 1998
and for the period from inception on July 7, 1997 to August 31, 1998 included in
this prospectus and elsewhere in the registration statement, have been audited
by Arthur Andersen Wirtschaftsprufungsgesellschaft Steuerberatungsgesellschaft
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The consolidated financial statements of VeloCom Inc. as of December 31,
1998 and for the period from inception on April 29, 1998 to December 31, 1998,
included in this prospectus and elsewhere in the Registration Statement, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all the information set forth in
the registration statement, certain portions of which are omitted as permitted
by the rules and regulations of the SEC.
For further information about us and the shares offered by this prospectus,
you should refer to the registration statement, including the exhibits and
schedules filed with the registration statement. You may obtain copies of the
registration statement, of which this prospectus is a part, together with such
exhibits and schedules, upon payment of the fee prescribed by the SEC, or you
may examine these documents without charge at the offices of the SEC.
Other than in the United States, we and the underwriters have not taken any
action in any jurisdiction that would permit a public offering of our Class A
common stock. No offer or sale of shares of our Class A common stock may be made
in any jurisdiction outside the United States, except under circumstances that
will result in compliance with the applicable laws of that jurisdiction. We and
the underwriters require persons to whom this prospectus comes to inform
themselves about, and to observe,
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any restrictions as to the offering of shares of our Class A common stock and
the distribution of this prospectus in jurisdictions outside the United States.
After the offering is completed, we will be subject to the informational
requirements of the Securities Exchange Act of 1934 and will be required to file
annual and quarterly reports, proxy statements and other information with the
SEC. You can inspect and copy reports and other information filed by us with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may also obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0300. The SEC also maintains an
Internet site at http://www.sec.gov that contains reports, proxy and information
statements regarding issuers, including us, that file electronically with the
SEC.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
FORMUS COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999 and pro forma December 31, 1999 (unaudited)....... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999....................... F-4
Consolidated Statements of Stockholders' Deficit for the
years ended December 31, 1997, 1998 and 1999........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999....................... F-6
Notes to Consolidated Financial Statements................ F-7
CALLINO GMBH (FORMERLY KNOWN AS ARCIS MEDIACOM MANAGEMENT
GMBH)
Report of Independent Public Accountants.................. F-31
Balance Sheets as of December 31, 1997 and August 31,
1998................................................... F-32
Statements of Income and Accumulated Deficit for the
period July 7, 1997 (inception) to December 31, 1997,
period January 1, 1998 to August 31, 1998 and the
cumulative period July 7, 1997 (inception) to August
31, 1998............................................... F-33
Statements of Cash Flows for the period July 7, 1997
(inception) to December 31, 1997, period January 1,
1998 to August 31, 1998, and the cumulative period July
7, 1997 (inception) to August 31, 1998................. F-34
Statements of Shareholders' Equity for the period July 7,
1997 (inception) to December 31, 1997, for the period
January 1, 1998 to August 31, 1998 and for the
cumulative period from July 7, 1997 (inception) to
August 31, 1998........................................ F-35
Notes to The Financial Statements......................... F-36
VELOCOM INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................. F-42
Consolidated Balance Sheets as of December 31, 1998 and
June 30, 1999 (unaudited).............................. F-43
Consolidated Statements of Operations for the period from
April 29, 1998 (inception) to December 31, 1998, for
the six months ended June 30, 1999 (unaudited) and for
the cumulative period from April 29, 1998 (inception)
to June 30, 1999 (unaudited)........................... F-44
Consolidated Statements of Stockholders' Equity for the
period from April 29, 1998 (inception) to December 31,
1998 and for the six months ended June 30, 1999
(unaudited)............................................ F-45
Consolidated Statements of Cash Flows for the period from
April 29, 1998 (inception) to December 31, 1998, for
the six months ended June 30, 1999 (unaudited) and for
the cumulative period from April 29, 1998 (inception)
to June 30, 1999 (unaudited)........................... F-46
Notes to Consolidated Financial Statements................ F-47
</TABLE>
F-1
<PAGE> 84
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Formus Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Formus
Communications, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1998 and 1999, and the related consolidated statements of operations,
stockholders' deficit and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and 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 accompanying consolidated financial statements present
fairly, in all material respects, the financial position of Formus
Communications, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado
May 5, 2000
F-2
<PAGE> 85
FORMUS COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, PRO FORMA
------------------- DECEMBER 31,
1998 1999 1999
-------- -------- ------------
(UNAUDITED)
(NOTE 2)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 22,887 $ 52,281
Short-term investments.................................... -- 24,810
Restricted short-term investment.......................... -- 19,008
Stock subscription receivable............................. 2,228 --
Note receivable........................................... -- 3,188
Subscriber receivables.................................... -- 1,745
Other receivables......................................... 508 5,293
Prepaid expenses and other current assets................. 176 3,792
-------- --------
Total current assets................................ 25,799 110,117
Telecommunications licenses, net of accumulated amortization
of $0 and $174, respectively.............................. 12,176 150,705
Property and equipment, net................................. 4,391 22,704
Investment in affiliate..................................... -- 31,725
Investment in WNP........................................... 11,756 --
Goodwill, net of amortization of $0 and $1,859,
respectively.............................................. -- 81,776
Other assets................................................ 24 6,147
-------- --------
Total assets........................................ $ 54,146 $403,174
======== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,025 $ 22,949
Accrued liabilities....................................... 1,129 4,231
Current portion of capital leases......................... -- 2,021
-------- --------
Total current liabilities........................... 4,154 29,201
Long-term portion of capital leases......................... -- 2,782
Deferred taxes.............................................. -- 70,769
-------- --------
Total liabilities................................... 4,154 102,752
Minority interests in subsidiaries.......................... 10,564 2,560
Preferred stock, mandatorily redeemable, $.001 par value:
Series A, $2.50 per share redemption value, 23,280,000
shares authorized; 18,576,000 (1998 and 1999) and zero
(unaudited pro forma 1999) issued and outstanding....... 45,381 45,600 --
Series B, $2.50 per share redemption value, 4,704,000
shares authorized; 4,704,000 (1998 and 1999) and zero
(unaudited pro forma 1999) issued and outstanding....... 11,489 11,545 --
Series C, $3.50 per share redemption value, 7,142,858
shares authorized; zero (1998) and 6,424,528 (1999) and
zero (unaudited pro forma 1999) issued and
outstanding............................................. -- 22,486 --
Series D, $3.50 per share redemption value, 718,330 shares
authorized; zero (1998) and 718,330 (1999) and zero
(unaudited pro forma 1999) issued and outstanding....... -- 2,514 --
Series E, $10.00 per share redemption value, 30,184,369
shares authorized; zero (1998) and 19,445,038 (1999) and
zero (unaudited pro forma 1999) issued and
outstanding............................................. -- 191,803 --
Series F, $10.00 per share redemption value, 8,511,331
shares authorized; zero (1998) and 8,511,331 (1999) and
zero (unaudited pro forma 1999) issued and
outstanding............................................. -- 85,113 --
Commitments and contingencies (Note 16)
Stockholders' (deficit) equity:
Preferred stock, undesignated, 5,000,000 shares
authorized; zero issued and outstanding................. -- -- --
Common stock, $.001 par value; 50,000,000 (1998) and
90,000,000 (1999) shares authorized; 2,743,180 (1998),
3,022,811 (1999) and 47,468,377 (unaudited pro forma
1999) issued and outstanding............................ 3 3 47
Class B common stock, $.001 par value; 6,000,000 (1998)
and 14,295,780 (1999) shares authorized; 200,000 (1998
and 1999) and 14,133,661 (unaudited pro forma 1999)
issued and outstanding.................................. -- -- 14
Additional paid-in capital................................ 2,871 9,033 368,036
Deferred charges.......................................... -- (1,850) (1,850)
Accumulated deficit....................................... (19,954) (60,001) (60,001)
Other cumulative comprehensive loss....................... (362) (8,384) (8,384)
-------- -------- --------
Total stockholders' (deficit) equity................ (17,442) (61,199) $297,862
-------- -------- ========
Total liabilities and stockholders' (deficit)
equity.............................................. $ 54,146 $403,174
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 86
FORMUS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenue.................................................. $ -- $ -- $ 2,316
Costs and expenses:
Costs of services...................................... -- 1,168 9,589
Provision on impaired assets........................... -- -- 3,186
Selling, general and administrative.................... 6,266 14,461 61,704
Depreciation and amortization.......................... 128 318 5,369
---------- ---------- ----------
Total costs and expenses....................... 6,394 15,947 79,848
---------- ---------- ----------
Loss from operations........................... (6,394) (15,947) (77,532)
Other income (expense):
Interest income........................................ 328 751 2,774
Gain on sale of investments in WNP and NEXTLINK........ -- -- 27,006
Gain on VeloCom transaction............................ -- -- 3,061
Foreign currency transaction losses.................... -- (225) (717)
Other income (expense), net............................ (101) 511 (174)
---------- ---------- ----------
Net loss before other items.................... (6,167) (14,910) (45,582)
---------- ---------- ----------
Minority interests in subsidiaries....................... 20 1,192 9,469
Share in results of affiliated companies................. -- -- (3,934)
---------- ---------- ----------
Net loss....................................... (6,147) (13,718) (40,047)
Accretion of mandatorily redeemable preferred stock...... -- (182) (449)
---------- ---------- ----------
Net loss attributable to common stock.......... $ (6,147) $ (13,900) $ (40,496)
========== ========== ==========
Basic and diluted net loss per common share.............. $ (2.66) $ (4.72) $ (13.19)
========== ========== ==========
Basic and diluted weighted-average number of common
shares outstanding..................................... 2,314,548 2,943,180 3,069,530
========== ========== ==========
Pro forma basic and diluted net loss per common share
(unaudited)(Note 2).................................... $ (.96)
==========
Pro forma basic and diluted weighted-average number of
common shares outstanding (unaudited)(Note 2).......... 41,804,582
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 87
FORMUS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OTHER
CLASS B CUMULATIVE
COMMON STOCK COMMON STOCK ADDITIONAL COMPREHENSIVE
------------------ ---------------- PAID-IN DEFERRED INCOME ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL CHARGES (LOSS)(1) DEFICIT
--------- ------ ------- ------ ---------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1996...................... 1,235,000 $ 1 -- $ -- $1,234 $ -- $ -- $ (89)
Issuance of common stock.... 1,508,180 2 -- -- 1,506 -- -- --
Issuance of Class B common
stock..................... -- -- 200,000 -- 200 -- -- --
Change in cumulative
translation adjustments... -- -- -- -- -- -- (185) --
Net loss.................... -- -- -- -- -- -- -- (6,147)
--------- ---- ------- ---- ------ ------- ------- --------
Balances, December 31,
1997...................... 2,743,180 3 200,000 -- 2,940 -- (185) (6,236)
Issuance of common stock
options for services...... -- -- -- -- 113 -- -- --
Accretion of mandatorily
redeemable preferred
stock..................... -- -- -- -- (182) -- --
Change in cumulative
translation adjustments... -- -- -- -- -- -- (177) --
Net loss.................... -- -- -- -- -- -- -- (13,718)
--------- ---- ------- ---- ------ ------- ------- --------
Balances, December 31,
1998...................... 2,743,180 3 200,000 -- 2,871 -- (362) (19,954)
Issuance of common stock in
connection with Company's
stock option plan......... 279,631 -- -- -- 704 -- -- --
Non-cash compensation
expense -- common stock
options................... -- -- -- -- 4,087 -- -- --
Issuance of preferred stock
warrant................... -- -- -- -- 2,020 (2,020) -- --
Non-cash compensation
expense -- amortization of
preferred stock warrant... -- -- -- -- -- 170 -- --
Accretion of mandatorily
redeemable preferred
stock..................... -- -- -- -- (449) -- --
Change in cumulative
translation adjustments... -- -- -- -- -- -- (8,022) --
Unrealized gain on
available-for-sale
securities................ -- -- -- -- -- -- 2,479 --
Reclassification adjustment
for realized gain......... -- -- -- -- -- -- (2,479) --
Common stock subscription
receivable................ -- -- -- -- (200) -- -- --
Net loss.................... -- -- -- -- -- -- -- (40,047)
--------- ---- ------- ---- ------ ------- ------- --------
Balances, December 31,
1999...................... 3,022,811 $ 3 200,000 $ -- $9,033 $(1,850) $(8,384) $(60,001)
========= ==== ======= ==== ====== ======= ======= ========
<CAPTION>
TOTAL
COMPREHENSIVE
LOSS TOTAL
------------- --------
<S> <C> <C>
Balances, December 31,
1996...................... $ -- $ 1,146
Issuance of common stock.... -- 1,508
Issuance of Class B common
stock..................... -- 200
Change in cumulative
translation adjustments... (185) (185)
Net loss.................... (6,147) (6,147)
-------- --------
Balances, December 31,
1997...................... (6,332) (3,478)
========
Issuance of common stock
options for services...... -- 113
Accretion of mandatorily
redeemable preferred
stock..................... -- (182)
Change in cumulative
translation adjustments... (177) (177)
Net loss.................... (13,718) (13,718)
-------- --------
Balances, December 31,
1998...................... (13,895) (17,442)
========
Issuance of common stock in
connection with Company's
stock option plan......... -- 704
Non-cash compensation
expense -- common stock
options................... -- 4,087
Issuance of preferred stock
warrant................... -- --
Non-cash compensation
expense -- amortization of
preferred stock warrant... -- 170
Accretion of mandatorily
redeemable preferred
stock..................... -- (449)
Change in cumulative
translation adjustments... (8,022) (8,022)
Unrealized gain on
available-for-sale
securities................ 2,479 2,479
Reclassification adjustment
for realized gain......... (2,479) (2,479)
Common stock subscription
receivable................ -- (200)
Net loss.................... (40,047) (40,047)
-------- --------
Balances, December 31,
1999...................... $(48,069) $(61,199)
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 88
FORMUS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN THOUSAND, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(6,147) $(13,718) $(40,047)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 128 318 5,369
Provision on impaired assets.............................. -- -- 3,186
Minority interests in subsidiaries........................ (20) (1,192) (9,469)
Non-cash compensation expense -- options and warrants..... -- 113 4,257
Gain on sale of investments in WNP and NEXTLINK........... -- -- (27,006)
Gain on VeloCom transaction............................... -- -- (3,061)
Share in results of affiliated companies.................. -- -- 3,934
Other..................................................... -- 194 (170)
Changes in assets and liabilities, net of effects of
acquisitions:
Receivables............................................. -- -- (8,859)
Prepaid expenses and other current assets............... (293) 967 (5,076)
Other assets............................................ (20) (4) (3,212)
Accounts payable and accrued liabilities................ 235 55 23,750
------- -------- --------
Net cash used in operating activities.............. (6,117) (13,267) (56,404)
------- -------- --------
Cash flows from investing activities:
Cash paid for short-term investments...................... -- -- (24,810)
Cash paid for restricted short-term investment............ -- -- (19,008)
Cash paid for acquisitions, net of cash acquired.......... (1,390) 471 (443)
Cash paid for investments in affiliates................... -- -- (31,591)
Purchase of telecommunications licenses................... (478) (4,948) (1,492)
Purchase of property and equipment........................ (267) (3,822) (20,072)
Purchase of investment in WNP............................. -- (11,756) --
Proceeds from sale of investments in WNP and NEXTLINK..... -- -- 38,762
------- -------- --------
Net cash used in investing activities.............. (2,135) (20,055) (58,654)
------- -------- --------
Cash flows from financing activities:
Payment on purchase money note payable.................... -- (899) --
Minority interest contributions to subsidiaries, including
payments on stock subscription receivable............... 250 5,954 6,739
Proceeds from issuance of mandatorily redeemable preferred
stock, net of issuance costs............................ 26,830 29,858 138,026
Proceeds from issuance of common stock.................... 1,708 -- 704
------- -------- --------
Net cash from financing activities................. 28,788 34,913 145,469
------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (185) (232) (1,017)
------- -------- --------
Net increase in cash and cash equivalents................... 20,351 1,359 29,394
Cash and cash equivalents, beginning of period.............. 1,177 21,528 22,887
------- -------- --------
Cash and cash equivalents, end of period.................... $21,528 $ 22,887 $ 52,281
======= ======== ========
Non-cash investing and financing activities:
Purchase money note payable............................... $ 899 $ -- $ --
======= ======== ========
Assets acquired under capital lease obligations........... $ -- $ -- $ 5,439
======= ======== ========
Contribution from minority interest in the form of
subscription receivable................................. $ -- $ 2,228 $ --
======= ======== ========
Callino acquisition (Note 4).............................. $ -- $ -- $163,715
======= ======== ========
VeloCom transaction (Note 7).............................. $ -- $ -- $ 4,428
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 89
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) ORGANIZATION AND NATURE OF OPERATIONS
Formus Communications, Inc. ("Formus" or the "Company"), a Delaware
corporation incorporated on October 22, 1996, was formed to acquire broadband
frequency and operating licenses in emerging and established markets,
principally in Europe. The Company provides broadband Internet and data
communications services in selected European markets. The Company is
headquartered in the United States ("U.S.") with current operations principally
in Germany and Poland.
As more fully discussed in Note 4, during 1998, the Company acquired an
effective 47.1% interest in Callino GmbH ("Callino") (formerly "ARCIS MEDIACOM
Management GmbH"). The Company's interest in Callino is held through Formus
Communications-Germany B.V. ("Germany B.V."), which was formed by the Company
and an unrelated third party for the explicit purpose of acquiring the indicated
interest in Callino. As a result of the initial 1998 transaction, the Company
held an approximate 85.4% interest in Germany B.V., which in turn held an
approximate 55.1% interest in Callino. The Company controlled and consolidated
Germany B.V. due to its majority voting interest and Germany B.V. controlled and
consolidated Callino through its majority voting interest and rights granted to
Germany B.V. under its shareholder agreement. The Company acquired its interest
in Callino to obtain telecommunications licenses in order to pursue
telecommunications services in Germany. On September 3, 1999, the Company
acquired the remaining equity interest in Callino (directly and indirectly
through an acquisition of the remaining equity interest in Germany B.V.).
Callino is now a wholly-owned subsidiary of the Company.
On August 1, 1997, the Company co-founded Formus Polska Sp. z o.o. ("Formus
Polska") to acquire telecommunications licenses and provide telecommunications
services in Poland. In November 1997, Formus Polska acquired spectrum licenses
for the ten largest cities in Poland. Formus Polska is owned by the Company and
Elmedia Sp. z o.o. ("Elmedia"), a company organized under the laws of the
Republic of Poland. In connection with the formation of Formus Polska, the
Company received 49.0% of the voting capital stock and 85.0% of the economic
interest. Due to the dilution of the other shareholder from capital
contributions from Formus, the Company's economic interest at December 31, 1999
is 86.3%. Through Formus Polska's organizational documents and shareholders'
agreement, the Company has significant voting and other rights with respect to
supervisory board and shareholder decisions affecting Formus Polska. The
supervisory board oversees Formus Polska's affairs, while the management board
is responsible for the day-to-day operations of the company. Formus Polska's
charter provides that two of its five supervisory directors be elected directly
by the Company and that the remaining three supervisory directors be elected by
all of the shareholders. The Company and the other shareholder have agreed that
one of the three remaining supervisory directors will be a director designated
by the Company. Representation on the management board is proportionate to the
shareholders' economic interests. Accordingly, the Company consolidates Formus
Polska.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal revenue-generating operations commenced in May
1999, and prior to that time the Company was in the development stage and had
generated no operating revenues. Since commencement of operations on October 22,
1996, the Company has incurred cumulative net losses totaling approximately
$60.0 million through December 31, 1999. As a result of its start-up activities,
the Company has experienced significant operating losses and negative cash flows
from operations. The Company expects to continue to generate negative cash flows
from operations in each market while it emphasizes development, construction,
and expansion of its business and until the Company establishes a sufficient
revenue-generating customer base. The Company also expects to experience
increasing operating losses and negative cash flows from operations as it
expands its operations and enters new markets, even if and after it achieves
positive cash flow from operations in its initial markets.
F-7
<PAGE> 90
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Company's ultimate success will be affected by the problems, expenses
and delays encountered in connection with the formation of any new business and
by the competitive environments in which the Company intends to operate. Delays
or failure in receiving required regulatory approvals or the enactment of new
regulations or regulatory requirements may have a material adverse effect on the
Company. Although management believes that the Company will be able to
successfully mitigate these risks, there is no assurance that the Company will
be able to do so or that the Company will ever operate profitably.
The Company expects to incur substantial capital expenditures for
constructing its networks, deploying customer premise equipment, making
acquisitions and acquiring telecommunications licenses throughout Europe, which
will require the Company to raise substantial amounts of capital. The Company
anticipates that its current financial resources, including existing funding
commitments, is sufficient to fund its operations and capital requirements
through at least December 31, 2000. See Note 17 for discussions regarding
capital raised through senior secured notes and preferred stock subsequent to
December 31, 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Formus and
its majority controlled subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Subsidiaries are consolidated, as of the
acquisition date, if the Company has control of the subsidiary either through
ownership of a majority of the subsidiary's voting stock or through control of
the Board of Directors or management of the subsidiary.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all short-term investments with original maturities
of three months or less, that principally consist of money market funds and
short-term investments in commercial paper, to be cash equivalents. Short-term
investments principally consist of commercial paper with original maturities
greater than three months but less than 12 months.
RESTRICTED SHORT-TERM INVESTMENT
The restricted short-term investment at December 31, 1999 relates to a
certificate of deposit held exclusively to secure a letter of credit obtained by
the Company. The letter of credit enabled the Company to participate in the
Switzerland license auction. See Note 17 for a discussion of the acquisition of
the Switzerland license subsequent to December 31, 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
short-term investments, accounts payable and accrued liabilities. The carrying
amounts of financial instruments approximate fair value due to their short
maturities.
The Company records short-term investments at the current fair market value
of the securities. Any unrealized holding gains and losses are reported as other
cumulative comprehensive income (loss) as the
F-8
<PAGE> 91
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
securities are classified as available-for-sale at December 31, 1999. There were
no unrealized holding gains or losses as of December 31, 1998 and 1999.
STOCK SUBSCRIPTION RECEIVABLES
The stock subscription receivable at December 31, 1998 represents a
subscription receivable from a minority shareholder of Callino, which was paid
in January 1999. The stock subscription receivable at December 31, 1999
represents a loan made by the Company to its CEO for the exercise of 80,000
stock options at a price of $2.50 per share. The stock subscription receivable
at December 31, 1999 has been classified as a contra equity account.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company regularly assesses the collectibility of its receivables and
the need for an allowance for doubtful accounts. At December 31, 1998 and 1999,
the allowance for doubtful accounts was $0 based upon the Company's assessment
of the collectibility of its receivables.
TELECOMMUNICATIONS LICENSES
Telecommunications licenses are stated at cost and are amortized using the
straight-line method over their estimated useful lives of up to twenty years
based upon the respective license terms and conditions. The estimated useful
lives can vary significantly between markets. License amortization begins when
the Company launches services that are supported by the respective license
rights. Amortization expense related to telecommunications licenses was
approximately $0, $0 and $174 for the years ended December 31, 1997, 1998 and
1999, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the economic life of the asset. Repair and
maintenance costs are charged to expense when incurred. The economic lives of
property and equipment at acquisition are as follows:
<TABLE>
<S> <C>
Communications equipment.................................... 3-5 years
Computer software........................................... 3-4 years
Furniture and office equipment.............................. 5-8 years
Computer equipment.......................................... 3-5 years
</TABLE>
INVESTMENTS IN AFFILIATES, ACCOUNTED FOR UNDER THE EQUITY METHOD
For those investments in unconsolidated subsidiaries and companies in which
the Company's voting interest is 20.0% to 50.0%, its investments are generally
held through any combination of voting common stock, preferred stock, debentures
or convertible debt and/or the Company exerts significant influence through
board representation and management authority, the equity method of accounting
is used. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company's proportionate share of net earnings or
losses of the affiliate, limited to the extent of the Company's investment in
and advances to the affiliate, including any debt guarantees or other
contractual funding commitments. The Company's proportionate share of net
earnings or losses of affiliates will generally include the amortization of any
excess of its cost over its proportionate interest in each affiliate's net
assets.
F-9
<PAGE> 92
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
GOODWILL
The excess of investments in consolidated subsidiaries over the net
tangible and identifiable intangible assets value at acquisition is amortized on
a straight-line basis over 15 years.
LONG-LIVED ASSETS
The Company evaluates the carrying value of all tangible and intangible
assets whenever events or circumstances indicate the carrying value of assets
may exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the asset.
Measurement of an impairment loss is based on fair value of the asset computed
using discounted cash flows if the asset is expected to be held and used.
Measurement of an impairment loss for an asset held for sale would be based on
fair market value less estimated costs to sell.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method,
which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions, which have been
included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the difference between the
financial statement and income tax basis of assets, liabilities, and loss
carryforwards using enacted tax rates in effect for the year in which the
differences are expected to reverse. Net deferred tax assets are then reduced by
a valuation allowance if management believes it is more likely than not they
will not be realized.
REVENUE RECOGNITION
The Company recognizes revenues on telecommunications services in the
period that services are provided and earned.
BASIC AND DILUTED NET LOSS PER SHARE
"Basic net loss per share" is determined by dividing net loss attributable
to common stockholders by the weighted-average number of common shares
outstanding during each period. "Diluted net loss per share" includes the
effects of potentially issuable common stock, but only if dilutive. The
Company's stock options under its equity incentive plan and convertible
securities are excluded from the Company's diluted loss per share for all
periods presented, because their effect would be anti-dilutive.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist primarily of cash and cash equivalents,
short-term investments and subscriber receivables. The Company places its cash
and cash equivalents and short-term investments with high credit quality
financial institutions and in investment grade securities and, by policy, limits
the amount of credit exposure. The Company does, however, on occasion exceed the
Federal Deposit Insurance Corporation ("FDIC") federally insured limits and the
Securities Investors Protection Corporation ("SIPC") insured limits and exceeded
these amounts by approximately $23.0 million and $94.2 million at December 31,
1998 and 1999, respectively. Of these excesses, approximately $11.9 million and
$34.2 million at December 31, 1998 and 1999, respectively, exceeded the limits
of additional insurance provided beyond the FDIC and SIPC insurance by the
financial institutions used by the Company. Concentration of credit risk with
respect to receivables is generally diversified due to the large number of
entities comprising the receivables and their
F-10
<PAGE> 93
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
dispersion across geographic areas. The Company routinely addresses the
financial strength of these entities and, as a consequence, believes that its
receivable credit risk exposure is limited.
FOREIGN OPERATIONS AND FOREIGN EXCHANGE RATE RISK
The functional currency of the Company's foreign subsidiaries and
affiliates is generally the applicable local currency for each subsidiary or
affiliated company. Assets and liabilities of foreign subsidiaries for which the
functional currency is the local currency are translated at exchange rates in
effect at period-end, contributed capital is recorded at historical costs and is
eliminated upon consolidation, and the statements of operations and cash flows
are translated at the average exchange rates during the period. Exchange rate
fluctuations on translating foreign currency financial statements into U.S.
dollars that result in unrealized gains or losses are referred to as translation
adjustments. Cumulative translation adjustments are recorded as a separate
component of stockholders' deficit and are included in Other Cumulative
Comprehensive Loss.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses which are
reflected in income as unrealized (based on period-end translations) or realized
upon settlement of the transactions. Foreign currency transaction losses were
approximately $0, $225 and $717 for the years ended December 31, 1997, 1998 and
1999, respectively.
Cash flows from the Company's operations in foreign countries are
translated based on their functional currencies. As a result, amounts related to
assets and liabilities reported in the consolidated statements of cash flows
will not agree to changes in the corresponding balances in the consolidated
balance sheets. The effects of exchange rate changes on cash balances held in
foreign currencies are reported as a separate line below cash flows from
financing activities.
BUSINESS CONCENTRATIONS RISK
The majority of the Company's business operations and business investments
are in foreign countries. A change in any one of these foreign country's laws or
legal interpretations, civil or political unrest or repatriation of assets could
materially adversely affect the Company's financial condition and results of
operations.
STOCK OPTIONS AND WARRANTS
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock options under its equity incentive plan and,
accordingly, does not recognize compensation cost for options granted to
employees whose exercise price is equal to or exceeds the fair value of the
underlying stock as of the grant date.
Options and warrants issued to non-employees in which goods or services are
the consideration received are accounted for based on the fair value of the
equity instruments issued. The measurement date is considered to be the issuance
date, or if there are performance vesting provisions, when earned.
OTHER COMPREHENSIVE LOSS
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which requires that an
enterprise (i) classify items of other comprehensive loss by their nature in a
financial statement and (ii) display the accumulated balance of other
comprehensive loss separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.
F-11
<PAGE> 94
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
UNAUDITED PRO FORMA INFORMATION
The Company is contemplating an initial public offering ("IPO") of its
common stock ("Common Stock"). If such an offering is consummated, all of the
mandatorily redeemable preferred stock outstanding as of the closing date will
be converted into shares of common stock if certain conditions are met (Note 11
and 17). The pro forma stockholders' equity in the balance sheet as of December
31, 1999 reflects the conversion of all outstanding mandatorily redeemable
preferred stock to common stock. The pro forma basic and diluted net loss per
share and the basic and diluted weighted-average number of common shares
outstanding, as reflected in the accompanying statements of operations, assumes
such mandatorily redeemable preferred stock had been converted to common stock
as of January 1, 1999 or when subsequently issued.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 2000. The Company is currently assessing the
effect of this new standard but believes it will not have a material impact on
its consolidated results of operations.
The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), which is required to be adopted by affected companies for fiscal
years beginning after December 15, 1998. SOP 98-5 defines start-up organization
costs, which must be expensed as incurred. In addition, all deferred start-up
and organization costs existing as of January 1, 1999 must be written off and
accounted for as a cumulative effect of an accounting change. The adoption of
SOP 98-5 did not have a material effect on the Company's financial position or
results of operation as the Company's historical accounting policy was to
expense start-up costs as incurred.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 (the "Bulletin"), "Revenue Recognition in
Financial Statements," which addresses revenue recognition issues. The Bulletin
requires, in certain cases, nonrefundable up-front fees for services to be
deferred and recognized over the expected period of performance. The Bulletin
also requires that incremental direct costs incurred in obtaining the up-front
fees be deferred and recognized over the same period as the up-front fees. The
Bulletin is required to be adopted for the quarter ending June 30, 2000. The
Company is assessing the types of transactions that may be impacted by this
pronouncement. Accordingly, the impact of the Bulletin on the consolidated
financial statements is not yet known.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current period presentation.
F-12
<PAGE> 95
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(3) CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND RESTRICTED SHORT-TERM
INVESTMENT
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------
1998 1999
----------- ------------------------------------------------
CASH AND CASH AND RESTRICTED
CASH CASH SHORT-TERM SHORT-TERM
EQUIVALENTS EQUIVALENTS INVESTMENTS INVESTMENT TOTAL
----------- ----------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
Cash............................ $22,887 $20,256 $ -- $ -- $20,256
Certificate of deposit.......... -- -- -- 19,008 19,008
Commercial paper................ -- 32,025 24,810 -- 56,835
------- ------- ------- ------- -------
Total................. $22,887 $52,281 $24,810 $19,008 $96,099
======= ======= ======= ======= =======
</TABLE>
(4) ACQUISITIONS AND INVESTMENTS
GERMANY
Effective September 1, 1998, the Company acquired an effective 47.1%
interest in Callino through the purchase of newly issued shares. The Company's
interest in Callino is held through Germany B.V. which was formed by the Company
and an unrelated third party. In connection with this initial acquisition, the
Company acquired certain licenses allowing for the operation of
telecommunications facilities and permitting the resale of telecommunications
services in Germany. The aggregate total consideration paid for this acquisition
(through the acquisition of newly issued preferred shares) was approximately
$12.1 million in cash. The total purchase price was paid over a five-month
period ending January 1999. The acquisition was accounted for as a purchase,
with the purchase price allocated among the purchased assets and liabilities at
the date of acquisition according to their relative fair values, as follows:
<TABLE>
<S> <C>
Cash, cash equivalents and stock subscriptions receivable... $ 19,749
Prepaid expenses and other current assets................... 1,263
Property and equipment...................................... 330
Telecommunications licenses................................. 4,462
Current liabilities......................................... (3,109)
Minority interest........................................... (10,595)
--------
Formus investment (cash and stock subscription
receivables)..................................... $ 12,100(1)
========
</TABLE>
- ------------------------------
(1) Approximately $8.7 million in cash was paid on stock subscription
receivables through December 31, 1998 and approximately $3.7 million was
paid on stock subscription receivables in January 1999. Due to fluctuations
in exchange rates, an additional $300 was required to pay down the stock
subscription receivables.
The results of operations of Callino have been consolidated from the
acquisition date forward. The following unaudited pro forma information presents
certain results of operations data of the Company and Callino on a combined
basis assuming the companies were combined as of the beginning of each fiscal
period presented:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Loss from operations........................................ $ (6,394) $ (16,656)
========== ==========
Net loss attributable to common stock....................... $ (6,150) $ (14,257)
========== ==========
Basic and diluted net loss per common share................. $ (2.66) $ (4.84)
========== ==========
</TABLE>
F-13
<PAGE> 96
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
On March 8, 1999, the Company sold an approximately 12.4% interest in
Germany B.V. to TCB Beteiligungs GmbH, for approximately $1.8 million in cash
realizing an immaterial gain. Following the transaction, the Company's effective
ownership interest in Callino was approximately 40.2%. The Company continued to
consolidate Callino, as this transaction did not affect the Company's majority
voting control over its investment in Germany B.V. and Germany B.V.'s majority
voting control over its investment in Callino.
On April 22, 1999, Germany B.V. purchased, for approximately $343 in cash,
an additional approximate 1.9% interest in Callino from certain existing
shareholders. This resulted in the Company's effective ownership interest in
Callino increasing to approximately 42.1%.
On September 3, 1999, the Company acquired the remaining equity interest in
Callino by issuing an aggregate 9,075,772 shares of Series E mandatorily
redeemable preferred stock ("Series E preferred stock") and an aggregate
7,295,780 shares of Series F mandatorily redeemable preferred stock ("Series F
preferred stock") and paying cash of $100 to acquire the remaining interests in
Germany B.V. and Callino which it did not previously own. The total shares
issued were valued at $10 per share or approximately $163.7 million. Callino is
now a wholly-owned subsidiary of the Company.
The acquisition of the remaining equity interests in Germany B.V. and
Callino was accounted for as a step-acquisition, with the purchase price
allocated among the purchased assets and liabilities at the date of acquisition
according to their respective fair values, as follows:
<TABLE>
<S> <C>
Telecommunications licenses................................. $145,385
Goodwill.................................................... 87,805
Deferred tax liability...................................... (73,960)(1)
Minority interest........................................... 4,585
--------
Formus investment (cash and stock)................ $163,815
========
</TABLE>
- ------------------------------
(1) This long-term deferred tax liability results from the use of purchase
accounting in connection with the acquisition of the remaining interests in
Germany B.V. and Callino as discussed in Note 13.
The following unaudited pro forma information presents certain results of
operations data of the Company and Callino on a combined basis assuming the
companies were combined as of the beginning of each fiscal period presented:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1998 1999
---------- ----------
<S> <C> <C>
Loss from operations....................................... $ (23,131) $ (80,654)
========== ==========
Net loss attributable to common stock...................... $ (21,134) $ (52,411)
========== ==========
Basic and diluted net loss per common share................ $ (7.18) $ (17.07)
========== ==========
</TABLE>
POLAND
In July 1999, the Company agreed to purchase, from Telecom Polska LLC,
100.0% of CEL Polska Sp. z o.o. ("CEL Polska") for $2.7 million. CEL Polska
provides intra-provincial leased capacity to transport data for
telecommunications carriers pursuant to a license that covers all provinces. In
addition, the Company has agreed to advance up to $175 per month, or such larger
amount as approved by the Company, through closing to fund CEL Polska's current
operations. As of December 31, 1999, the Company has advanced $3.2 million to
CEL Polska in the form of a bridge loan. The consummation of
F-14
<PAGE> 97
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
this acquisition is subject to receiving governmental approval. The agreement
provides both parties with termination rights if the acquisition is not closed
by May 31, 2000. If the acquisition is not consummated by May 31, 2000, a
portion of the outstanding principal and unpaid interest on the bridge loan
become immediately due and payable.
ARGENTINA
On September 3, 1998 Formus S.A., a corporation duly incorporated and
organized under the laws of Argentina, and a wholly-owned subsidiary of the
Company, was granted competitive services licenses in Argentina. No license fees
were paid nor any other consideration for the granting of the licenses. The
services licenses are granted for an unlimited period of time, and grant Formus
S.A. the right to provide data transmission and various value-added services.
On November 6, 1998, Formus S.A. was awarded a license for the use of radio
spectrum in Argentina for the purpose of providing data transmission and
value-added services. No license fees were paid nor any other consideration for
the granting of the license. The radio spectrum license does not have a stated
term. The spectrum license is subject to certain build-out requirements.
On January 28, 1999, the Company purchased a 21.0% interest in Telelatina
Management Company LLC ("Telelatina"), a Delaware limited liability company, for
approximately $1.6 million in cash, and made additional cash contributions of
$3.6 million during 1999 to maintain its 21.0% interest. Telelatina was
organized to provide certain technical and administrative services to the
telecommunications market in Argentina. See Note 7 for discussion regarding the
sale of the Company's Latin American assets.
COLOMBIA
On August 5, 1998, Formus Colombia S.A. ("Formus Colombia"), an
organization duly incorporated under the laws of Colombia and a wholly-owned
subsidiary of the Company, obtained a Value Added Services license for
approximately $8 in cash. The license had a term of ten years and grants the
right for Formus Colombia to provide certain telecommunications services in
Colombia.
On November 26, 1998, Formus Colombia was awarded a license for the use of
spectrum in Colombia. The term of the license was for ten years with annual
payments of license fees of approximately $235 per year. The spectrum license
was subject to certain build-out requirements. See Note 7 for discussion
regarding the sale of the Company's Latin American assets.
NEW ZEALAND
On February 10, 1998, the Company acquired spectrum licenses in New
Zealand. The total purchase price for the spectrum licenses was approximately
$1.4 million in cash. See Note 17 for a discussion regarding the sale of these
licenses subsequent to December 31, 1999.
ECUADOR
On September 9, 1997, Formus entered into a purchase agreement whereby it
purchased, in a single transaction, 51.0% of the equity of Formus
Communications -- Ecuador L.L.C. ("FCE"), a Colorado limited liability
corporation, and a 25.0% ownership of Nexsatel, a company organized and existing
under the laws of the Republic of Ecuador. In connection with this acquisition,
the Company acquired telecommunications licenses and the rights to provide video
services in selected cities in Ecuador.
F-15
<PAGE> 98
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
During mid 1999, the Company decided to dispose of its holdings in Ecuador.
In connection with this decision, the Company recognized an impairment equal to
its entire net investment in Ecuador totaling approximately $3.2 million, which
is included in loss from operations in the accompanying consolidated statements
of operations for the year ended December 31, 1999. See Note 17 for a discussion
regarding the sale of the Company's Ecuador assets subsequent to December 31,
1999.
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ -------
<S> <C> <C>
Communications equipment.................................... $3,727 $13,608
Construction in progress.................................... -- 4,975
Computer software........................................... 57 2,918
Furniture and office equipment.............................. 687 2,688
Computer equipment.......................................... 333 1,479
------ -------
4,804 25,668
Less: accumulated depreciation.............................. (413) (2,964)
------ -------
$4,391 $22,704
====== =======
</TABLE>
(6) INVESTMENT IN AFFILIATE, ACCOUNTED FOR UNDER THE EQUITY METHOD
As of December 31, 1999, the Company had the following proportionate
interest and basis difference related to the excess of its cost over its
proportionate interest in its affiliate's net tangible assets. Such difference
is attributable to telecommunications licenses held by VeloCom. No amortization
has been recorded with respect to the excess basis because the applicable
licenses have not been placed in service.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------------------------------------------------
PROPORTIONATE INTEREST EXCESS OF COSTS
----------------------------------------------- -------------------------
CUMULATIVE
INVESTMENT SHARE IN CUMULATIVE
IN RESULTS OF TRANSLATION BASIS ACCUMULATED
AFFILIATE AFFILIATE ADJUSTMENT TOTAL DIFFERENCE AMORTIZATION
---------- ---------- ----------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
VeloCom Inc. ..................... $33,923 $(2,601) $403 $31,725 $3,206 $ --
</TABLE>
F-16
<PAGE> 99
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Summary condensed balance sheet and statement of operations data for
VeloCom Inc. is as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1999
------------
<S> <C>
Current assets.............................................. $ 37,576
Non-current assets.......................................... 119,961
--------
Total assets................................................ $157,537
========
Current liabilities......................................... $ 12,668
Non-current liabilities..................................... 12,535
--------
Total liabilities........................................... 25,203
Total mandatorily convertible preferred stock............... 137,297
Total stockholders' deficit................................. (4,963)
--------
Total liabilities and stockholders' deficit................. $157,537
========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
1999
------------
<S> <C>
General and administrative expenses......................... $ 8,657
--------
Net operating loss.......................................... $ (8,657)
Other income (expense), net................................. 1,005
Share in results of affiliated companies.................... (23,721)
--------
Net loss.................................................... $(31,373)
========
</TABLE>
(7) INVESTMENT IN VELOCOM INC.
In September 1999, the Company completed a transaction with VeloCom Inc.
("VeloCom"), a Delaware corporation formerly known as WLL International, Inc.,
which provides telecommunications services in certain Latin American countries.
VeloCom's stockholders include three of the Company's stockholders and three of
the Company's directors. In connection with the Company's investment in VeloCom,
the Company was entitled to designate one director to the VeloCom 14-member
board of directors and to have a non-voting observer as long as the Company owns
at least a 2.0% equity interest in VeloCom. These rights expire upon an IPO by
VeloCom. Under a purchase agreement entered into by and among VeloCom, Formus
and a wholly-owned subsidiary of the Company, Formus International, Inc., the
Company transferred cash totaling approximately $20.8 million and the following
assets, valued at approximately $7.5 million, to VeloCom in exchange for common
and preferred shares, resulting in a 22.5% economic and voting interest in
VeloCom: the Company's subsidiaries or affiliates in Argentina, Bolivia, Chile,
Colombia, Peru and Venezuela; the Colorado limited liability holding companies
for the Latin American subsidiaries; and, the Company's rights and obligations
under Memoranda of Understanding with local partners in Colombia and Uruguay.
The Company recognized a pre-tax gain of approximately $3.1 million in
connection with the VeloCom transaction. As a result of the September 1999
investment in VeloCom, the Company acquired an approximate 14% voting common
stock interest. In December 1999, the Company contributed an additional $5.6
million of cash to VeloCom for additional shares of preferred stock. The Company
has also committed to purchase additional preferred shares for $5.6 million in
mid-2000. Due to contributions by other investors, the Company's combined
preferred and common stock ownership interest was diluted to 20.9% at December
31, 1999. In addition, under a three-year technical service agreement with
VeloCom, the Company will provide network design, strategic planning and
consulting services to VeloCom for a monthly fee.
F-17
<PAGE> 100
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following unaudited pro forma information presents certain results of
operations data of the Company assuming VeloCom was acquired as of the beginning
of each fiscal period presented:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1998 1999
-------- --------
<S> <C> <C>
Loss from operations........................................ $(14,850) $(75,896)
======== ========
Net loss attributable to common stock....................... $(13,074) $(39,712)
======== ========
Basic and diluted net loss per common share................. $ (4.44) $ (12.94)
======== ========
</TABLE>
(8) INVESTMENT IN WNP COMMUNICATIONS, INC.
During 1998, the Company purchased an approximate 6.1% interest in WNP
Communications, Inc. ("WNP") (a Delaware corporation), for cash consideration of
approximately $11.8 million. The Company's investment in WNP was accounted for
using the cost method. WNP was organized in January 1998 to participate in the
United States high frequency auctions known as LMDS auctions conducted by the
Federal Communications Commission. WNP was the winning bidder on numerous
licenses in the United States.
On January 14, 1999, a merger agreement was reached between NEXTLINK
Communications, Inc. ("NEXTLINK") and WNP, whereby NEXTLINK agreed to acquire
WNP. The merger of NEXTLINK and WNP resulted in NEXTLINK serving as the
"survivor corporation". In connection with the NEXTLINK/WNP merger, NEXTLINK
issued 329,114 shares of its common stock, valued at approximately $73.50 per
share, as well as cash consideration of approximately $12.1 million to Formus in
exchange for Formus' approximate 6.1% interest in WNP.
Formus recognized a gain of approximately $24.5 million associated with the
shares and cash received. Immediately subsequent to the merger between NEXTLINK
and WNP, the Company sold 223,667 of the 329,114 shares received from NEXTLINK
resulting in net proceeds to the Company of approximately $16.5 million. During
July and August 1999, the Company sold its remaining 105,447 shares of NEXTLINK
common stock for net cash proceeds totaling approximately $10.2 million. The
Company recognized additional gains of approximately $2.5 million related to the
sale of these shares in the third quarter of 1999 due to the appreciation in the
market price of such shares through the third quarter prior to disposition.
(9) ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1999
------ ------
<S> <C> <C>
Accrued purchase liability.................................. $ -- $2,251
Accrued employee benefits................................... 175 1,024
Other accrued liabilities................................... 954 956
------ ------
$1,129 $4,231
====== ======
</TABLE>
(10) CAPITAL LEASES
The Company leases fixed assets under capital leases that expire at various
dates through 2002.
F-18
<PAGE> 101
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The aggregate minimum non-cancelable annual lease payments under capital leases
in effect on December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000...................................................... $ 2,021
2001...................................................... 2,021
2002...................................................... 1,397
-------
Total minimum lease payments................................ 5,439
Less imputed interest....................................... (636)
-------
Present value of net minimum lease payments................. 4,803
Less current portion........................................ (2,021)
-------
Long-term capital lease obligation.......................... $ 2,782
=======
</TABLE>
The Company incurred and capitalized $636 of interest attributable to these
leases during 1999.
(11) CAPITAL STOCK
COMMON STOCK
The Company has two classes of common stock: Common Stock and Class B
common stock. As of December 31, 1998 and 1999, the Company had an aggregated
total of 2,943,180 and 3,222,811 shares, respectively, of Common Stock and Class
B common stock issued and outstanding, resulting in net proceeds to the Company
of approximately $3.6 million. Both classes have a stated par value of $.001 per
share. Each share of Common Stock constitutes one vote at any annual or special
meeting, or action by written consent. The Class B common stock is identical in
all respects to the Common Stock except that it is non-voting. Upon consummation
of the Company's contemplated IPO, the Common Stock will be redesignated as
Class A common stock with all the same rights and privileges as the existing
Common Stock.
MANDATORILY REDEEMABLE PREFERRED STOCK
During 1997, the Company issued Series A mandatorily redeemable preferred
stock ("Series A preferred stock") and Series B mandatorily redeemable preferred
stock ("Series B preferred stock"). Total net proceeds to the Company from these
issuances was approximately $56.7 million. Offering costs for the Series A
preferred stock and the Series B preferred stock were approximately $1.2 million
and $310, respectively. Of the total net proceeds, approximately $26.8 million
and $29.9 million was received during 1997 and 1998, respectively. The Series A
preferred stock votes with, and in the same manner as, the shares of Common
Stock of the Company, not as a separate class. The Series B preferred stock
shares are non-voting. Holders of the Series A preferred stock and Series B
preferred stock participate equally with the holders of the Common Stock and
Class B common stock in any dividends, when and as declared by the Board of
Directors, on an as converted basis. The number of votes for each Series A
preferred stock is equal to the whole number of shares of Common Stock into
which such holder's aggregate number of shares are convertible.
The Series A preferred stock and Series B preferred stock are mandatorily
redeemable by the Company in three equal annual installments beginning September
2, 2003. Such redemptions shall be made at a price equal to the original issue
price of $2.50 per share, plus any declared and unpaid dividends. Accordingly,
the Company accretes the carrying value of the preferred stock to its future
redemption value. The accretion is recorded each period as an increase in the
balance of the preferred stock outstanding and as a non-cash increase in the net
loss attributable to common stock. The value of the Series A preferred stock and
Series B preferred stock has accreted $182 and $275, as of December 31, 1998 and
1999, respectively.
F-19
<PAGE> 102
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Each share of Series A preferred stock and Series B preferred stock is
convertible, at the option of the holder, into that amount of Common Stock and
Class B common stock, respectively, determined by multiplying the applicable
"Conversion Rate" by the number of shares being converted. The Conversion Rate
is the quotient of (a) the sum of (i) the original issue price per preferred
share plus (ii) all declared but unpaid dividends divided by (b) the original
issue price per preferred share. In addition, each share of the Series A
preferred stock and Series B preferred stock is automatically convertible into
Common Stock and Class B common stock, respectively, upon closing of an IPO that
results in at least $50 million of gross proceeds to the Company at a share
price of at least $12.25.
During 1999, the Company received proceeds of approximately $25.0 million
from the issuance of its Series C mandatorily redeemable preferred stock
("Series C preferred stock") and Series D mandatorily redeemable preferred stock
("Series D preferred stock"). There were no offering costs associated with the
Series C preferred stock and Series D preferred stock offerings. The Series C
preferred stock votes with, and in the same manner as, the shares of Common
Stock of the Company, not as a separate class. Holders of the Series C preferred
stock and Series D preferred stock participate equally with the holders of the
Common Stock and Class B common stock in any dividends, when and as declared by
the Board of Directors, on an as converted basis. The Series D preferred stock
shares are non-voting. The number of votes for each Series C preferred stock is
equal to the whole number of shares of Common Stock into which such holder's
aggregate number of shares are convertible.
The Series C preferred stock and Series D preferred stock are mandatorily
redeemable by the Company in three equal annual installments beginning September
2, 2003. Such redemptions shall be made at a price equal to the original issue
price of $3.50 per share, plus any declared and unpaid dividends.
Each share of Series C preferred stock and Series D preferred stock is
convertible, at the option of the holder in the same manner described as related
to the Series A preferred stock and Series B preferred stock.
On September 3, 1999, the Company entered into a Preferred Stock Purchase
Agreement and closed the sale of an aggregate 10,369,266 shares of Series E
preferred stock and an aggregate 1,215,551 shares of Series F preferred stock at
$10.00 per share for an aggregate purchase price of approximately $115.8
million. Total net proceeds to the Company from these issuances was
approximately $113.0 million. Offering costs associated with the Series E
preferred stock were approximately $2.8 million. There were no offering costs
associated with the Series F preferred stock offering. See Note 4 for
information regarding Series E preferred stock and Series F preferred stock
issued as part of the acquisition of Callino. The Company increased its
authorized number of common and preferred shares to accommodate the issuance of
Series E preferred stock and Series F preferred stock.
The Series E preferred stock and Series F preferred stock are mandatorily
redeemable by the Company in three equal annual installments beginning September
2, 2003. Such redemptions shall be made at a price equal to the original issue
price of $10.00 per share, plus any declared and unpaid dividends. Accordingly,
the Company accretes the carrying value of the preferred stock to its future
redemption value. The accretion is recorded each period as an increase in the
balance of the preferred stock outstanding and as a non-cash increase in the net
loss applicable to common stock. As of December 31, 1998 and 1999, the value of
the Series E preferred stock has accreted $0 and $174, respectively.
Each share of Series E preferred stock and Series F preferred stock is
convertible, at the option of the holder in the same manner described as related
to the Series A and Series B preferred stock.
F-20
<PAGE> 103
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The mandatorily redeemable preferred stock future redemption requirements
as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000...................................................... $ --
2001...................................................... --
2002...................................................... --
2003...................................................... 120,921
2004...................................................... 120,921
Thereafter................................................ 120,921
--------
Total redemption requirements............................. $362,763
========
</TABLE>
(12) STOCK OPTIONS AND WARRANTS
STOCK OPTION ACTIVITY
The Company maintains an equity incentive plan (the "Plan") which provides
for the grant of stock options, restricted stock awards and other stock grants
to directors, key employees, and consultants to purchase Common Stock of the
Company. The Plan was amended in 1998 to increase the number of options
available for grant under the plan by 1,000,000 shares to 5,000,000 shares. In
September 1999, the Board of Directors of the Company approved an increase from
5,000,000 options available for grant under the Plan to 7,000,000 options
available for grant. Under the Plan, incentive stock options are granted at an
exercise price not less than the fair market value of the Common Stock on the
date of the grant, as determined by the Company's Board of Directors.
The following is a summary of stock option transactions:
<TABLE>
<CAPTION>
WEIGHTED-
WEIGHTED- AVERAGE
AVERAGE GRANT DATE OPTIONS
SHARES EXERCISE PRICE FAIR VALUE EXERCISABLE
---------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1996.......... -- $ -- --
Granted at fair value................... 917,200 2.50 $0.76
Exercised............................... -- --
Forfeited............................... (65,000) 2.50
---------- ------
Outstanding at December 31, 1997.......... 852,200 2.50 36,667
Granted at fair value................... 3,256,667 2.58 0.74
Exercised............................... -- --
Forfeited............................... (140,000) (2.50)
---------- ------
Outstanding at December 31, 1998.......... 3,968,867 2.57 533,245
Granted at fair value................... 1,714,050 7.20 1.46
Granted at less than fair value......... 545,000 2.50 7.96
Exercised............................... (279,631) (2.52)
Forfeited............................... (1,096,421) (2.59)
---------- ------
Outstanding at December 31, 1999.......... 4,851,865 $ 4.20 1,599,861
========== ======
</TABLE>
F-21
<PAGE> 104
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following table summarizes stock option data as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$2.50- 3.50................ 3,872,315 8.0 Years $2.74 1,599,861 $2.56
7.00-10.00................ 979,550 9.9 Years 9.97 -- --
--------- --------- ----- --------- -----
$2.50-10.00................ 4,851,865 8.4 Years $4.20 1,599,861 $2.56
========= ========= ===== ========= =====
</TABLE>
At December 31, 1999 there were 1,868,504 options available for grant under
the Plan. Outstanding options typically vest over four years and expire ten
years from the date of grant. Options originally granted during 1997, 1998 and
1999 were generally granted with an exercise price equal to the fair value of
Common Stock as established by the Company's Board of Directors.
During 1999 the Company modified certain terms of the 1998 stock option
agreement of the departing CEO. The modification has been reflected above and
accounted for as a cancellation of 545,000 $2.50 stock options and a new grant
for the same number and price but with modified terms. The Company recognized
$4.1 million of compensation expense for the difference between the exercise
price and the fair value of the options that were affected in 1999 by the
modification.
Fair values of employee options are estimated on the date of grant using
the Black-Scholes single-option-pricing model. The fair value of each option
granted to employees was estimated on the date of grant using the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Estimated dividends...................................... None None
Risk-free interest rate.................................. 4.2% to 5.6% 5.0% to 6.1%
Expected life............................................ 6.0 years 4.0 years
Expected volatility...................................... 0.0% 0.0%
</TABLE>
The 1998 and 1999 0.0% volatility was based on the thinly traded non-public
status of the Company's stock.
Had the Company recognized compensation cost for options granted to
employees based on the fair value of the options granted as of the grant date as
prescribed by Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation", net loss attributable to common stock would have
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1997 1998 1999
--------------------------- --------------------------- ---------------------------
BASIC AND BASIC AND BASIC AND
DILUTED DILUTED DILUTED
NET LOSS NET LOSS NET LOSS
NET LOSS PER NET LOSS PER NET LOSS PER
ATTRIBUTABLE TO COMMON ATTRIBUTABLE TO COMMON ATTRIBUTABLE TO COMMON
COMMON STOCK SHARE COMMON STOCK SHARE COMMON STOCK SHARE
--------------- --------- --------------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
As reported.......... $(6,147) $(2.66) $(13,900) $(4.72) $ (40,496) $ (13.19)
Pro forma............ $(6,192) $(2.68) $(14,284) $(4.85) $ (41,431) $ (13.50)
</TABLE>
F-22
<PAGE> 105
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
STOCK WARRANT ACTIVITY
On September 9, 1999, the Company entered into a marketing activities
agreement with Intel Corporation ("Intel") pursuant to which Intel agreed to
provide non-exclusive marketing assistance in exchange for a warrant to purchase
1,250,000 shares of Series E preferred stock at an exercise price of $13.50 per
share. The warrant vested 25.0% upon signing of the marketing activities
agreement and the remaining portion of the warrant will vest upon achievement of
various performance based milestones. The Company accounted for the issuance of
this warrant under the provisions of the Emerging Issues Task Force "EITF" Issue
No. 96-18, "Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling Goods or Services" (EITF
96-18). The 25.0% vested portion of the warrant was recorded at a fair value of
approximately $2.0 million at September 9, 1999. The fair value was determined
using the Black-Scholes model and was recorded as a contra-account to equity and
is being amortized over the three-year term of the marketing agreement with
Intel. Amortization expense was $0, $0 and $170 for the years ended December 31,
1997, 1998 and 1999, respectively. The accounting for the remaining unvested
portion of the warrant will depend on the achievement of certain performance
criteria and will be recorded at fair value using the Black-Scholes model when
it becomes probable the performance based milestones will be met in accordance
with EITF 96-18. Two of the remaining three milestones will be expensed at the
time of performance due to no additional future benefit, while the third
remaining milestone will be capitalized as an intangible asset and amortized
over a reasonable future period as it provides future benefits to the Company.
None of these additional milestones had been achieved as of December 31, 1999.
The following is a summary of warrant transactions:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
GRANT DATE
SHARES FAIR VALUE
--------- ----------
<S> <C> <C>
Outstanding at December 31, 1998............................ --
Granted................................................... 1,250,000 $6.80(1)
Exercised................................................. --
Forfeited................................................. --
---------
Outstanding at December 31, 1999............................ 1,250,000
=========
</TABLE>
- ---------------
(1) This amount represents the fair value per warrant attributable to the
initial warrants earned by Intel (312,500 warrants). See discussion above
regarding the accounting for any remaining warrants which may be earned by
Intel.
The following table summarizes warrant data as of December 31, 1999:
<TABLE>
<CAPTION>
WARRANTS OUTSTANDING
-------------------------
WEIGHTED
AVERAGE
REMAINING
NUMBER CONTRACTUAL WARRANTS
OUTSTANDING LIFE EXERCISABLE
----------- ----------- -----------
<S> <C> <C>
1,250,000 6.8 Years 312,500
</TABLE>
(13) INCOME TAXES
In general, a U.S. corporation may claim a foreign tax credit against its
federal income tax expense for foreign income taxes paid or accrued. Because the
Company must calculate its foreign tax credit
F-23
<PAGE> 106
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
separately for dividends received from each foreign corporation in which the
Company owns 10.0% to 50.0% of the voting stock, and because of certain other
limitations, the Company's ability to claim a foreign tax credit may be limited,
particularly with respect to dividends paid out of earnings subject to a high
rate of foreign income tax.
Generally, the Company's ability to claim a foreign tax credit is limited
to the amount of U.S. taxes the Company pays with respect to its foreign source
income. In calculating its foreign source income, the Company is required to
allocate interest expense and overhead incurred in the U.S. between its U.S. and
foreign activities. Accordingly, to the extent U.S. borrowings are used to
finance equity contributions to its foreign subsidiaries, the Company's ability
to claim a foreign tax credit may be significantly reduced. These limitations
and the inability of the Company to offset losses in one foreign jurisdiction
against income earned in another foreign jurisdiction could result in a higher
effective tax rate on the Company's earnings.
At December 31, 1999, the Company had U.S. net operating loss carryforwards
of approximately $14.8 million, which may be used to offset future taxable
income. These carryforwards expire beginning in 2011. The U.S. Internal Revenue
Code places certain limitations on the annual amount of net operating loss
carryforwards, which can be utilized if certain changes in the Company's
ownership occur. The Company's tax net operating loss carryforwards of its
consolidated foreign subsidiaries as of December 31, 1999 totaled $43.2 million.
The Company's net deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------
1998 1999
------- --------
<S> <C> <C>
Deferred Tax Assets:
Company's U.S. tax net operating loss carryforwards....... $ 6,658 $ 5,484
Tax net operating loss carryforwards of consolidated
foreign subsidiaries................................... 1,328 19,916
Start-up costs............................................ 733 307
Unrealized foreign exchange loss.......................... 57 267
Accelerated tax depreciation.............................. 66 29
Investment in affiliate................................... -- 961
Other..................................................... 74 1,276
------- --------
8,916 28,240
Less: valuation allowance.............................. (8,916) (27,110)
Net deferred tax assets................................ -- 1,130
------- --------
Deferred Tax Liabilities:
Gain on VeloCom transaction............................... -- (1,130)
Telecommunications licenses............................... -- (70,769)
------- --------
Total deferred tax liabilities.................... $ -- $(70,769)
======= ========
</TABLE>
The gross deferred tax assets as of December 31, 1998 and 1999 have been
reduced by valuation allowances because management believes it is currently more
likely than not that such benefits will not be realized.
On September 3, 1999, a net deferred tax liability of $74.0 million was
recorded in connection with the acquisition of the remaining equity interest in
Callino (Note 4). This net deferred tax liability resulted from the temporary
difference between the book and tax basis of the increase in the value of
Callino's telecommunication licenses due to the acquisition of the remaining
interest in Callino by the Company. As
F-24
<PAGE> 107
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
of December 31, 1999, the Company recorded a full valuation allowance on the net
operating loss carryforwards at Callino as a result of statutory limitations on
the use of such NOL's.
The difference between income tax expense provided in the financial
statements and the expected income tax benefit at statutory rates is reconciled
as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------
1998 1999
------- --------
<S> <C> <C>
Expected income tax benefit at the U.S. statutory rate of
35%....................................................... $(4,773) $(14,016)
Tax effect of permanent and other differences:
State benefit, net of federal benefit..................... (441) (1,236)
Minority interest......................................... (409) (3,598)
International rate differences............................ (279) (60)
Other non-deductible expenses............................. 195 432
Increase in valuation allowance other than such portion
resulting from application of purchase accounting...... 5,707 18,478
------- --------
Total income tax benefit.......................... $ -- $ --
======= ========
</TABLE>
The Company and its subsidiaries maintain a presence in many countries.
Many of these countries maintain tax regimes, such as value-added tax systems,
that differ significantly from the system of income taxation used in the U.S.
The Company has accounted for the effect of foreign taxes based on what is
reasonably expected to apply to the Company and subsidiaries based on tax laws
currently in effect and/or reasonable interpretations of these laws. Because
some foreign jurisdictions do not have systems of taxation that are as well
established as the system of income taxation used in the U.S. or tax regimes
used in other major industrialized countries, it may be difficult to anticipate
how foreign jurisdictions will tax current and future operations of the Company
and its subsidiaries.
(14) SEGMENT AND GEOGRAPHIC REPORTING
The Company adopted SFAS 131 for the year ended December 31, 1998. The new
rules establish revised standards for public companies relating to the reporting
of financial information about segments. The adoption of SFAS 131 did not have
an effect on the Company's consolidated financial statements but did effect the
Company's segment information disclosures. Segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
The Company evaluates its business according to the geographic location of
its markets, and identifies these markets as Germany, Poland, other geographical
segments, business development and corporate. Other geographical segments
includes the Company's interests in various consolidated subsidiaries, which
are, among others, France, Hungary and Ireland. Business development costs
includes market assessment and license application costs. The corporate segment
includes the Company's corporate headquarters located in Denver, Colorado and
its European regional office located in The Hague, The Netherlands. The
F-25
<PAGE> 108
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
following tables present information about each of these segments as of and for
the years ended December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------
CAPITAL TOTAL ADJUSTED
EXPENDITURES ASSETS REVENUES EBITDA(4)
------------ ------- -------- -----------
<S> <C> <C> <C> <C>
Germany........................................... $ -- $ -- $ -- $ --
Poland............................................ 478 610 -- (57)
Other geographical segments....................... -- 2,647 -- (27)
Business development.............................. -- -- -- (2,866)
Corporate......................................... 267 21,576(1) -- (3,316)
---- ------- ---- -------
Total Company........................... $745 $24,833 $ -- $(6,266)
==== ======= ==== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------
CAPITAL ADJUSTED
EXPENDITURES TOTAL ASSETS REVENUES EBITDA(4)
------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Germany.......................................... $6,970 $21,736 $ -- $ (1,064)
Poland........................................... 175 726 -- (699)
Other geographical segments...................... 590 5,420 -- (950)
Business development............................. 3 21 -- (5,139)
Corporate........................................ 1,032 26,243(2) -- (7,777)
------ ------- ---- --------
Total Company.......................... $8,770 $54,146 $ -- $(15,629)
====== ======= ==== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------
CAPITAL ADJUSTED
EXPENDITURES TOTAL ASSETS REVENUES EBITDA(4)
------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Germany........................................ $10,120 $250,780 $2,286 $(29,310)
Poland......................................... 8,283 17,459 30 (11,541)
Other geographical segments.................... 1,499 4,626 -- (775)
Business development........................... 10 91 -- (7,744)
Corporate...................................... 1,652 130,218(3) -- (15,350)
------- -------- ------ --------
Total Company........................ $21,564 $403,174 $2,316 $(64,720)
======= ======== ====== ========
</TABLE>
- ------------------------------
(1) Includes approximately $21.5 million of cash and cash equivalents at
December 31, 1997.
(2) Includes approximately $13.7 million of cash and cash equivalents at
December 31, 1998. In addition, the asset account includes an approximate
$11.8 million investment which was sold in April 1999.
(3) Includes telecommunications licenses with net book values totaling $1.4
million, corporate cash and cash equivalents and short-term investments of
$67.9 million, a restricted short-term investment of $19.0 million and an
investment in VeloCom of $31.7 million.
(4) Adjusted EBITDA represents the Company's loss from operations before
depreciation, amortization, asset impairment charges and non-cash
compensation expense for options and warrants. Industry analysts generally
consider Adjusted EBITDA to be a helpful way to measure the performance of
communications companies. The Company believes Adjusted EBITDA helps
investors to assess the cash flow from operations from period to period and
thus to value a company's business. Adjusted EBITDA should not, however, be
considered a replacement for net income, cash flows or for any other measure
of performance or liquidity under generally accepted accounting principles,
or as an indicator of a company's operating performance. The presentation of
Adjusted EBITDA may not be
F-26
<PAGE> 109
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
comparable to similar statistics reported by other companies. Not all
companies and analysts calculate Adjusted EBITDA in the same manner.
Adjusted EBITDA reconciles to the consolidated statements of operations as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Loss from operations...................................... $(6,394) $(15,947) $(77,532)
Depreciation and amortization............................. 128 318 5,369
Asset impairment charges.................................. -- -- 3,186
Non-cash compensation expense for options and warrants.... -- -- 4,257
------- -------- --------
Consolidated Adjusted EBITDA.................... $(6,266) $(15,629) $(64,720)
======= ======== ========
</TABLE>
(15) RELATED PARTY TRANSACTIONS
See Notes 1, 2, 4, 6, 7, 8, 12, 16 and 17 for discussions regarding related
party transactions, including the departure of the Company's CEO.
(16) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company maintains non-cancelable operating lease arrangements
principally for office space. Future minimum annual lease payments under
operating leases are as follows at December 31, 1999:
<TABLE>
<S> <C>
2000....................................................... $ 3,506
2001....................................................... 3,296
2002....................................................... 2,949
2003....................................................... 2,019
2004....................................................... 1,868
Thereafter................................................. 3,315
-------
Long-term operating lease obligations...................... $16,953
=======
</TABLE>
Rent expense related to these operating leases approximated $79, $473 and
$2,022 for the years ended December 31, 1997, 1998 and 1999, respectively.
PURCHASE AND FINANCING AGREEMENTS
During 1999, the Company entered into an agreement with Alcatel Polska S.A.
("Alcatel") for the purchase, supply and installation of equipment. The
agreement also provides that Alcatel will furnish support, maintenance and
training services. Under this agreement, the Company has agreed to purchase
80.0% of its base station and terminal station equipment requirements in Poland
from Alcatel at specified rates, subject to customary terms and conditions. The
agreement terminates in June 2003. The agreement provided for equipment
purchases in several stages. The Company may decide at any time not to proceed
with further stages. The Company has agreed to contribute $46.7 million of
capital to Formus Polska by the end of 2000, in accordance with Formus Polska's
business plan.
During 1999, through Formus Polska, the Company entered into a senior
secured facility agreement (the "Credit Facility") with Westdeutsche Landesbank
(France) S.A., and other lenders that enables the Company to borrow up to a
total principal amount of E120 million ($121.2 million) in four staggered
installments. The Company is allowed to use advances under this facility solely
to pay invoices from
F-27
<PAGE> 110
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Alcatel, related to the purchase of equipment for the deployment of its
broadband wireless network in Poland. The Company is allowed to pay Alcatel
invoices with its own funds, in which event the available amount of the current
phase installment will be reduced accordingly. The loans under this facility
will be secured by a pledge of the Company's and Elmedia's shares in Formus
Polska and the Elmedia shareholders' shares in Elmedia. Formus Polska will also
pledge its assets and assign its contracts and bank accounts. Interest on the
loan accrues and is payable quarterly at an interest rate based on EURIBOR plus
5% per year, or the European Overnight Interest Rate plus 5.0% per year,
depending on the type of advance. Principal on each of the four staggered
installments of the loan is payable in 16 quarterly payments beginning on the
end of the quarter 24 months after that particular installment became available
for borrowing. Under the facility Formus Polska is subject to various
restrictions and covenants, including limitations on acquisitions of assets,
incurrence of debt, encumbrances on assets, raising public debt, etc. The
facility includes a prepayment provision and does not allow the Company to
reborrow any repaid amounts. As of December 31, 1999, no amounts had been drawn
on this facility. See Note 17 for discussion regarding draw downs subsequent to
December 31, 1999.
In connection with the supply and financing arrangements, the Company has
granted Alcatel an option to purchase a 2.0% voting and economic interest in
Formus Polska. The option may be exercised after October 2000, and it expires,
if not previously exercised, on the earlier of October 2005 or the listing of
Formus Polska's shares on a national exchange. The Company has accounted for the
issuance of this security at its fair value of approximately $2.6 million as a
deferred cost, and is amortizing the deferred cost on a straight line basis over
the six-year life of the agreement.
See Note 7 for discussions regarding the Company's commitment to purchase
VeloCom preferred stock and its technical service agreement with VeloCom.
TERMINATION AGREEMENTS
In November 1999, the Company entered into a letter agreement with the
departing CEO, relating to his resignation of employment effective December 31,
1999. This letter agreement provides for severance pay of $420, continuation of
benefits for a maximum of eighteen months after separation, post-employment
office support and other benefits in the amount of $25, relocation assistance in
the event that he sells his home, and modification of his stock option
agreement. Upon separation, an additional 250,000 options vested, resulting in a
total of 545,000 unexercised vested options at that date. An additional 375,000
options will vest upon a change of control of the Company in 2000. These
additional 375,000 options expire by one-twelfth for each month in 2000 that a
change of control does not take place. The exercise date of all vested options
was extended to 90 days after the closing of an IPO of the Company's stock or
five years, whichever is earlier. His outstanding loan in the principal amount
of $200 will be payable to the Company at the earlier of (i) the date on which
he sells any shares of the Company's common stock which are secured by the loan,
(ii) five years from the date of the loan or (iii) within 90 days after the
Company's IPO.
LAWS AND LICENSES
Many countries in which the Company has licenses or plans to seek licenses
have relatively new telecommunications regulatory systems. Many legal and
regulatory issues have not been fully addressed. Future administrative or
judicial interpretations may expand the scope of regulations or significantly
change the interpretation of current laws and regulations. For example, Poland's
regulatory system is relatively new and many legal and regulatory issues have
not been interpreted or reviewed by the courts or administrative bodies. The
Company believes its ownership structure of Formus Polska is consistent with
practice and complies with the current law and terms of Formus Polska's
licenses. A change in the law or
F-28
<PAGE> 111
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
its legal interpretation could materially adversely affect the Company's
financial condition and results of operations if the Company was not able to
change its ownership structure in a manner required.
PUT RIGHTS
In connection with the Company's September 1999 purchase of the remaining
equity interest in Callino, the Company is required to redeem 3,646,286 shares
of Series E preferred stock and Series F preferred stock at the option of the
holder at $10 per share between September 30, 2000 and March 31, 2001.
Subsequent to March 31, 2001 through September 30, 2001, the Company may be
required to loan the shareholders with such rights an equivalent amount if such
shares are unable to be repurchased by the Company. Such put rights expire upon
the successful completion of an IPO by the Company.
(17) SUBSEQUENT EVENTS
All subsequent event foreign currency translations utilize March 31, 2000
foreign currency exchange rates.
FINANCING
In January 2000 and April 2000, Formus Polska borrowed approximately E6.2
million ($6.0 million) and E7.6 million ($7.3 million), respectively, under the
Credit Facility. Interest accrues on these borrowings at 8.4% and 9.0%,
respectively.
In April 2000, the Company signed a commitment letter ("Bridge Commitment")
for financing ("Bridge Financing") that will be provided through the issuance by
the Company of senior secured increasing rate notes ("Bridge Notes") having an
aggregate principal amount not to exceed $75.0 million. Pursuant to the terms of
the Bridge Commitment, the maximum amount of the draw has been reduced to a
total of $45.0 million as a result of the Company's issuance of $175 million of
Series G senior preferred stock. In May 2000, the Company submitted a draw
request totaling $45 million which is expected to be funded by mid-May 2000. The
notes are payable at the earlier of the consummation of the Company's
anticipated IPO or 12 months after the initial draw.
Interest is payable quarterly in arrears and will accrue on the Bridge
Notes at the greatest of the following rates as of the date of original issuance
of the Notes: (i) three-month LIBOR plus 6.75%; (ii) the treasury rate plus
6.77%; (iii) the Donaldson, Lufkin & Jenrette ("DLJ") High Yield Index Rate plus
0.91%; or (iv) in the case of each subsequent quarterly period only, the rate in
effect during the prior quarterly period, with a maximum percentage rate of
17.0% and an annual minimum rate of 13.0%.
In connection with the Bridge Commitment and the $45 million draw request,
the Company is required to issue warrants to purchase 600,000 shares of Common
Stock at an aggregate exercise price of $6.0 million ($10.00 per share). The
warrants will mature on the date ten years from the date such warrants are
issued. If the Company completes an IPO within nine months of the issue date,
then the price at which the warrants are exercisable will increase to that of
the offering price of the equity securities issued pursuant to such IPO, and
warrants to purchase 300,000 shares will be cancelled.
In May 2000, the Company issued or agreed to issue 14,000,000 shares of
mandatorily redeemable Series G senior preferred stock for $175.0 million
($12.50 per share). In connection with the Series G senior preferred stock
issuances in May 2000, the Company's Investors' Rights Agreement was amended and
restated, resulting in automatic conversion of all outstanding preferred stock
into Common Stock and Class B common stock upon closing of an IPO that results
in at least $100 million of gross proceeds to the Company at a share price per
share, as adjusted for stock splits, combinations and the like of at least
F-29
<PAGE> 112
FORMUS COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
$16.50 if the IPO occurs on or prior to September 3, 2000, or $20.00 if the
offering occurs after September 3, 2000.
SALE OF ECUADOR ASSETS
In February 2000, the Company entered into an agreement to sell the assets
held in Ecuador for $1.3 million. The purchase price is payable on June 15, 2001
and accrues interest at a rate of 10.0% per annum until the payment date (Note
4).
GLOBAL CROSSING ALLIANCE AGREEMENT
The Company has a pending offer to purchase the right to use capacity on
Global Crossing's pan-European and trans-Atlantic fiber optic network consisting
of eight links throughout Europe and four links to the United States. This offer
commits the Company to spend approximately E6.3 million (approximately $6.1
million) before the end of 2002. In addition, the Company expects to incur
annual maintenance fees not to exceed $150 per activated link.
SALE OF NEW ZEALAND LICENSES
In March 2000, the Company sold its New Zealand spectrum licenses for
approximately $7.8 million and recognized a pre-tax gain of approximately $6.4
million (Note 4).
LICENSE ACQUISITIONS
Norway. In March 2000, the Company obtained a 112 MHz nationwide broadband
spectrum license in the 26 GHz frequency range in Norway. The license requires
the Company to commence operations in 9 cities within one year from the grant of
the license and in another 15 cities within two years from the grant. The
Company can currently offer services under this license; however, an
unsuccessful applicant has challenged the licensing processes. If the licensing
processes are found to be flawed, it is possible that all license awards may be
voided and a new tender or auction might be conducted to redistribute the
licenses.
Switzerland. In March 2000, the Company participated in the Swiss
government's auction of several telecommunications licenses. The Company was
successful in obtaining a nationwide license for 56 MHz in the 26 GHz frequency
range for approximately 55.0 million Swiss francs. The Company is obligated to
pay the purchase price on May 31, 2000 and entered into a Swiss franc forward
purchase contract on March 14, 2000, which fixed the purchase price at
approximately $33.3 million. See Note 2 for discussion of the restricted
short-term investment for the auction process that will be used to pay for part
of the spectrum license cost. To accelerate the Company's deployment and entry
strategy in Switzerland, the Company purchased a competitive local exchange
carrier ("CLEC") for approximately 8.1 million Swiss francs ($4.9 million) in
April 2000.
Spain. In March 2000, Abrared, S.A. ("Abrared"), a consortium that the
Company and its partners formed to apply for wireless licenses in Spain, was
awarded a nationwide license for 40 MHz in the 3.4 GHz frequency range. The
terms of the license award require Abrared to commence operations in 22 cities
within the first twelve months of receiving the award. The Company and its
partners are finalizing the legal formation of Abrared, in which the Company
expects to have a substantial minority ownership interest.
F-30
<PAGE> 113
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Callino GmbH:
We have audited the accompanying balance sheets of Callino GmbH (referred
to as the "Company;" formerly ARCIS MEDIACOM Management GmbH) as of December 31,
1997 and August 31, 1998, the related statements of operations, accumulated
deficit, cash flows and shareholders' equity for the period from inception (July
7, 1997) to December 31, 1997, the period from January 1, 1998 to August 31,
1998 and for the cumulative period from inception (July 7, 1997) to August 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits 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 Callino GmbH as of December
31, 1997 and August 31, 1998 and the results of its operations and cash flows
for the period from inception (July 7, 1997) through December 31, 1997, the
period from January 1, 1998 to August 31, 1998 and for the cumulative period
from inception (July 7, 1997) to August 31, 1998, in conformity with accounting
principles generally accepted in the United States.
Arthur Andersen
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft
<TABLE>
<S> <C>
Spannagl Petzoldt
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
Munich, Germany
December 15, 1999
F-31
<PAGE> 114
CALLINO GMBH
(FORMERLY ARCIS MEDIACOM MANAGEMENT GMBH)
MUNICH
-- A DEVELOPMENT STAGE ENTERPRISE --
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND AUGUST 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1997 1998
------------ -----------
DM DM
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. 26.503 436.870
Restricted cash........................................... 0 370.000
Stockholder receivables (note 3).......................... 52.500 1.982.250
Other current assets (note 4)............................. 994 179.874
-------- -----------
Total current assets.............................. 79.997 2.968.994
-------- -----------
Property and equipment (note 5):
Office equipment, at cost................................. 0 124.761
Construction in progress.................................. 0 461.789
Less: accumulated depreciation and amortization........... 0 (22.422)
-------- -----------
Net property, plant and equipment................. 0 564.128
-------- -----------
Intangible assets, at cost (note 6)......................... 0 3.007.534
Less: accumulated depreciation and amortization........... 0 (320)
-------- -----------
Net intangible assets............................. 0 3.007.214
-------- -----------
Total assets...................................... 79.997 6.540.336
======== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade................................... 1.135 3.139.851
Accrued expenses.......................................... 2.360 554.680
Other current liabilities................................. 0 127.984
-------- -----------
Total current liabilities/total liabilities....... 3.495 3.822.515
-------- -----------
Shareholders' equity:
Common stock................................................ 90.000 1.000.000
thereof not paid-in: DM 382.250 (1997: DM 52.500)
Additional paid-in capital.................................. 0 3.100.000
thereof not paid-in: DM 1.600.000 (1997: DM 0)
Deficit accumulated during the development stage............ (13.498) (1.382.179)
-------- -----------
Total shareholders' equity........................ 76.502 2.717.821
-------- -----------
Total liabilities and shareholders' equity........ 79.997 6.540.336
======== ===========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 115
CALLINO GMBH
(FORMERLY ARCIS MEDIACOM MANAGEMENT GMBH)
MUNICH
-- A DEVELOPMENT STAGE ENTERPRISE --
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
FOR THE
PERIOD JULY 7, 1997 TO DECEMBER 31, 1997
PERIOD JANUARY 1, 1998 TO AUGUST 31, 1998
AND
PERIOD JULY 7, 1997 TO AUGUST 31, 1998
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM CUMULATIVE PERIOD
JULY 7, 1997 JANUARY 1, 1998 FROM JULY 7, 1997
(INCEPTION) TO TO (INCEPTION) TO
DECEMBER 31, 1997 AUGUST 31, 1998 AUGUST 31, 1998
----------------- --------------- ------------------
DM DM DM
<S> <C> <C> <C>
Costs and expenses:
Selling, general and administrative
expenses................................. (13.498) (1.368.738) (1.382.236)
Interest income............................. 0 772 772
Interest expenses........................... 0 (715) (715)
------- ---------- ----------
Net loss............................ (13.498) (1.368.681) (1.382.179)
------- ---------- ----------
Deficit accumulated during the development
stage -- beginning.......................... 0 (13.498) 0
------- ---------- ----------
Deficit accumulated during the development
stage -- ending............................. (13.498) (1.382.179) (1.382.179)
======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 116
CALLINO GMBH
(FORMERLY ARCIS MEDIACOM MANAGEMENT GMBH)
MUNICH
-- A DEVELOPMENT STAGE ENTERPRISE --
STATEMENTS OF CASH FLOWS
FOR THE
PERIOD JULY 7, 1997 TO DECEMBER 31, 1997
PERIOD JANUARY 1, 1998 TO AUGUST 31, 1998
AND
PERIOD JULY 7, 1997 TO AUGUST 31, 1998
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD
PERIOD FROM PERIOD FROM FROM
JULY 7, 1997 JANUARY 1, 1998 JULY 7, 1997
(INCEPTION) TO TO (INCEPTION) TO
DECEMBER 31,1997 AUGUST 31, 1998 AUGUST 31, 1998
----------------- --------------- ---------------
DM DM DM
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... (13.498) (1.368.681) (1.382.179)
------- ---------- ----------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation of property, plant and
equipment and intangible assets........... 851 22.742 23.593
Increase in other current assets............ (994) (178.880) (179.874)
Increase in accounts payable, trade......... 1.135 3.138.716 3.139.851
Increase in other current liabilities....... 0 127.984 127.984
Increase in accrued expenses................ 2.360 552.320 554.680
------- ---------- ----------
Total adjustments...................... 3.352 3.662.882 3.666.234
------- ---------- ----------
Net cash provided from operating
activities................................ (10.146) 2.294.201 2.284.055
------- ---------- ----------
Cash flows from investing activities:
Purchases of property, equipment and
licenses.................................... (851) (3.594.084) (3.594.935)
Restricted cash deposited...................... 0 (370.000) (370.000)
------- ---------- ----------
Net cash used in investing activities....... (851) (3.964.084) (3.964.935)
------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock......... 37.500 2.080.250 2.117.750
------- ---------- ----------
Net cash provided by financing activities... 37.500 2.080.250 2.117.750
------- ---------- ----------
Net increase in cash and cash equivalents... 26.503 410.367 436.870
------- ---------- ----------
Cash and cash equivalents at beginning of
period......................................... 0 26.503 0
------- ---------- ----------
Cash and cash equivalents at end of period....... 26.503 436.870 436.870
======= ========== ==========
Additional cash flow information:
Cash paid for interest......................... 0 (715) (715)
======= ========== ==========
Cash paid for income taxes..................... 0 0 0
======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 117
CALLINO GMBH
(FORMERLY ARCIS MEDIACOM MANAGEMENT GMBH)
MUNICH
-- A DEVELOPMENT STAGE ENTERPRISE --
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE
PERIOD JULY 7, 1997 TO DECEMBER 31, 1997
PERIOD JANUARY 1, 1998 TO AUGUST 31, 1998
AND
PERIOD JULY 7, 1997 TO AUGUST 31, 1998
<TABLE>
<CAPTION>
DEFICIT ACCUMULATED
ADDITIONAL DURING THE TOTAL SHAREHOLDERS'
COMMON STOCK PAID-IN CAPITAL DEVELOPMENT STAGE EQUITY
------------ --------------- ------------------- -------------------
DM DM DM DM
<S> <C> <C> <C> <C> <C>
Balances as of July 7, 1997... 90.000 0 0 90.000
Net loss July 7, 1997 to
December 31, 1997........... 0 0 (13.498) (13.498)
--------- --------- ---------- ----------
Balances at December 31,
1997........................ 90.000 0 (13.498) 76.502
--------- --------- ---------- ----------
Net loss January 1, 1998 to
August 31, 1998............. 0 0 (1.368.681) (1.368.681)
Issuance common stock
-- March 19, 1998........... 1) 410.000 0 0 410.000
-- May 8, 1998.............. 2) 100.000 0 0 100.000
-- May 8, 1998.............. 3) 400.000 3.100.000 0 3.500.000
--------- --------- ---------- ----------
Balances at August 31, 1998... 1.000.000 3.100.000 (1.382.179) 2.717.821
========= ========= ========== ==========
</TABLE>
- ------------------------------
1) Issuance of 4 shares of DM 135.000, DM 50.000, DM 187.000 and DM 38.000
2) Issuance of 3 shares of DM 50.000, DM 25.000 and DM 25.000
3) Issuance of 4 shares of DM 100.000 each
See accompanying notes to financial statements.
F-35
<PAGE> 118
CALLINO GMBH
(FORMERLY ARCIS MEDIACOM MANAGEMENT GMBH)
MUNICH
-- A DEVELOPMENT STAGE ENTERPRISE --
NOTES TO FINANCIAL STATEMENTS
1. COMPANY'S STRUCTURE AND BUSINESS ACTIVITY
ARCIS MEDIACOM Management GmbH, (now Callino GmbH; in the following also
referred as the "Company"), was established as limited liability company on July
7, 1997. The Company is registered in the trade register of the local court of
Munich under the registration number HRB117285. The Company's seat is Munich,
Germany. The Company name was changed to Callino GmbH by shareholder resolution
as of March 24, 1999. The shareholder agreement was concluded on July 7, 1997
and the latest amendments were made on June 15, 1999.
During the period since inception until August 31, 1998, the Company was a
development stage enterprise and was devoting most of its efforts to activities
such as financial planning, raising capital, acquiring telecom licenses for the
Federal Republic of Germany, acquiring property and equipment and recruiting and
training personnel. During the periods presented, the planned principal
operations have not yet commenced.
The Company is in the development stage and has no revenues to August 31,
1998. The Company has incurred net losses totaling DM 1.382.179 through August
31, 1998. The Company's ultimate success could be affected by the problems,
expenses and delays encountered in connection with the formation of any new
business and by the competitive environment in which the Company intends to
operate. Delays or failure in receiving required regulatory approvals or the
enactment of new regulations or regulatory requirements may have a material
adverse effect upon the Company. Although management believes that the Company
will be able to successfully mitigate these risks, there is no assurance that
the Company will be able to do so or that the company will ever operate
profitably.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
BASIS OF PRESENTATION
The financial statements include the accounts of Callino GmbH as of August
31, 1998 and December 31, 1997 and for the period from inception (July 7, 1997)
to December 31, 1997, for the period from January 1, 1998 to August 31, 1998 and
for the period from inception to August 31, 1998.
The financial year of the company is the calendar year.
BUSINESS ACTIVITY AND BASIS OF REVENUE RECOGNITION
The Company's primary business activities are the development and
provisioning of networks and network services in the areas telecommunications
and digital media, furthermore the rendering of consultancy services in
connection with such networks and network services. From the inception of the
Company until the balance sheet date, the main focus of the Company was the
start up of the business.
CASH AND CASH EQUIVALENTS
The Company places its cash deposits with high credit quality financial
institutions. Time deposits held with HypoVereinsbank AG in the amount of DM
370.000 as of August 31, 1998 are pledged. The pledge serves as security of bank
guarantees which were created for the benefit of Deutsche Telekom AG.
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
F-36
<PAGE> 119
CALLINO GMBH
(FORMERLY ARCIS MEDIACOM MANAGEMENT GMBH)
MUNICH
-- A DEVELOPMENT STAGE ENTERPRISE --
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments such as cash, accounts
receivable and accounts payable approximate their fair value based on the
short-term maturities of these instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
DEPRECIATION AND AMORTIZATION
Depreciation is initiated in the period of acquisition and is computed on a
straight-line basis over the usual useful life as follows:
<TABLE>
<CAPTION>
ITEM USEFUL LIFE
- ---- -----------
<S> <C>
Intangible Assets
Licences.................................................. 10 years
Software.................................................. 3 years
Tangible Assets
Other equipment, office equipment
Office equipment.......................................... 2-8 years
Motor vehicles (used)..................................... 2 years
</TABLE>
LONG-LIVED ASSETS
The Company evaluates the carrying value of all tangible and intangible
assets whenever events or circumstances indicate the carrying value of assets
may exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the asset.
Measurement of an impairment loss is based on fair value of the asset computed
using discounted cash flows if the asset is expected to be held and used.
Measurement of an impairment loss for an asset held for sale would be based on
fair market value less estimated costs to sell.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 2000. The Company is currently assessing the
effect of this new standard but believes it will not have a material impact on
its consolidated results of operations.
3. SHAREHOLDER RECEIVABLES
Shareholder receivables amount to DM 1.982.250 as of August 31, 1998 and DM
52.500 as of December 31, 1997 (thereof common stock not paid in: DM 382.250 as
of August 31, 1998 and
F-37
<PAGE> 120
CALLINO GMBH
(FORMERLY ARCIS MEDIACOM MANAGEMENT GMBH)
MUNICH
-- A DEVELOPMENT STAGE ENTERPRISE --
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DM 52.500 as of December 31, 1997; thereof additional paid-in capital not paid
in: DM 1.600.000 as of August 31, 1998). Amounts are included in shareholders'
equity.
4. OTHER CURRENT ASSETS
Other current assets consist of the following items:
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
1998 1997
---------- ------------
DM DM
<S> <C> <C>
Receivables from the Tax Office
-- VAT.................................................... 143.409 994
-- Other refund claims.................................... 615 0
Accrued interest on time deposits........................... 559 0
Other....................................................... 35.291 0
------- ---
179.874 994
======= ===
</TABLE>
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
AT COST
-----------------------------------------------------------------------------------
JULY 7, DECEMBER 31, AUGUST 31,
1997 ADDITIONS DISPOSALS 1997 ADDITIONS DISPOSALS 1998
------- --------- --------- ------------ --------- --------- ----------
DM DM DM DM DM DM DM
<S> <C> <C> <C> <C> <C> <C> <C>
Office equipment............. 0 851 (851) 0 124.761 0 124.761
Construction in progress..... 0 0 0 0 461.789 0 461.789
-- --- ---- -- ------- -- -------
0 851 (851) 0 586.550 0 586.550
== === ==== == ======= == =======
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED DEPRECIATION
-----------------------------------------------------------------------------------
JULY 7, DECEMBER 31, AUGUST 31,
1997 ADDITIONS DISPOSALS 1997 ADDITIONS DISPOSALS 1998
------- --------- --------- ------------ --------- --------- ----------
DM DM DM DM DM DM DM
<S> <C> <C> <C> <C> <C> <C> <C>
Office equipment............. 0 851 (851) 0 22.422 0 22.422
Construction in progress..... 0 0 0 0 0 0 0
-- --- ---- -- ------- -- -------
0 851 (851) 0 22.422 0 22.422
== === ==== == ======= == =======
</TABLE>
<TABLE>
<CAPTION>
NET BOOK VALUE
-----------------------------------
JULY 7, DECEMBER 31, AUGUST 31,
1997 1997 1998
------- ------------ ----------
DM DM DM
<S> <C> <C> <C>
Office equipment............................................ 0 0 102.339
Construction in progress.................................... 0 0 461.789
-- -- -------
0 0 564.128
== == =======
</TABLE>
Depreciation expense for the period from July 7, 1997 until August 31, 1998
amounted to DM 23.273.
F-38
<PAGE> 121
CALLINO GMBH
(FORMERLY ARCIS MEDIACOM MANAGEMENT GMBH)
MUNICH
-- A DEVELOPMENT STAGE ENTERPRISE --
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
JULY 7, DISPOSALS/ DECEMBER 31, AUGUST 31,
1997 ADDITIONS DEPRECIATION 1997 ADDITIONS DEPRECIATION 1998
------- --------- ------------ ------------ --------- ------------ ----------
DM DM DM DM DM DM DM
<S> <C> <C> <C> <C> <C> <C> <C>
Telecom licence --
class 4.............. 0 0 0 0 3.000.010 0 3.000.010
Software licences...... 0 0 0 0 7.524 320 7.204
-- -- -- -- --------- --- ---------
0 0 0 0 3.007.534 320 3.007.214
== == == == ========= === =========
</TABLE>
By way of notice dated March 31, 1998 as well as amended notice dated July
22, 1998, the regulation authorities for telecommunications and postal services
("Regulierungsbehorde fur Telekommunikation und Post") has granted to the
Company the licence of class 4 for the voice telephone service on the basis of
operating its own telecommunications networks for the territory of the Federal
Republic of Germany. The licence fee amounted to DM 3 million and will be
depreciated on a straight-line basis over ten years.
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31, 1997 AUGUST 31, 1998
----------------- ---------------
DM DM
<S> <C> <C>
Management Compensation..................................... 0 177.000
Legal and Consultancy....................................... 2.360 151.850
Vacation.................................................... 0 76.500
Audit and Accounting........................................ 0 62.530
Bonuses..................................................... 0 61.000
Other....................................................... 0 25.800
----- -------
2.360 554.680
===== =======
</TABLE>
8. COMMON STOCK
By shareholders' resolutions dated March 19, 1998 and May 8, 1998 the
common stock of the Company was increased from DM 90.000 by an amount of DM
910.000 to DM 1.000.000. In connection with the capital increase dated May 8,
1998 the new shareholders paid premiums in the total amount of DM 3.100.000
which are shown as additional paid-in capital.
9. INCOME TAXES
For income tax purposes the Company has incurred net operating losses which
are available as carry forwards to offset future taxes payable. As of August 31,
1998 such accumulated losses brought forward amount to TDM 1.381 for income
taxes and for trade taxes on income, as of December 31, 1997 to TDM 13. The tax
credits do not expire.
Especially considering the present development in the telecommunication
sector it is not beyond reasonable doubt that the Company will be in a net loss
position in the following years. A deferred tax asset was recorded with a
corresponding valuation allowance because the Company believes it is more likely
than not that the deferred tax asset will not be realized.
F-39
<PAGE> 122
CALLINO GMBH
(FORMERLY ARCIS MEDIACOM MANAGEMENT GMBH)
MUNICH
-- A DEVELOPMENT STAGE ENTERPRISE --
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. LEASES
The Company has no leasing obligations under the term of operating or
capital lease except for an office lease discussed below in note 12.
Rent expense for the cumulative period from inception through August 31,
1998 totalled DM 87.888 (thereof for the period from inception through December
31, 1997: DM 0 and for the period from January 1, 1998 through August 31, 1998:
DM 87.888).
11. GEOGRAPHIC INFORMATION
All identifiable assets are maintained in Germany.
12. COMMITMENTS AND CONTINGENCIES
Future financial obligations are as follows:
<TABLE>
<CAPTION>
2004 AND
TOTAL 1999 2000 2001 2002 2003 LATER
----- ---- ---- ---- ---- ---- --------
TDM TDM TDM TDM TDM TDM TDM
<S> <C> <C> <C> <C> <C> <C> <C>
Rent obligations............................ 1.085 527 558 0 0 0 0
Consultancy contracts....................... 765 180 180 180 180 45 0
----- --- --- --- --- -- --
1.850 707 738 180 180 45 0
===== === === === === == ==
</TABLE>
13. SUBSEQUENT EVENTS
Licence Class 3
By way of notice dated August 28, 1998/September 8, 1998, the regulation
authorities for telecommunications and postal services in Germany
("Regulierungsbehorde fur Telekommunikation und Post" -- "RegTP") granted the
licence for the operation of transmission paths for offering telecommunications
services for the public (licence class 3) to the Company for the states Bavaria,
Baden-Wurttemberg as well as for parts of the states Hasse, Rhineland
Palatinate, Lower Saxony, Northrhine Westphalia, Schleswig Holstein, Saxony and
Brandenburg as well as for the City of Berlin. The fees were determined to be in
the amount of DM 6.081.860 according to Sec. 16 para. 1 sentence 1 TKG by
separate notice of the RegTP of October 12, 1998.
The Administrative Court of Cologne has determined by way of decision dated
March 25, 1999 (file no. 111.2914/98) in individual proceedings pursued by
another communications company that the telecommunications schedule of charges
on which the notices are based is not in accordance with higher ranking law
(i.e. Art. 3 GG (German Grundgesetz) as well as Art. 11 para. 1 of the Guideline
97/13/EG) and is therefore not binding. At present, the proceedings are on
appeal and have therefore no effect for the prosecuting telecommunications
company or for other telecommunications companies.
By way of letter dated July 14, 1999, the Company requested the
RegTP -- referring to the decision of the Administrative Court of Cologne -- to
refund the previously levied licence charges and declared its willingness in
this connection to pay reasonable charges for the granted licences accruing on
the basis of a new schedule of charges.
By way of notices, each dated February 9, 1999, of
Telekom-Control-Kommission in Austria, the Company was granted licences for the
rendering of the public voice telephone service by way of operating
F-40
<PAGE> 123
CALLINO GMBH
(FORMERLY ARCIS MEDIACOM MANAGEMENT GMBH)
MUNICH
-- A DEVELOPMENT STAGE ENTERPRISE --
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
an own fixed telecommunications network as well as for the public offering of
leased lines by way of own fixed telecommunications networks.
Shareholders' equity:
By shareholders' resolution dated September 10, 1998 the common stock of
the Company was increased from DM 1.000.000 by an amount of DM 3.000.000 to DM
4.000.000. The newly issued common stock, split into three shares of nominal
values of DM 1.883.000, DM 796.000 and DM 321.000, was taken over by the
shareholders Formus Communications LLC, Denver/USA, Chase European Equity
Associates I LLC and Chase European Equity Associates II LLC, all
Wilmington/USA, plus premiums in the total amount of DM 30.000.000.
By shareholders' resolution dated June 8, 1999 the common stock of the
Company was increased from DM 4.000.000 by an amount of DM 29.600.000 to DM
33.600.000. The additional common stock was taken over by the existing
shareholders. The increase of the common stock was performed by funds resulting
from prior capital contribution of shareholders (May 8, 1998 and September 10,
1998) in the additional paid-in capital.
F-41
<PAGE> 124
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To VeloCom Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of VELOCOM INC.
AND SUBSIDIARIES (a Delaware corporation) as of December 31, 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the period from inception (April 29, 1998) through December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of VeloCom Inc. and
subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for the period from inception (April 29, 1998) through December
31, 1998 in conformity with generally accepted accounting principles in the
United States.
ARTHUR ANDERSEN LLP
Denver, Colorado
September 30, 1999
F-42
<PAGE> 125
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, JUNE 30,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $2,340,144 $29,388,749
Receivable from affiliates................................ 394,530 863,806
---------- -----------
Total current assets.............................. 2,734,674 30,252,555
Investment in affiliates.................................... -- 14,863,800
Property and equipment, net of accumulated depreciation of
$1,026 and $16,755, respectively.......................... 45,572 109,075
Stock subscription receivable............................... -- 493,000
Other noncurrent assets..................................... -- 33,843
---------- -----------
Total assets...................................... $2,780,246 $45,752,273
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 462,984 $ 472,336
Accrued liabilities.................................... 6,452 15,459
---------- -----------
Total current liabilities......................... 469,436 487,795
---------- -----------
Convertible preferred stock, mandatorily redeemable, $.01
par value;
Series A, 15,000,000 shares authorized; none and
15,000,000 shares issued and outstanding,
respectively.......................................... -- 44,982,605
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock; undesignated, 5,000,000 shares
authorized; zero shares issued and outstanding......... -- --
Common stock, $.01 par value, 40,000,000 shares
authorized; 3,155,000 and 3,680,086 shares issued and
outstanding, respectively.............................. 31,550 36,801
Additional paid-in capital................................ 3,123,450 4,217,589
Other cumulative comprehensive income (loss).............. -- (404,498)
Deficit accumulated during development stage.............. (844,190) (3,568,019)
---------- -----------
Total stockholders' equity........................ 2,310,810 281,873
---------- -----------
Total liabilities and stockholders' equity........ $2,780,246 $45,752,273
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<PAGE> 126
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE FROM CUMULATIVE FROM
APRIL 29, 1998 FOR THE SIX APRIL 29, 1998
(INCEPTION) TO MONTHS ENDED (INCEPTION) TO
DECEMBER 31, JUNE 30, JUNE 30,
1998 1999 1999
--------------- ------------ ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Operating costs and expenses:
General and administrative...................... $ 914,272 $ 1,681,016 $ 2,595,288
--------- ----------- -----------
Operating loss.................................. (914,272) (1,681,016) (2,595,288)
--------- ----------- -----------
Other income:
Interest income................................. 70,082 385,772 455,854
--------- ----------- -----------
Net loss before other items..................... (844,190) (1,295,244) (2,139,434)
--------- ----------- -----------
Share in results of affiliated companies, net..... -- (1,428,585) (1,428,585)
--------- ----------- -----------
Net loss........................................ $(844,190) $(2,723,829) $(3,568,019)
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<PAGE> 127
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
OTHER ACCUMULATED
ADDITIONAL CUMULATIVE DURING THE TOTAL
PAID-IN COMPREHENSIVE DEVELOPMENT COMPREHENSIVE
SHARES AMOUNTS CAPITAL LOSS(1) STAGE LOSS TOTAL
--------- ------- ---------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Inception (April 29,
1998)................ -- $ -- $ -- $ -- $ -- $ -- $ --
Common stock issued
for $1.00 per share
on May 5, 1998..... 200,000 2,000 198,000 -- -- -- 200,000
Common stock issued
for cash at $1.00
per share on June
30, 1998........... 2,955,000 29,550 2,925,450 -- -- -- 2,955,000
Net loss............. -- -- -- -- (844,190) (844,190) (844,190)
--------- ------- ---------- --------- ----------- ----------- -----------
Balances, December 31,
1998................. 3,155,000 31,550 3,123,450 -- (844,190) (844,190) 2,310,810
===========
Common stock issued
for cash at $1.00
per share on
January 6, 1999
(unaudited)........ 200,000 2,000 198,000 -- -- -- 200,000
Common stock issued
for cash at $2.25
per share on
February 12, 1999
(unaudited)........ 75,000 750 168,000 -- -- -- 168,750
Common stock issued
for cash at $2.25
per share on May 8,
1999 (unaudited)... 25,000 250 56,000 -- -- -- 56,250
Common stock issued
for cash at $3.00
per share on June
15, 1999
(unaudited)........ 123,615 1,236 369,609 -- -- -- 370,845
Common stock issued
for services on
June 15, 1999
(unaudited)........ 18,138 182 54,232 -- -- -- 54,414
Common stock issued
for cash at $3.00
per share on June
18, 1999
(unaudited)........ 83,333 833 249,166 -- -- -- 249,999
Accretion of
mandatorily
redeemable
preferred stock
(unaudited)........ -- -- (868) -- -- -- (868)
Cumulative
translation
adjustment......... -- -- -- (404,498) -- (404,498) (404,498)
Net loss
(unaudited)........ -- -- -- -- (2,723,829) (2,723,829) (2,723,829)
--------- ------- ---------- --------- ----------- ----------- -----------
Balances, June 30, 1999
(unaudited).......... 3,680,086 $36,801 $4,217,589 $(404,498) $(3,568,019) $(3,128,327) $ 281,873
========= ======= ========== ========= =========== =========== ===========
</TABLE>
- ---------------
(1) As of June 30, 1999, other cumulative comprehensive loss represents
cumulative translation adjustments.
The accompanying notes are an integral part of these consolidated financial
statements.
F-45
<PAGE> 128
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE FROM CUMULATIVE FROM
APRIL 29, 1998 FOR THE SIX APRIL 29, 1998
(INCEPTION) TO MONTHS ENDED (INCEPTION) TO
DECEMBER 31, JUNE 30, JUNE 30,
1998 1999 1999
--------------- ------------ ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $ (844,190) $ (2,723,829) $ (3,568,019)
Adjustments to reconcile net loss to net cash
used in operating activities-
Share in results of affiliated companies.... -- 1,428,585 1,428,585
Depreciation and amortization............... 1,026 15,729 16,755
Issuance of common and preferred stock for
services.................................. -- 60,000 60,000
Changes in operating assets and liabilities-
Increase in receivable from affiliates.... (394,530) (469,276) (863,806)
Increase in other assets.................. -- (33,843) (33,843)
Increase in accounts payable, accrued
liabilities and other.................. 469,436 18,359 487,795
---------- ------------ ------------
Net cash used in operating
activities........................... (768,258) (1,704,275) (2,472,533)
---------- ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment............. (46,598) (79,232) (125,830)
Investments in affiliate....................... -- (16,696,883) (16,696,883)
---------- ------------ ------------
Net cash used in investing
activities........................... (46,598) (16,776,115) (16,822,713)
---------- ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock......... 3,155,000 552,844 3,707,844
Proceeds from issuance of Series A preferred
stock, net.................................. -- 44,976,151 44,976,151
---------- ------------ ------------
Net cash provided by financing
activities........................... 3,155,000 45,528,995 48,683,995
---------- ------------ ------------
Net change in cash and cash equivalents.......... 2,340,144 27,048,605 29,388,749
Cash and cash equivalents, beginning of year..... -- 2,340,144 --
---------- ------------ ------------
Cash and cash equivalents, end of year........... $2,340,144 $ 29,388,749 $ 29,388,749
========== ============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest......................... $ -- $ -- $ --
========== ============ ============
Cash paid for taxes............................ $ -- $ -- $ --
========== ============ ============
Non-cash financing activities Contribution of
stock subscription receivable............... -- 493,000 493,000
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-46
<PAGE> 129
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL REFERENCES TO JUNE 30, 1999 AMOUNTS ARE UNAUDITED)
(1) ORGANIZATION AND OWNERSHIP
VeloCom Inc. and subsidiaries (collectively, the "Company", and formerly
known as WLL International, Inc.) is a Delaware corporation incorporated in
April 1998 with the intent to become a leading provider of competitive voice,
data and internet services in Latin America. As principal operations have not
yet commenced, the Company's financial statements are presented on the basis of
a company in the development stage. The effect on the Company's financial
statements is to report cumulative results of operations and cash flows since
inception (April 29, 1998).
The Company formed two joint ventures with four other parties which applied
for and won in a public auction, two Brazilian competitive local exchange
carrier licenses, one for the Sao Paulo, Brazil region and one for the northeast
region (which comprises 16 states) of Brazil (the "Brazilian Mirror Licenses").
The Company is one of the largest shareholders of Mirror Holding S.A. ("Mirror
Holding") with a 34.4% ownership interest. Mirror Holding owns a 99% interest in
Mirror S.A. which is the entity that was awarded the mirror license for the
northeast region (which comprises 16 states) of Brazil on February 4, 1999. The
Company is one of the largest shareholders of Megatel Holding S.A. ("Megatel
Holding") with a 35.3% ownership interest. Megatel Holding owns a 99% interest
in Megatel do Brasil S.A. which is the entity that was awarded the mirror
license for the Sao Paulo region on May 5, 1999. The licenses grant a two year
exclusive use of wireless local loop at 1.9 GHz (20 MHz) and at 3.4 GHz (50 MHz)
for a 20 year renewable period, providing all license conditions are satisfied.
The licenses also grant a duopoly with the incumbent provider or local service
provider until January 2002. On September 27, 1999, the Company completed a
series of transactions which increased its ownership in both Mirror Holding and
Megatel Holding to approximately 49%, (see Note 9).
The Company is in the development stage and has generated no revenues to
date. Since commencement of operations (April 29, 1998), the Company has
incurred net losses totaling approximately $844,000 through December 31, 1998.
As a result of its development stage activities, the Company has experienced
operating losses and negative cash flows from operations. The Company expects to
continue to generate negative cash flows from operations in each market while it
emphasizes development, construction, and expansion of its business and until
the Company establishes a sufficient revenue generating customer base in each
market. The Company also expects to experience increasing operating losses and
negative cash flows from operations as it expands its operations and enters new
markets, even if and after it achieves positive cash flow from operations in its
initial markets.
The Company's ultimate success could be affected by the problems, expenses
and delays encountered in connection with the formation of any new business and
by the competitive environment in which the Company intends to operate. Delays
or failure in receiving required regulatory approvals or the enactment of new
regulations or regulatory requirements may have a material adverse effect upon
the Company. Although management believes that the Company will be able to
successfully mitigate these risks, there is no assurance that the Company will
be able to do so or that the Company will ever operate profitably.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which were wholly owned as of year end. All
significant intercompany accounts and transactions have been eliminated in
consolidation. As of June 30, 1999, the Company held a 34.4% interest in Mirror
Holding and a 35.3% interest in Megatel Holding which are accounted for under
the equity method of accounting. Subsidiaries are consolidated as of the
acquisition date, if the Company has control either through ownership of a
majority of the subsidiary's voting stock or through control of the board of
directors or management of the subsidiary.
F-47
<PAGE> 130
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In management's opinion, all adjustments (of a normal recurring nature)
have been made which are necessary to present fairly the financial position of
the Company as of June 30, 1999, and the results of its operations for the six
months ended June 30, 1999.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Such estimates and assumptions 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 revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
CREDIT RISK AND CONCENTRATION OF OPERATIONS
The Company has an investment in two companies in Brazil, which totals
approximately $14,900,000. Accordingly, the Company is exposed to credit risk
resulting from adverse general economic conditions which may affect Brazil and
Latin America. The Company has not entered into any foreign currency contract,
hedges or options.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
short-term, highly liquid investments with original maturities of three months
or less which are readily convertible into cash and are not subject to
significant risk from fluctuations in interest rates.
STOCK SUBSCRIPTION RECEIVABLE
Represents a subscription receivable from certain shareholders, which was
paid subsequent to June 30, 1999.
RECEIVABLE FROM AFFILIATES
The Company incurs costs on behalf of its affiliates such as salaries and
benefits of the Company's employee's, travel and professional services. These
costs include an administrative fee of 15% and are reimbursed by the affiliates.
As of June 30, 1999, the Company is in the process of negotiating a technical
services agreement with its affiliates in Brazil, whereby the affiliates will be
contractually required to reimburse the Company for such services.
INVESTMENTS IN AFFILIATES
For those investments in companies in which the Company's ownership
interest is 20% to 50%, and the Company exerts significant influence through
board representation and management authority, the equity method of accounting
is used. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company's proportionate share of net earnings or
losses of the affiliates, limited to the extent of the Company's investment. The
Company may recognize an impairment on its equity method investments if there is
a loss in value of an investment which is other than a temporary decline.
Evidence of a loss in value might include, but would not necessarily be limited
to, absence of an ability to recover the carrying amount of the investment or
inability of the investee to sustain an earnings capacity which would justify
the carrying amount of the investment. As of June 30, 1999 the Company held a
34.4% interest in Mirror Holding which holds a 99% interest in Mirror S.A., the
operating company. Additionally, the Company had a 35.3% interest in Megatel
Holding which holds a 99% interest in
F-48
<PAGE> 131
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Megatel do Brazil S.A., the operating company. The operating companies were
awarded licenses to operate fixed telephony services in Sao Paulo and the
northeast region of Brazil.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Maintenance and repair
expenditures are charged to expense as incurred and expenditures for
improvements which increase the expected useful lives of the assets are
capitalized. Depreciation expense is computed using the straight-line method
over the useful lives of the respective assets. The economic lives of property
and equipment at acquisition are as follows:
<TABLE>
<S> <C>
Furniture and office equipment.............................. 5 years
Computer equipment.......................................... 3 years
Computer software........................................... 3 years
</TABLE>
INCOME TAXES
The Company recognizes deferred income tax assets and liabilities for the
expected future income tax consequences, based on enacted tax laws, of temporary
differences between the financial reporting and tax bases of assets, liabilities
and carryovers. The Company recognizes deferred tax assets for the expected
future effects of all deductible temporary differences, loss carryovers and tax
credit carryovers. Net deferred tax assets are then reduced, if deemed
necessary, by a valuation allowance for the amount of any tax benefits to the
extent it is more likely than not, that some or all of the deferred tax assets
will not be realized.
LONG-LIVED ASSETS
Long-lived assets to be held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company continually
evaluates the recoverability of its long-lived assets based on estimated future
cash flows from and the estimated liquidation value of such long-lived assets,
and provides for impairment if such undiscounted cash flows are insufficient to
recover the carrying amount of the long-lived asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of cash equivalents and other current amounts receivable and
payable approximate the carrying amount due to their short-term nature.
SEGMENT REPORTING
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which established standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance.
The Company is currently in the development stage and has yet to commence
its planned principal operations. Through December 31, 1998, the significant
portion of the Company's expenditures were associated with its development
efforts in Latin America. The Company expects to incur significant costs
F-49
<PAGE> 132
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
associated with the expansion of its development efforts. Thus, for 1998, the
Company has not disclosed segment information as it is not meaningful.
FOREIGN OPERATIONS AND FOREIGN EXCHANGE RATE RISK
The functional currency of the Company's foreign subsidiaries is either the
applicable local currency or the U.S. dollar, as determined based on the
operations of each subsidiary. Assets and liabilities of foreign subsidiaries
for which the functional currency is the local currency are translated at
exchange rates in effect at period-end, and the statements of operations are
translated at the average exchange rates during the period. Exchange rate
fluctuations on translating foreign currency financial statements into U.S.
dollars that result in unrealized gains or losses are referred to as translation
adjustments. Cumulative translation adjustments are recorded as a separate
component of stockholders' deficit and are included in Other Cumulative
Comprehensive Income (Loss).
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses which are
reflected in income as unrealized (based on period-end translations) or realized
upon settlement of the transactions.
STOCK OPTIONS
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plan and, accordingly, does not recognize
compensation costs for options granted to employees whose exercise price is
equal to or exceeds the fair value of the underlying stock as of the grant date.
NEW ACCOUNTING PRINCIPLES
The FASB issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which requires that companies recognize all derivatives as either assets or
liabilities in the balance sheet at fair value. Under SFAS 133, accounting for
changes in fair value of a derivative depends on its intended use and
designation. SFAS 133 is effective for fiscal years beginning after June 15,
1999. In June 1999, the FASB issued Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," which amends SFAS 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company is
currently assessing the effect of this new standard but believes it will not
have a material impact on its consolidated results of operations.
The American Institute of Certified Public Accountants ("AICPA") recently
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. SOP 98-1 identifies the characteristics of internal-use
software and provides examples to assist in determining when computer software
is for internal use. SOP 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998, for projects in progress and
prospectively, with earlier application encouraged. The Company adopted SOP 98-1
effective January 1, 1999 with no material impact to the consolidated financial
statements.
The AICPA recently issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"), which is required to be adopted by
affected companies for fiscal years beginning after December 15, 1998. SOP 98-5
defines start-up organization costs, which must be expensed as incurred. In
addition, all deferred start-up and organization costs existing as of January 1,
1999 must be written off and accounted for as a cumulative effect of an
accounting change. The adoption of SOP 98-5
F-50
<PAGE> 133
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
did not have a material effect on the Company's financial position or results of
operation as the company's historical accounting policy was to expense start-up
costs as incurred.
(3) INCOME TAXES
The Company is subject to federal and state income taxes but has incurred
no liability for such taxes due to losses it has incurred since inception. At
December 31, 1998, the Company had net operating loss carryforwards for U.S.
federal tax purposes of approximately $278,000 which expire through the year
2013. These carryforwards are available to offset future taxable income.
The Company's net deferred tax asset results primarily from the future
benefit of net operating loss carryforwards. The net deferred tax assets as of
December 31, 1998 are as follows:
<TABLE>
<S> <C>
Net operating losses........................................ $ 89,213
Start-up costs.............................................. 169,291
Accelerated depreciation.................................... (213)
Other....................................................... 11,850
Less: Valuation allowances................................ (270,141)
---------
Net deferred tax assets................................... $ --
=========
</TABLE>
The reconciliation of income taxes computed at the statutory rates to the
income tax benefit is as follows:
<TABLE>
<CAPTION>
INCEPTION
(APRIL 29, 1998) TO
DECEMBER 31,
1998
-------------------
<S> <C>
Income tax benefit at statutory rates....................... $(270,141)
Increase in valuation allowance............................. 270,141
---------
Total income tax benefit.................................... $ --
=========
</TABLE>
(4) COMMITMENTS AND CONTINGENCIES
RECOVERY OF INVESTMENTS
Since its inception, the Company's efforts have been primarily directed
towards raising capital and developing and operating the competitive voice, data
and internet communications networks. The Company has made a significant
investment in pre-operating entities in Brazil whose primary assets are
competitive local exchange carrier licenses. The ability of the Company's
affiliate to recover its current investment and to generate positive cash flow
and operating profits is contingent upon a number of factors.
RECOVERABILITY OF LICENSES
The terms of the Company's affiliate's license agreements contain
provisions whereby the operating company must achieve certain levels of network
build out. If such commitments are not met, the Company's affiliate could be
subject to fines, and in certain circumstances the revocation of the applicable
licenses.
Compliance with the terms of these licenses and certain regulatory
requirements can be difficult to meet. In addition, there can be no assurance
that in the future all regulatory requirements will be met or that the Company's
affiliate will not lose any applicable licenses as a result of its failure to
meet such requirements.
F-51
<PAGE> 134
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LEASE COMMITMENTS
The Company leases its office facility and certain office furniture under a
non-cancelable operating lease. The lease term expires July 14, 2000. Future
minimum rental payments under the lease for such office facility are as follows
as of December 31, 1998:
<TABLE>
<S> <C>
1999........................................................ $ 98,796
2000........................................................ 53,515
--------
$152,311
========
</TABLE>
LITIGATION
In the normal course of business, the Company is subject to, and may become
a party to, litigation. The Company is currently not party to any litigation.
(5) INVESTMENT IN AFFILIATE CONDENSED FINANCIAL INFORMATION
The Company formed two joint ventures with four other parties which applied
for and won in a public auction, two Brazilian competitive local exchange
carrier licenses, one for the Sao Paulo region and one for the northeast region
(which comprises 16 states) of Brazil. A description of the companies and their
condensed Financial Statements as of June 30, 1999 follow:
The Company holds a 34.4% interest in Mirror Holding S.A. Mirror Holding
owns a 99% interest in Mirror S.A. which is the entity that was awarded the
mirror license for the northeast region of Brazil on February 4, 1999. Condensed
financial information for Mirror S.A., stated in U.S. dollars is as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, 1999
-------------
(UNAUDITED)
<S> <C>
Current assets.............................................. $10,397,000
Non-current assets.......................................... 39,702,000
-----------
Total assets...................................... $50,099,000
===========
Current liabilities......................................... 12,562,000
Non-current liabilities..................................... 11,382,000
Stockholders' equity........................................ 26,155,000
-----------
Total liabilities and stockholders' equity........ $50,099,000
===========
Revenue..................................................... 16,000
Expenses.................................................... 3,735,000
-----------
Net loss.......................................... $(3,719,000)
===========
</TABLE>
F-52
<PAGE> 135
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company holds a 35.3% interest in Megatel Holding S.A. Megatel Holding
owns a 99% interest in Megatel do Brasil S.A. which is the entity that was
awarded the mirror license for the Sao Paulo region of Brazil on May 5, 1999.
Condensed financial information for Megatel do Brasil S.A. stated in U.S.
dollars is as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, 1999
-------------
(UNAUDITED)
<S> <C>
Current assets.............................................. $ 1,940,000
Non-current assets.......................................... 40,761,000
-----------
Total assets...................................... $42,701,000
===========
Current liabilities......................................... 12,862,000
Non-current liabilities..................................... 12,187,000
Stockholders' equity........................................ 17,652,000
-----------
Total liabilities and stockholders' equity........ $42,701,000
===========
Revenue..................................................... $ --
Expenses.................................................... 459,000
-----------
Net loss.......................................... $ (459,000)
===========
</TABLE>
(6) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ --------
<S> <C> <C>
Furniture and office equipment.............................. $20,863 $ 69,205
Computer equipment.......................................... 25,735 42,936
Leasehold improvements...................................... -- 13,689
------- --------
46,598 125,830
Less- accumulated depreciation.............................. (1,026) (16,755)
------- --------
$45,572 $109,075
======= ========
</TABLE>
(7) STOCK OPTIONS
The Company maintains a stock option plan (the "Plan") which provides for
the grant of stock options, restricted stock awards and other stock grants to
directors, key employees, and consultants to purchase common stock of the
Company. The Plan, amended May 7, 1999 allows for 3,300,000 options available
for grant. Under the Plan, incentive stock options are granted at an exercise
price not less than the fair market value of the common stock on the date of the
grant, as determined by the Company's Board of Directors.
F-53
<PAGE> 136
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of stock option transactions:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Outstanding at April 29, 1998............................... -- $ --
Granted................................................... 1,110,000 1.37
Exercised................................................. -- --
Forfeited................................................. -- --
--------- -----
Outstanding at December 31, 1998............................ 1,110,000 1.37
Granted (unaudited)....................................... 1,517,000 2.49
Exercised (unaudited)..................................... -- --
Forfeited (unaudited)..................................... -- --
--------- -----
Outstanding as of June 30, 1999 (unaudited)................. 2,627,000 $2.02
========= =====
</TABLE>
At December 31, 1998 there were 2,190,000 options available for grant under
the Plan. Outstanding options typically vest over four years and expire ten
years from the date of grant. The weighted-average grant date fair value during
1998 and through June 30, 1999 (unaudited) is $.22 and $.52 per option,
respectively. All options granted during 1998 and the six months ended June 30,
1999, were granted with an exercise price equal to the fair value of common
stock.
The following table summarizes information about stock options as of
December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE OPTIONS OPTIONS
EXERCISE PRICE OUTSTANDING EXERCISABLE
-------------- ----------- -----------
<S> <C> <C> <C>
December 31, 1998................................. $1.37 1,110,000 56,927
----- --------- ------
$1.37 1,110,000 56,927
===== ========= ======
</TABLE>
The following table summarizes unaudited information about stock options as
of June 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE OPTIONS OPTIONS
EXERCISE PRICE OUTSTANDING EXERCISABLE
-------------- ----------- -----------
<S> <C> <C> <C>
June 30, 1999 (unaudited)......................... $2.02 2,627,000 265,427
----- --------- -------
$2.02 2,627,000 265,427
===== ========= =======
</TABLE>
Fair values of employee options are estimated on the date of grant using
the Black-Scholes single-option pricing model. The fair value of each option
granted to employees was estimated on the date of grant using the following
weighted-average assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 JUNE 30, 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
Estimated dividends...................................... None None
Risk-free interest rate.................................. 4.25%-4.56% 4.56%-5.63%
Expected life............................................ 4 years 4 years
Expected volatility...................................... 0% 0%
</TABLE>
F-54
<PAGE> 137
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB 25 in accounting for its stock compensation plan,
and accordingly no compensation expense has been recognized in the financial
statements for options granted to employees at or above fair value.
Had the Company recognized compensation cost for options granted to
employees based on the fair value of the options granted as of the grant date as
prescribed by Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), net loss would have increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM CUMULATIVE
APRIL 29, 1998 FROM APRIL 29,
(INCEPTION) TO SIX MONTHS ENDED 1998 (INCEPTION)
DECEMBER 31, JUNE 30, 1999 TO JUNE 30, 1999
1998 (UNAUDITED) (UNAUDITED)
------------------- ---------------- ----------------
NET LOSS NET LOSS NET LOSS
------------------- ---------------- ----------------
<S> <C> <C> <C>
As reported.................................. $(844,190) $(2,723,829) $(3,568,019)
Pro forma.................................... $(854,580) $(2,853,073) $(3,707,653)
</TABLE>
(8) CAPITAL STOCK
COMMON STOCK
As of December 31, 1998, the Company had issued a total of 3,155,000 shares
of common stock, resulting in net proceeds to the Company of $3,155,000. The par
value is $.01 per share. Each share of common stock constitutes one vote at any
annual or special meeting, or action by written consent.
PREFERRED STOCK
The Company may issue from time to time shares of preferred stock in one or
more series with designations, rights, preferences and limitations established
by the Company's Board of Directors. The Company is authorized to issue
20,000,000 shares of $0.01 par value of preferred stock as of June 30, 1999.
During 1999, the Company completed private placements of Series A
mandatorily redeemable preferred stock ("Series A preferred stock"). Total net
proceeds to the Company as a result of these private placements was
approximately $45,000,000. The Series A preferred stock votes with, and in the
same manner as, the shares of voting common stock of the Company, not as a
special class except in respect of certain matters.
Holders of preferred stock are entitled to dividends in amounts determined
by the Board of Directors. No distributions may be made to holders of common
stock until all dividends declared, if any, on the preferred stock have been
paid.
Each share of Series A preferred stock is convertible, at the option of the
holder, into shares of the Company's common stock at the rate currently of one
share of common stock for each share of Series A preferred stock. This
conversion rate is subject to adjustment based on a formula to prevent dilution.
Each share of Series A preferred stock is automatically convertible into common
stock immediately prior to the closing of a public offering which meets certain
conditions. The Company is obligated to redeem: (1) 33 1/3% of the
then-outstanding shares of Series A preferred stock on the sixth anniversary of
the first date of issuance, (2) 50% of the then-outstanding shares of Series A
preferred stock on the seventh anniversary of the first date of issuance, and
(3) all remaining shares of Series A preferred stock on the eighth anniversary.
The redemption price for the Series A preferred stock is $3.00 per share as of
June 30, 1999.
F-55
<PAGE> 138
VELOCOM INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) SUBSEQUENT EVENTS
On September 27, 1999, the Company completed a number of transactions that
are in total referred to as the "Roll-Up Transactions."
The Company and SLI Wireless S.A. ("SLI") executed an agreement whereby the
Company acquired from SLI (a) the 12.5% interest and 12.8% interest in Mirror
Holding and Megatel Holding, respectively, (b) a 100% interest in and a 50%
interest in two Argentine license holding companies, (c) a 55% interest in a
Delaware operating company (operating in Argentina), Telelatina Management
Company ("Telelatina") and (d) a 10% indirect interest in a Colombian license
holding company. In addition, SLI paid approximately $13,838,000 to the Company.
In consideration for these assets and cash, the Company issued to SLI 4,330,709
shares of common stock and 7,840,000 shares of Series A preferred stock.
The Company and Formus Communications Inc. ("Formus") executed an agreement
whereby the Company acquired (a) license holding companies in Argentina,
Colombia and Peru, (b) companies with pending license applications in Chile,
Venezuela and Bolivia and (c) a 29.6% interest in Telelatina. In addition,
Formus paid approximately $20,834,000 to the Company. In consideration for these
assets and cash, the Company issued to an affiliate of Formus 1,574,803 shares
of common stock and 7,866,333 shares of Series A preferred stock.
The Company and Taquari Participacoes S.A. ("Taquari") executed an
agreement whereby the Company acquired (a) the 2.5% interest in Mirror Holding
and the right to purchase 1.25% of the outstanding shares in Megatel Holding. In
addition, Taquari will contribute cash of approximately $3,280,000. In
consideration for these assets and cash, the Company issued to Taquari and an
affiliate 1,673,228 shares of common stock.
The Company acquired from PCN do Brasil ("PCN") and Inepar S/A Industria e
Construcoes ("INEPAR") (a) Inepar's 15% interest in an Argentine license holding
company, (b) PCN's 15% interest in Telelatina, (c) PCN's 35% interest in an
Argentine license holding company and (d) PCN's 15% indirect interest in a
Colombian license holding company. In consideration for these assets, the
Company paid to INEPAR, approximately $657,000 and paid to PCN approximately
$1,718,000. In addition, the Company issued approximately $13,626,000 worth of
7% secured promissory notes payable due on November 10, 1999.
As a result of these Roll-Up Transactions, the Company increased its
ownership interest to approximately 49% in each Mirror Holding and Megatel
Holding and owns 100% of Telelatina, an operating company expecting to launch
commercial data and internet access services in 2000 and also acquired a number
of other licenses and license applications in the various countries noted above.
F-56
<PAGE> 139
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[FORMUS LOGO]
SHARES OF CLASS A COMMON STOCK
--------------------
PROSPECTUS
--------------------
DONALDSON, LUFKIN & JENRETTE SALOMON SMITH BARNEY
---------------------
CREDIT SUISSE FIRST BOSTON DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the company
have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all
dealers that effect transactions in these securities may be required to deliver
a prospectus. This is an addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter in the offering and when selling
previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 140
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities
offered hereby, other than underwriting discounts and commissions. All of the
amounts shown are estimated except the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 66,000
National Association of Securities Dealers, Inc. filing
fee....................................................... 25,500
Nasdaq National Market listing fee.......................... *
Transfer agent's and registrar's fees....................... *
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky filing fees and expenses........................... *
Miscellaneous expenses...................................... *
----------
Total............................................. $2,500,000
==========
</TABLE>
- ------------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations. The
Registrant's Bylaws include provisions to require the Registrant to indemnify
its directors and officers to the fullest extent permitted by Section 145,
including circumstances in which indemnification is otherwise discretionary.
Section 145 also empowers the Registrant to purchase and maintain insurance that
protects its officers, directors, employees and agents against any liabilities
incurred in connection with their service in such positions.
The form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification by the Underwriters of the
Registrant and its directors and officers, and by the Registrant of the
Underwriters, for certain liabilities arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to securities issued or sold by the
Registrant within the last three years. During that time, the Registrant has
issued unregistered securities in the transactions described below. Securities
issued in such transaction were offered and sold in reliance upon the exemption
from registration under Section 4(2) of the Securities Act, relating to sales by
an issuer not involving any public offering, or under Rule 701 under the
Securities Act. The sales of securities were made without the use of an
underwriter and the certificates evidencing the shares bear a restrictive legend
permitting the transfer thereof only upon registration of the shares or an
exemption under the Act.
(1) From April 1997 to the present, we have granted options to purchase an
aggregate of 5,227,508 shares of common stock to employees, directors and
consultants pursuant to the Formus Communications, Inc. Equity Incentive Plan
dated April 15, 1997, as amended.
(2) On August 1, 1997 the Company issued an aggregate of 527,680 shares of
common stock to eight employees for an aggregate purchase price of $527,680.
II-1
<PAGE> 141
(3) On February 28, 1997, the Company entered into an Amended and Restated
Common Stock Purchase Agreement for the sale of an aggregate 2,382,000 shares of
Common Stock to seven institutional investors and one sophisticated investor for
an aggregate purchase price of $2,382,000.
(4) On August 13, 1997, the Company entered into a Stock Purchase and
Accession Agreement for the sale of an aggregate 33,500 shares of Common Stock
to three institutional investors for an aggregate purchase price of $33,500.
(5) On August 13, 1997, the Company entered into a Preferred Stock Purchase
Agreement, as amended on November 7, 1997, for the sale of an aggregate
18,576,000 shares of Series A Preferred Stock and an aggregate 4,704,000 shares
of Series B Preferred Stock to 21 institutional investors and other
sophisticated investors for an aggregate purchase price of $58,200,000.
(6) On September 28, 1998, the Company entered into a Preferred Stock
Purchase Agreement for the sale of an aggregate 6,424,528 shares of Series C
Preferred Stock and an aggregate 718,330 shares of Series D Preferred Stock to
19 institutional investors for an aggregate purchase price of $25,000,003.
(7) On September 3, 1999, the Company issued an aggregate 9,075,772 shares
of Series E Preferred Stock and an aggregate 7,295,780 shares of Series F
Preferred Stock, along with $100,000 in cash, in exchange for the remaining
equity interest in Callino GmbH and its Dutch holding company that the Company
did not own.
(8) On September 3, 1999, the Company entered into a Preferred Stock
Purchase Agreement for the sale of an aggregate 10,369,266 shares of Series E
Preferred Stock and an aggregate 1,215,551 shares of Series F Preferred Stock to
54 institutional investors and other sophisticated investors for an aggregate
purchase price of $115,848,170.
(9) On September 9, 1999, the Company issued to Intel Corporation a warrant
to purchase 1,250,000 shares of Series E Preferred Stock in connection with
Intel's execution of a marketing assistance agreement.
(10) In May 2000, the Company entered into a Preferred Stock Purchase
Agreement for the sale of an aggregate 14,000,000 shares of Series G Preferred
Stock to 31 institutional investors and other sophisticated investors for an
aggregate purchase price of $175 million.
(11) In May 2000, the Company entered into a Warrant Agreement to issue
warrants to purchase 600,000 shares of common stock to the purchasers of the
Company's senior secured notes. Upon completion of this offering, warrants to
purchase 300,000 shares will be cancelled and the exercise price of remaining
warrants will be adjusted to equal the purchase price of this offering.
The issuances described in paragraphs (2) through (10) above were deemed to
be exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act as transactions by an issuer not involving a public
offering. The sales of securities described in paragraph (1) above were deemed
to be exempt from the registration requirements of the Securities Act in
reliance on Rule 701 promulgated under Section 3(b) of the Securities Act as
transactions by an issuer pursuant to compensatory benefit plans and contracts
relating to compensation as provided under Rule 701. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to information about the Company.
II-2
<PAGE> 142
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Purchase Agreement among Formus Communications, Inc.
("Formus"), Formus International, Inc. ("Formus
International") and VeloCom Inc. dated as of August 20,
1999.(1)
2.2 Exchange Agreement among Formus, Formus International, and
the Shareholders listed on Schedule 1 dated as of August 30,
1999.
3.1* Form of Amended and Restated Certificate of Incorporation of
Formus.
3.2* Bylaws of Formus.
4.1* Specimen stock certificates for shares of Common Stock of
Formus.
4.2 Employee Stockholders Agreement among Formus and the
individuals identified on the Exhibit dated as of August 1,
1997.(1)
4.3 Fifth Amended and Restated Investors' Rights Agreement among
Formus and certain holders of stock listed on Schedule A
dated May 2000.
4.4 Warrant to Purchase Series E Preferred Stock of Formus dated
as of September 9, 1999.
4.5* Warrant Agreement dated May, 2000, among Formus
Communications Inc., DLJ Bridge Finance, Inc., Salomon
Brothers Holding Company Inc. and Credit Suisse First
Boston.
4.6 Formus Polska Sp. z o.o. Shareholders Agreement dated as of
November 1997 between Formus International-Poland, Inc. and
Elmedia Sp. z o.o.
5.1* Opinion of Holme Roberts & Owen LLP, regarding legality of
securities being registered.
8.1* Opinion of Holme, Roberts & Owen LLP, regarding certain U.S.
tax matters.
10.1 License of the License Category 3, Registration No.
98030188, dated September 8, 1998, as amended by Notice of
Change dated March 24, 1999.(1)
10.2 License of the License Category 4, Registration No.
98040578, dated March 31, 1998, as amended by Notice of
Change dated July 22, 1998.(1)
10.3 Certificate Provisional Frequency Allocation No. 98370188
dated July 21, 1999, and Allocation No. 98370059.(1)
10.4 Concession and Permission No. 300/97/TI dated October 31,
1997, as amended by Decision Number T-585/k-300(1)/98.(1)
10.5 Formus Communications, Inc. Equity Incentive Plan effective
as of April 15, 1997, as amended.(1)
10.6 Form of Stock Option Agreement.(1)
10.7 Letter Agreement between Osmo A. Hautanen ("Hautanen") and
Formus dated July 1, 1998.(1)
10.8 Employment Separation Agreement and General Release of Legal
Rights dated November 30, 1999, between Osmo A. Hautanen and
Formus.
10.9 Severance Agreement between Vernon F. Kenley and Formus
Communications, Inc. dated May 1, 1999.(1)
10.10 Form of Letter Agreement between Formus and employees.(1)
</TABLE>
II-3
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.11* EUR120 million Multi-Tranche Secured Senior Facility Agreement
among Formus Polska Sp. z o.o., as borrower, Westdeutsche
Landesbank (France) S.A., as facility agent, Westdeutsche
Landesbank Polska S.A., as security trustee, and each of the
financial institutions listed in Schedule 1, dated September
15, 1999.
10.12 Loan Agreement dated as of May 2, 2000 among Formus, the
guarantors and lenders named therein, DLJ Bridge Finance,
Inc., Salomon Smith Barney Inc. and Credit Suisse First
Boston.
21.1 Subsidiaries of Formus Communications, Inc.
23.1 Consent of Arthur Andersen LLP (Formus Communications, Inc.)
23.2 Consent of Arthur Andersen Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft (Callino GmbH)
23.3 Consent of Arthur Andersen LLP (VeloCom Inc.)
23.4* Consent of Holme Roberts & Owen LLP(included as part of
Exhibit 5.1)
24.1 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment.
(1) Incorporated by reference from Registrant's Registration Statement on Form
S-1 dated October 7, 1999, File No. 333-88567, and incorporated by
reference.
(b) Financial Statement Schedules:
None.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of its Charter or Bylaws or the Delaware
General Corporation Law or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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-4
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act, the undersigned has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and County of Denver,
Colorado, on the 5th day of May, 2000.
FORMUS COMMUNICATIONS, INC.
By: /s/ BERNARD G. DVORAK
----------------------------------
Bernard G. Dvorak
Interim Chief Executive Officer,
Senior Vice President and Chief
Financial Officer and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ BERNARD G. DVORAK Interim Chief Executive Officer, May 5, 2000
- ----------------------------------------------------- Senior Vice President, Chief
Bernard G. Dvorak Financial Officer and Secretary
(Principal Executive and
Financial Officer)
* Chairman of the Board of May 5, 2000
- ----------------------------------------------------- Directors
William J. Elsner
Director May , 2000
- -----------------------------------------------------
Andre De Montigny
* Director May 5, 2000
- -----------------------------------------------------
Steven C. Halstedt
* Director May 5, 2000
- -----------------------------------------------------
Michael R. Hannon
* Director May 5, 2000
- -----------------------------------------------------
Osmo A. Hautanen
* Director May 5, 2000
- -----------------------------------------------------
Michael Honig
* Director May 5, 2000
- -----------------------------------------------------
William A. Johnston
* Director May 5, 2000
- -----------------------------------------------------
Kevin J. Maroni
* Director May 5, 2000
- -----------------------------------------------------
Jeffrey D. Montgomery
* Director May 5, 2000
- -----------------------------------------------------
Trygve E. Myhren
</TABLE>
II-5
<PAGE> 145
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Director May 5, 2000
- -----------------------------------------------------
Frederick A. Vierra
* Director May 5, 2000
- -----------------------------------------------------
James F. Wade
* Corporate Controller (Principal May 5, 2000
- ----------------------------------------------------- Accounting Officer)
Eric B. Alexander
*By: /s/ BERNARD G. DVORAK
------------------------------------------------
Bernard G. Dvorak
attorney-in-fact
</TABLE>
II-6
<PAGE> 146
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Purchase Agreement among Formus Communications, Inc.
("Formus"), Formus International, Inc. ("Formus
International") and VeloCom Inc. dated as of August 20,
1999.(1)
2.2 Exchange Agreement among Formus, Formus International, and
the Shareholders listed on Schedule 1 dated as of August 30,
1999.
3.1* Form of Amended and Restated Certificate of Incorporation of
Formus.
3.2* Bylaws of Formus.
4.1* Specimen stock certificates for shares of Common Stock of
Formus.
4.2 Employee Stockholders Agreement among Formus and the
individuals identified on the Exhibit dated as of August 1,
1997.(1)
4.3 Fifth Amended and Restated Investors' Rights Agreement among
Formus and certain holders of stock listed on Schedule A
dated May 2000.
4.4 Warrant to Purchase Series E Preferred Stock of Formus dated
as of September 9, 1999.
4.5* Warrant Agreement dated May, 2000, among Formus
Communications Inc., DLJ Bridge Finance, Inc., Salomon
Brothers Holding Company Inc. and Credit Suisse First
Boston.
4.6 Formus Polska Sp. z o.o. Shareholders Agreement dated as of
November 1997 between Formus International-Poland, Inc. and
Elmedia Sp. z o.o.
5.1* Opinion of Holme Roberts & Owen LLP, regarding legality of
securities being registered.
8.1* Opinion of Holme, Roberts & Owen LLP, regarding certain U.S.
tax matters.
10.1 License of the License Category 3, Registration No.
98030188, dated September 8, 1998, as amended by Notice of
Change dated March 24, 1999.(1)
10.2 License of the License Category 4, Registration No.
98040578, dated March 31, 1998, as amended by Notice of
Change dated July 22, 1998.(1)
10.3 Certificate Provisional Frequency Allocation No. 98370188
dated July 21, 1999, and Allocation No. 98370059.(1)
10.4 Concession and Permission No. 300/97/TI dated October 31,
1997, as amended by Decision Number T-585/k-300(1)/98.(1)
10.5 Formus Communications, Inc. Equity Incentive Plan effective
as of April 15, 1997, as amended.(1)
10.6 Form of Stock Option Agreement.(1)
10.7 Letter Agreement between Osmo A. Hautanen ("Hautanen") and
Formus dated July 1, 1998.(1)
10.8 Employment Separation Agreement and General Release of Legal
Rights dated November 30, 1999, between Osmo A. Hautanen and
Formus.
10.9 Severance Agreement between Vernon F. Kenley and Formus
Communications, Inc. dated May 1, 1999.(1)
10.10 Form of Letter Agreement between Formus and employees.(1)
10.11* E120 million Multi-Tranche Secured Senior Facility Agreement
among Formus Polska Sp. z o.o., as borrower, Westdeutsche
Landesbank (France) S.A., as facility agent, Westdeutsche
Landesbank Polska S.A., as security trustee, and each of the
financial institutions listed in Schedule 1, dated September
15, 1999.
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.12 Loan Agreement dated as of May 2, 2000 among Formus, the
guarantors and lenders named therein, DLJ Bridge Finance,
Inc., Salomon Smith Barney Inc. and Credit Suisse First
Boston.
21.1 Subsidiaries of Formus Communications, Inc.
23.1 Consent of Arthur Andersen LLP (Formus Communications, Inc.)
23.2 Consent of Arthur Andersen Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft (Callino GmbH)
23.3 Consent of Arthur Andersen LLP (VeloCom Inc.)
23.4* Consent of Holme Roberts & Owen LLP (included as part of
Exhibit 5.1)
24.1 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment.
(1) Incorporated by reference from Registrant's Registration Statement on Form
S-1 dated October 7, 1999, File No. 333-88567, and incorporated by
reference.
<PAGE> 1
Exhibit 2.2
EXCHANGE AGREEMENT
Dated as of August 30, 1999
Among
FORMUS COMMUNICATIONS, INC.,
FORMUS INTERNATIONAL, INC.
and
THE SHAREHOLDERS LISTED ON SCHEDULE 1 HERETO
<PAGE> 2
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT, (this "Agreement") dated as of August 30, 1999, by
and among Formus Communications, Inc. ("FCI"), Formus International, Inc.
("FII"), corporations incorporated under the laws of the State of Delaware, the
Direct Shareholders listed on Schedule 1 hereto (the "Direct Shareholders"),
Chase European Equity Associates II LLC, a Delaware limited liability company
("Chase II"), TCB Beteiligungs GmbH, a company incorporated under the laws of
the Federal Republic of Germany ("TCB" and, together with Chase II, the
"Indirect Shareholders" and, together with the Direct Shareholders, the
"Shareholders").
RECITALS
A. The Shareholders and FCI and FII desire to exchange the direct and indirect
interests in Callino GmbH, a company incorporated under the laws of the Federal
Republic of Germany ("Callino") for preferred stock of FCI, and to provide for
certain other matters.
B. One of the Direct Shareholders, Mr. Matthias Weber, as CEO of Callino, and
FCI and FII desire to extend and amend the agreement between Mr. Weber and
Callino, and to provide for certain other matters, all on the terms and
conditions set forth below.
AGREEMENT
ARTICLE I.
EXCHANGE OF STOCK
Section 1.1 Exchange of Stock.
(a) On the Closing Date (as defined below), subject to the
terms and conditions set forth in this Agreement, FCI will issue to FII and FII
will deliver or cause to be delivered to the Shareholders or their
representative a number of shares of FCI Series E Preferred Stock, par value
$.001 per share or FCI Series F Preferred Stock, par value $.001 per share
(collectively the "FCI Stock") and an amount of cash, in each case as set forth
opposite such Shareholder's name on Schedule 1. The shares of FCI Stock that FII
is so obligated to deliver, together with the shares of Stock that FII is
obligated to deliver pursuant to clause (c) of Section 1.2, are referred to as
the "Exchange Shares."
(b) Upon delivery of the Exchange Shares to the Shareholders
at the Closing, subject to the terms and conditions set forth in this Agreement,
each of the Direct Shareholders shall deliver to FII or its designee the shares
owned by them in Callino set forth opposite such Direct Shareholder's name on
Schedule 1 hereto ("Callino Shares"), and each of the Indirect Shareholders
shall deliver to FII or its designee their entire interests in Formus
Communications-
<PAGE> 3
Germany B.V. ("Formus B.V."), a private company formed under the laws of The
Netherlands, set forth opposite such Indirect Shareholder's name on Schedule 1
hereto (the "Formus B.V. Shares").
Section 1.2 Closing.
(a) The exchange of shares referred to in Section 1.1 and the
consummation of all other transactions contemplated by this Agreement (the
"Closing") shall take place at 10:00 A.M. at the offices of Holme Roberts & Owen
LLP, located at 1700 Lincoln Street, Suite 4100, Denver, Colorado, as soon as
practicable, and in no event later than five business days following the
satisfaction or waiver (by the party so entitled to waive) of the conditions to
Closing for some or all Shareholders (subject to completion of all corporate
requirements necessary to issue the Exchange Shares and all other conditions),
or at such other time and place, or on such other date, not later than September
15, 1999, as the parties hereto shall agree in writing. Such date is herein
referred to as the "Closing Date."
(b) At the Closing, (i) FII shall deliver or cause to be
delivered to each of the Shareholders (and in the case of 1,154,410 shares of
stock issuable to Mr. Weber, to the Escrow Agent, as defined in the Extension
Agreement) a certificate or certificates for the Exchange Shares registered in
the name of such Shareholder and in such denominations as such Shareholder shall
designate in writing, (ii) each Direct Shareholder shall take or cause to be
taken all necessary action to cause the transfer of the Callino Shares
(including all rights with respect thereto) to FII or its designee including
without limitation the execution of a notarized assignment deed which shall be
valid upon receipt of the Exchange Shares, and (iii) each Indirect Shareholder
shall take or cause to be taken all necessary action to cause the transfer of
the Formus B.V. Shares to FII or its designee. Appropriate deeds of transfer and
assignment will be executed and notarized and the transfer will be recorded in
the books and records of the subject company regarding the assignment to FII or
its designee of the Callino Shares and the Formus B.V. Shares. The Callino
Shares and the Formus B.V. Shares are referred to collectively as the "Exchanged
Interests."
(c) At the Closing Mr. Weber shall execute and deliver to
Callino and FCI and FII an agreement (the "Extension Agreement"), in the form
attached hereto as Exhibit A, (i) extending the expiration date of the agreement
between him and Callino (then ARCIS MediaCom Management GmbH) dated January 14,
1999 from its current expiration date of June 30, 2000, to December 31, 2000,
(ii) terminating any other agreements among Mr. Weber, Callino, the
Shareholders, or any of them, including, without limitation, all agreements that
would entitle Mr. Weber to acquire any equity interest in Callino or any
subsidiary or affiliate of Callino or any other entity (other than equity
interests of FCI to be acquired pursuant to this Agreement) and (iii) providing
for certain other matters. In exchange for executing, delivering and performing
the Extension Agreement, Formus will deliver to Mr. Weber 1,154,410 Exchange
Shares at Closing.
(d) At the Closing, as additional consideration to be paid by
FII to the Shareholders hereunder, FII shall pay the cash consideration set
forth opposite such
2
<PAGE> 4
Shareholder's name on Schedule 1. Such payment shall be made by delivery of a
certified check in the amount of US$100,000, payable to Dr. Michael Hoenig, as
the duly authorized representative of the Shareholders for such purpose.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of FCI and FII. Each of FCI
and FII hereby represent and warrant to Shareholders as follows, except as shown
on Schedules of Exception (the "Schedule") attached hereto:
(a) Organization, Good Standing and Qualification. Each of FCI
and FII is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each has (or will have in the case of
agreements to be signed at closing) all requisite corporate power and authority
to own and operate its properties and assets, to execute and deliver this
Agreement and, in the case of FCI, an Investors' Rights Agreement of FCI (the
"Investors' Rights Agreement") and a Stockholder Agreement of FCI (the
"Stockholder Agreement" and together with the Investors' Rights Agreement, the
"Related Agreements"), in each case substantially in the form made available to
the Shareholders or their representatives on the date hereof, to issue and sell
the Exchange Shares and to carry out the provisions of this Agreement, the
Related Agreements and the Restated Certificate of Incorporation of FCI (the
"Restated Certificate") and to carry on its business as presently conducted and
as presently proposed to be conducted. Each is duly qualified and is authorized
to do business and is in good standing in each jurisdiction in which the nature
of its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on FCI, FII or their business. FCI
does not own, directly or indirectly, equity securities of any other
corporation, limited partnership, limited liability company or other similar
entity. FCI is not a participant in any joint venture, partnership or similar
arrangement.
(b) Capitalization; Voting Rights. The authorized capital
stock of FCI is set forth on Section 2.1(b) of the Schedule. All issued and
outstanding shares of FCI's capital stock (i) have been duly authorized and
validly issued, (ii) are fully paid and nonassessable, and (iii) were issued in
compliance with all applicable state and federal laws concerning the issuance of
securities. The rights, preferences, privileges and restrictions of the Exchange
Shares will be substantially as stated in the term sheet delivered to
Shareholders or their representative. Except as may be granted pursuant to the
Related Agreements, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), proxy
or stockholder agreements, or agreements of any kind for the purchase or
acquisition from FCI of any of its securities. When issued in compliance with
the provisions of this Agreement and the Restated Certificate, the Exchange
Shares will be validly issued, fully paid and nonassessable, and will be free of
any liens or encumbrances; provided, however, that the Exchange Shares may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein or in the Related Agreements or as otherwise required by
such laws at the time a transfer is
3
<PAGE> 5
proposed. The authorized capital stock of the subsidiaries of FCI (the
"Subsidiaries") is as set forth on Section 2.1(b) to the Schedule. All issued
and outstanding shares of each of the Subsidiaries (i) have been duly authorized
and validly issued, (ii) are fully paid and nonassessable, and (iii) were issued
in compliance with all applicable state and federal laws concerning the issuance
of securities. There are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or agreements of any kind for the purchase or
acquisition from the Subsidiaries of any of their securities.
(c) Authorization; Binding Obligations. All corporate action
on the part of FCI and FII, its officers, directors and stockholders necessary
for the authorization of this Agreement and the Related Agreements, the
performance of all obligations of each hereunder and thereunder at the Closing
and the authorization, sale, issuance and delivery of the Exchange Shares
pursuant hereto has been taken or will be taken prior to the Closing. The
Agreement and the Related Agreements, when executed and delivered, will be valid
and binding obligations of each of FCI and FII enforceable in accordance with
their terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; (ii) general principles of equity that
restrict the availability of equitable remedies; and (iii) to the extent that
the enforceability of the indemnification provisions in Section 2.9 of the
Investors' Rights Agreement may be limited by applicable laws.
(d) Financial Statements. FCI's unaudited consolidated balance
sheet as of June 30, 1999, (the "Latest Balance Sheet") and unaudited
consolidated statements of operations of the FCI for the period from January 1,
1999 to June 30, 1999 (the "Statement Date") delivered to Shareholders or their
representative (the "Financial Statements") fairly present in all material
respects the financial position and the results of operations of FCI for the
period covered thereby.
(e) Liabilities. None of FCI, FII nor the Subsidiaries has any
material liabilities and, to the best of its knowledge, FCI knows of no material
contingent liabilities not disclosed in the Latest Balance Sheet, except current
liabilities incurred in the ordinary course of business subsequent to the
Statement Date that have not been, either in any individual case or in the
aggregate, materially adverse.
(f) Investments in United States Real Property Interests.
FCI's capital stock does not constitute a United States real property interest
as that term is defined in Section 897(c)(1)(A)(ii) of the Internal Revenue Code
of 1986, as amended (the "Code"). The preceding representation is based on a
determination by FCI that FCI is not and has not been a United States real
property holding corporation (as that term is defined in Section 897(c)(2) of
the Code) during the five (5) year period preceding the date of this Agreement.
If at any time in the future FCI should become a United States real property
holding corporation, FCI shall, as promptly as possible, notify each Shareholder
of such change in status.
(g) Agreements; Action.
4
<PAGE> 6
(1) There are no agreements, understandings or
proposed transactions between FCI, FII or the Subsidiaries and any of their
respective officers, directors or any affiliate thereof other than agreements
explicitly contemplated hereby and agreements between FCI and its employees with
respect to employment or the sale of FCI's Common Stock.
(2) There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which FCI, FII or any Subsidiary is a party or to FCI's knowledge by
which they are bound that may involve (i) obligations (contingent or otherwise)
of, or payments to, FCI in excess of $100,000 or (ii) the license of any
telecommunications frequency or spectrum, patent, copyright, trade secret or
other proprietary right to or from FCI (other than licenses arising from the
purchase of "off the shelf" or other standard products), or (iii) provisions
restricting or affecting the development, manufacture or distribution of
products or services, or (iv) indemnification by FCI, FII or any Subsidiary with
respect to infringements of proprietary rights (other than indemnification
obligations arising from purchase or sale agreements entered into in the
ordinary course of business).
(3) None of FCI, FII nor the Subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of their capital stock, (ii) since the
Statement Date incurred any indebtedness for money borrowed or any other
liabilities (other than with respect to dividend obligations, distributions,
indebtedness and other obligations incurred in the ordinary course of business
or as disclosed in the Financial Statements) individually in excess of $50,000
or, in the case of indebtedness and/or liabilities individually less than
$50,000, in excess of $100,000 in the aggregate, (iii) made any loans or
advances to any person, other than ordinary advances for travel expenses or bona
fide loans to wholly-owned subsidiaries, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(4) For the purposes of subsections (2) and (3)
above, all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities FCI has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.
(5) None of FCI, FII nor any Subsidiary has engaged
in the past twelve (12) months in any discussion (i) with any representative of
any corporation or corporations regarding the consolidation or merger of FCI,
FII or any Subsidiary with or into any such corporation or corporations, (ii)
with any corporation, partnership, association or other business entity or any
individual regarding the sale, conveyance or disposition of all or substantially
all of the assets of FCI, FII or any Subsidiary, or a transaction or series of
related transactions in which more than fifty percent (50%) of the voting power
of FCI, FII or any Subsidiary is disposed of, or (iii) regarding any other form
of acquisition, liquidation, dissolution or winding up of FCI, FII or any
Subsidiary.
(h) Obligations to Related Parties. There are no obligations
of FCI, FII or any Subsidiary to officers, directors, stockholders, or employees
of FCI, FII or any Subsidiary other
5
<PAGE> 7
than (i) for payment of salary for services rendered since the commencement of
FCI's most recent payroll period, (ii) reimbursement for reasonable expenses
incurred on behalf of FCI, FII or any Subsidiary and (iii) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of FCI (the "Board"). None of the officers, directors or
stockholders of FCI, FII or any Subsidiary, or any members of their immediate
families, is indebted to FCI, FII or any Subsidiary or has any direct or
indirect ownership interest in any firm or corporation with which FCI, FII or
any Subsidiary is affiliated or with which FCI, FII or any Subsidiary has a
business relationship, or any firm or corporation that competes with FCI, FII or
any Subsidiary, except that officers, directors and/or stockholders of FCI or
members of their immediate families or any Subsidiary may own stock in publicly
traded companies that may compete with FCI, FII or any Subsidiary. No officer,
director or stockholder, or any member of their immediate families, is, directly
or indirectly, interested in any material contract with FCI, FII or any
Subsidiary (other than such contracts as relate to any such person's ownership
of capital stock or other securities of FCI). Except as may be disclosed in the
Financial Statements, none of FCI, FII nor any Subsidiary is a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
(i) Changes. Since the Statement Date, there has not been to
FCI's knowledge:
(1) any change in the assets, liabilities, financial
condition or operations of FCI, FII or any Subsidiary from that reflected in the
Financial Statements, other than changes in the ordinary course of business,
none of which individually or in the aggregate has had or is expected to have a
material adverse effect on such assets, liabilities, financial condition or
operations of FCI, FII or any Subsidiary;
(2) any resignation or termination of any key
officers of FCI, FII or any Subsidiary; and FCI, to the best of its knowledge,
does not know of the impending resignation or termination of employment of any
such officer;
(3) any material change, except in the ordinary
course of business, in the contingent obligations of FCI, FII or any Subsidiary
by way of guaranty, endorsement, indemnity, warranty or otherwise;
(4) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties,
business or prospects or financial condition of FCI, FII or any Subsidiary;
(5) any waiver by FCI, FII or any Subsidiary of a
valuable right or of a material debt owed to it;
(6) any direct or indirect loans made by FCI, FII or
any Subsidiary to any stockholder, employee, officer or director of FCI, FII or
any Subsidiary, other than advances made in the ordinary course of business;
6
<PAGE> 8
(7) any material change in any compensation
arrangement or agreement with any employee, officer, director or stockholder of
FCI, FII or any Subsidiary;
(8) any declaration or payment of any dividend or
other distribution of the assets of FCI, FII or any Subsidiary;
(9) any labor organization activity;
(10) any debt, obligation or liability incurred,
assumed or guaranteed by FCI, FII or any Subsidiary, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of business;
(11) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets of FCI, FII or
any Subsidiary;
(12) any change in any material agreement to which
FCI, FII or any Subsidiary is a party or by which it is bound that materially
and adversely affects the business, assets, liabilities, financial condition,
operations or prospects of FCI, FII or any Subsidiary, including compensation
agreements with FCI's, FII's or any Subsidiary's employees; or
(13) any other event or condition of any character
that, either individually or cumulatively, has materially and adversely affected
the business, assets, liabilities, financial condition, operations or prospects
of FCI, FII or any Subsidiary.
(j) Title to Properties and Assets; Liens, etc. Each of FCI,
FII and each of the Subsidiaries has good and marketable title to its properties
and assets, including the properties and assets reflected in the Latest Balance
Sheet included in the Financial Statements, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than (i) those resulting from taxes that have not yet become
delinquent, (ii) minor liens and encumbrances that do not materially detract
from the value of the property subject thereto or materially impair the
operations of FCI, FII or any Subsidiary, and (iii) those that have otherwise
arisen in the ordinary course of business. All facilities, machinery, equipment,
fixtures, vehicles and other properties owned, leased or used by FCI, FII and
the Subsidiaries are in good operating condition and repair and are reasonably
fit and usable for the purposes for which they are being used, reasonable wear
and tear excepted.
(k) Patents and Trademarks. Each of FCI, FII and the
Subsidiaries owns or possesses sufficient legal rights to all patents,
trademarks, service marks, trade names, copyrights, trade secrets, information
and other proprietary rights and processes necessary for its business as now
conducted and as proposed to be conducted, without any known infringement of the
rights of others. There are no outstanding options, licenses or agreements of
any kind relating to the foregoing, nor is FCI, FII or any Subsidiary bound by
or a party to any options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any
7
<PAGE> 9
other person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products. None of FCI, FII nor any
Subsidiary has received any communications alleging that FCI, FII or any
Subsidiary has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity. None
of FCI, FII nor any Subsidiary is aware that any of its or any of the
Subsidiaries' respective employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with their duties to FCI, FII or the Subsidiaries or that would
conflict with the FCI's, FII's or any Subsidiary's business as proposed to be
conducted. None of the execution nor delivery of this Agreement, nor the
carrying on of FCI's, FII's or the Subsidiaries' business by the employees of
FCI, FII and the Subsidiaries, nor the conduct of FCI's, FII's or the
Subsidiaries' businesses as proposed, will, to FCI's knowledge, conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any employee is
now obligated. FCI does not believe it is or will be necessary to utilize any
inventions, trade secrets or proprietary information of any of FCI's, FII's or
the Subsidiaries' employees made prior to their employment by FCI, FII or any
Subsidiary, except for inventions, trade secrets or proprietary information that
have been assigned to FCI, FII or the Subsidiaries.
(l) Compliance with Other Instruments. FCI is not in violation
or default of any term of its Restated Certificate or Bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ or, to its knowledge, any statute, rule or regulation
applicable to FCI that would materially and adversely affect the business,
assets, liabilities, financial condition, operations or prospects of FCI. Each
of FII and each of the Subsidiaries is not in violation or default of any term
of its certificate of incorporation, articles of incorporation, memorandum of
association, estatutos, deed of formation or bylaws, or of any provision of any
mortgage, indenture, contract, agreement, instrument or contract to which it is
party or by which it is bound or of any judgment, decree, order, writ or, to
FCI's knowledge, any statute, rule or regulation applicable to FII or to such
Subsidiary that would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of FII or such
Subsidiary. The execution, delivery, and performance of and compliance with this
Agreement, and the Related Agreements, and the issuance and sale of the Exchange
Shares pursuant hereto will not, with or without the passage of time or giving
of notice, result in any such material violation, or be in conflict with or
constitute a default under any such term, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of FCI, FII or any Subsidiary or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit license, authorization or approval
applicable to FCI, FII or any Subsidiary, their business or operations or any of
their assets or properties.
(m) Litigation. There is no action, suit, proceeding or
investigation pending or to FCI's knowledge currently threatened against FCI
that questions the validity of this Agreement or the Related Agreements, or the
right of FCI or FII to enter into any of such agreements, or to consummate the
transactions contemplated hereby or thereby. There is no action, suit,
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proceeding or investigation or to FCI's knowledge currently threatened against
FCI, FII or any Subsidiary that might result, either individually or in the
aggregate, in any material adverse change in the assets, condition, affairs or
prospects of FCI, financially or otherwise, or any change in the current equity
ownership of FCI or any Subsidiary, nor is FCI aware that there is any basis for
the foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to FCI) involving the prior employment
of any of the employees of FCI, FII or any Subsidiary, their use in connection
with FCI's business of any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements with
prior employers. None of FCI, FII nor any Subsidiary is a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality. There is no action, suit, proceeding or
investigation by FCI, FII or any Subsidiary currently pending or that FCI
intends to initiate.
(n) Tax Returns and Payments. Each of FCI, FII and each
Subsidiary has timely filed all material tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and to FCI's knowledge all other taxes due and
payable by FCI, FII and each Subsidiary on or before the Closing have been paid
or will be paid prior to the time they become delinquent. None of FCI, FII nor
any Subsidiary has been advised (i) that any of its returns, federal, state or
other, have been or are being audited as of the date hereof, or (ii) of any
deficiency in assessment or proposed judgment to its federal, state or other
taxes. FCI has no knowledge of any liability of any tax to be imposed upon the
properties or assets of FCI, FII or any Subsidiary as of the date of this
Agreement that is not adequately provided for.
(o) Employees. None of FCI, FII nor any Subsidiary has any
collective bargaining agreements with any of their employees. There is no labor
union organizing activity pending or, to FCI's knowledge, threatened with
respect to FCI, FII or any Subsidiary. No employee has any agreement or
contract, written or verbal, regarding his employment. None of FCI, FII nor any
Subsidiary is a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To FCI's knowledge, no employee of FCI, FII or any Subsidiary, nor
any consultant with whom FCI, FII or any Subsidiary has contracted, is in
violation of any material term of any employment contract, proprietary
information agreement or any other agreement relating to the right of any such
individual to be employed by, or to contract with, FCI, FII or any Subsidiary
because of the nature of the business to be conducted by FCI, FII or any
Subsidiary; and to FCI's knowledge the continued employment by FCI, FII and the
Subsidiaries of their respective present employees, and the performance of
FCI's, FII's and the Subsidiaries' contracts with their independent contractors
will not result in any such violation. None of FCI, FII nor any Subsidiary has
received any notice alleging that any such violation has occurred. No employee
of FCI, FII or any Subsidiary has been granted the right to continued employment
by FCI, FII or any Subsidiary or to any material compensation following
termination of employment with FCI, FII or any Subsidiary. None of FCI, FII nor
any Subsidiary is aware that any officer or key employee, or that any group of
key employees, intends to terminate their employment with FCI, FII or any
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Subsidiary, nor does FCI, FII or any Subsidiary have a present intention to
terminate the employment of any officer, key employee or group of key employees.
(p) Proprietary Information and Inventions Agreements. Each
former and current employee, officer and consultant of FCI, FII and the
Subsidiaries has executed a Proprietary Information and Invention Agreement in
substantially the form provided to Shareholders.
(q) Obligations of Management. Each officer of FCI, FII and
the Subsidiaries is currently devoting one hundred percent (100%) of such
officer's business time to the conduct of the business of FCI, FII or the
Subsidiaries. FCI is not aware of any officer or key employee of FCI, FII or the
Subsidiaries planning to work less than full time at FCI, FII or the
Subsidiaries in the future.
(r) Registration Rights. Except as required pursuant to the
Investors' Rights Agreement and the Stockholders Agreement, FCI is presently not
under any obligation, and has not granted any rights, to register (as defined in
Section 1.1 of the Investors' Rights Agreement) any of FCI's presently
outstanding securities or any of its securities that may hereafter be issued.
(s) Compliance with Laws; Permits. To FCI's knowledge, none of
FCI, FII nor any Subsidiary is in violation of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties that violation would materially and adversely
affect the business, assets, liabilities, financial condition, operations or
prospects of FCI, FII or the Subsidiaries. No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery of this Agreement and the issuance of the Exchange
Shares, except such as has been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be filed in
a timely manner. FCI, FII and the Subsidiaries have all franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects or financial condition of FCI, FII or
any Subsidiary and FCI believes FCI, FII and the Subsidiaries can obtain,
without undue burden or expense, any similar authority for the conduct of their
business as planned to be conducted.
(t) Environmental and Safety Laws. To FCI's knowledge, none of
FCI, FII nor any of the Subsidiaries is in violation of any applicable statute,
law or regulation relating to the environment or occupational health and safety,
and to FCI's knowledge, no material expenditures are or will be required in
order to comply with any such existing statute, law or regulation.
(u) Offering Valid. Assuming the accuracy of the
representations and warranties of the Shareholders contained in Section 2.2
hereof, the offer, sale and issuance of the Exchange Shares will be exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") and will have been registered or qualified (or are exempt from
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registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws. None of FCI, FII nor any
agent on its behalf has solicited or will solicit any offers to sell or has
offered to sell or will offer to sell all or any part of the Exchange Shares to
any person or persons so as to bring the sale of such Exchange Shares by FCI
within the registration provisions of the Securities Act.
(v) Full Disclosure. To FCI's knowledge and belief, this
Agreement, the Exhibits hereto, the Related Agreements and any certificate
delivered by FCI to Shareholders or their attorneys or agents or representative
in connection herewith or therewith or with the transactions contemplated hereby
or thereby, neither contain any untrue statement of a material fact nor, to
FCI's knowledge and belief, omit to state a material fact necessary in order to
make the statements contained herein or therein not misleading. To FCI's
knowledge and belief, there are no facts that (individually or in the aggregate)
materially adversely affect the business, assets, liabilities, financial
condition or operations of FCI that have not been set forth in the Agreement,
the Schedules hereto, the Related Agreements or in other documents delivered to
Shareholders or their attorneys or agents or representative in connection
herewith or disclosed orally to Shareholders by an executive officer of FCI.
(w) Minute Books. The minute books of FCI made available to
the Shareholders or their representatives contain a complete summary of all
meetings of directors and stockholders since the time of incorporation.
(x) Insurance. FCI has or will obtain promptly following the
Closing fire and casualty insurance policies with coverage customary for
companies similarly situated to FCI.
(y) Investment Company Act. FCI 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.
Section 2.2 Representations and Warranties of Shareholders. Each
Shareholder, severally and not jointly, hereby represents and warrants to FCI
and FII as follows:
(a) Ownership of Exchange Interest. On the date of this
Agreement such shareholder is, and the Closing Date such Shareholder will be,
the lawful owner of the Exchanged Interest set forth opposite such Shareholder's
name on Schedule 1, free and clear of all encumbrances. The delivery to FII of
the Exchanged Interest of such Shareholder pursuant to this Agreement will
transfer to FII valid title thereto, free and clear of any and all adverse
claims.
(b) Authorization and Validity of Agreement. Such Shareholder
has full power and authority to execute and deliver this Agreement and each
Related Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by such Shareholder (if other than an individual) and the
consummation of the transactions contemplated hereby, have been duly authorized
and approved, and no other action on the part of such Shareholder is necessary
to authorize the execution, delivery and performance of this Agreement and the
consummation of
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the transactions contemplated hereby. This Agreement has been duly executed and
delivered by such Shareholder and is a valid and binding obligation of such
Shareholder, enforceable against it in accordance with its terms, except to the
extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and to general equitable principles.
(c) Existence and Good Standing. Each Shareholder that is not
a natural person is duly organized and validly existing and has all the
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.
(d) Consents and Approvals; No Violations. The execution and
delivery of this Agreement by such Shareholder and the consummation of the
transactions contemplated hereby (1) will not violate any statute, rule,
regulation, order or decree of any public body or authority by which such
Shareholder or any of its properties or assets are bound, (2) will not require
any filing with, or permit, consent or approval of, or the giving of any notice
to, any governmental or regulatory body, agency or authority on or prior to the
Closing Date and (3) will not result in a violation or breach of, conflict with,
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation, payment or acceleration)
under, or result in the creation of any lien or other encumbrance upon any of
the properties or assets of such Shareholder under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, franchise,
permit, agreement, lease, franchise agreement or any other instrument or
obligation to which such Shareholder is a party, or by which it or any of its
properties or assets may be bound.
(e) Nature of Investment. Such Shareholder is acquiring the
Exchange Shares for its own account, for investment only and not with a view to,
or for sale in connection with, a distribution thereof within the meaning of the
Securities Act.
(f) No Knowledge of Violation.
(1) To the knowledge of each Direct Shareholder, the
business and operations of Callino have been conducted as required by law, the
charter and other regulations of Callino, and there is no default under the
Callino Shareholders Agreement dated September 10, 1998 among Callino and its
shareholders (the "Callino Shareholders Agreement") or any other agreement to
which the shareholders of Callino are parties.
(2) To the knowledge of each Indirect Shareholder,
there is no default under the Amended and Restated Shareholder's Agreement or
the Amended and Restated Investment Agreement, both of which are dated March 8,
1999 and are among Formus B.V. and its shareholders (the "Formus B.V. Investment
Agreement"; collectively with the Callino Shareholders Agreement, the "Callino
Agreements").
(g) No Other Interest. Each Shareholder acknowledges that it
has no direct or indirect economic or other interest in Callino or any of its
subsidiaries or affiliates or any right to
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acquire such interest, except for such Shareholder's Exchanged Interest and, as
to Mr. Weber only, those rights which are being terminated by the Extension
Agreement.
(h) Full Disclosure. To such Shareholder's knowledge and
belief, this Agreement, the Exhibits hereto, and any certificate delivered by or
on behalf of the Shareholders to FCI, FII or their attorneys or agents in
connection herewith or therewith or with the transactions contemplated hereby or
thereby, neither contain any untrue statement of a material fact nor, to such
Shareholder's knowledge and belief, omit to state a material fact necessary in
order to make the statements contained herein or therein not misleading
(excluding statements of FCI or FII, with respect to which no representation or
warranty is made). To such Shareholder's knowledge and belief, there are no
facts that (individually or in the aggregate) materially adversely affect the
business, assets, liabilities, financial condition or operations of Callino that
have not been set forth in the Agreement, the Schedules hereto, or in other
documents delivered to FCI or FII or their attorneys or agents in connection
herewith or disclosed orally to FCI or FII by an executive officer of Callino.
(i) Foreign Corrupt Practices Act. To the knowledge of each
Shareholder, neither Callino nor any of its subsidiaries (nor any of their
respective affiliates, directors, officers, employees, agents or subcontractors)
have committed any act that would violate applicable laws prohibiting bribery or
corruption in Germany or any act that, if committed by a U.S. person or entity,
would constitute a violation of the Foreign Corrupt Practices Act of the United
States of America ("FCPA"). Without limiting the generality of the foregoing, to
the knowledge of each Shareholder no such person has made any payment or given
or offered anything of value, directly or indirectly, to any government official
(including any director, employee or agent of any government department, agency
or instrumentality) to influence any of its decisions, or to gain any other
advantage.
ARTICLE III.
COVENANTS
Section 3.1 Reasonable Best Efforts. Each of the parties hereto agrees
to use its reasonable best efforts to take, or cause to be taken, all action, to
do or cause to be done, and to assist and cooperate with the other party hereto
in doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement, including, but not limited to, (a) the obtaining
of all necessary waivers, consents and approvals from governmental or regulatory
agencies or authorities and the making of all necessary registrations and
filings and the taking of all reasonable steps as may be necessary to obtain any
approval or waiver from, or to avoid any action or proceeding by, any
governmental agency or authority, (b) the obtaining of all necessary consents,
approvals or waivers from third parties and (c) the defending of any lawsuits or
any other legal proceedings whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated hereby including,
without limitation, seeking to having any temporary restraining order entered by
any court or administrative authority vacated or reversed.
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Section 3.2 Conduct of Business of FCI. During the period from the date
of this Agreement to the Closing Date, except as may be first approved by
Shareholders holding a majority of the Callino Shares (such approval not to be
unreasonably withheld or delayed) or as is otherwise permitted or required by
this Agreement, FCI agrees (a) to maintain its Restated Certificate and By-Laws
in their respective forms on the date of this Agreement, except for changes in
authorized capital and other changes that would not, in any case, adversely
affect the Exchange Shares, or the Conversion Shares, (b) to refrain from
declaring or paying any dividends except which are payable solely in FCI common
stock, and (c) to refrain from agreeing whether or not in writing, to do any of
the foregoing.
Section 3.3 Exchange Shares; Certificates. Each Shareholder
acknowledges that any certificate representing Exchange Shares and Conversion
Shares will bear the following legend:
The shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), and such securities may not be offered or
sold except (1) pursuant to an exemption from, or in a
transaction not subject to, the registration requirements
under the Securities Act or (2) pursuant to an effective
registration statement under the Securities Act, in each case
in accordance with any applicable securities laws of any State
of the United States.
Each Shareholder shall comply with the terms of the foregoing legend. Such
legend shall be removed from the certificates representing any such Exchange
Shares or Conversion Shares at the request of the holder thereof at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
Section 3.4 No Encumbrance. No Shareholder shall sell, encumber or
otherwise transfer or agree to transfer its Exchanged Interest or take or agree
to take any other action that would adversely affect its ability to perform its
obligations hereunder.
Section 3.5 Confidentiality. The parties hereto each agree not to
disclose to any third party the existence or contents of this Agreement or their
discussions regarding the transactions contemplated hereby, or any other
information obtained by such Shareholder as a result of such Person (including
the affiliates) being an officer, director or direct or indirect shareholder of
Callino, except to the extent reasonably necessary to complete such transactions
or as required by law. The parties further agree that any confidential
information they receive in their due diligence or otherwise in the course of
negotiating or completing the transactions contemplated by this Agreement, and
all confidential information received from any source regarding or related to
Callino (including its subsidiaries) will be kept confidential, will not be
disclosed to third parties (except those that have a need to know in order to
complete such transactions and who agree to keep such information confidential)
and will not be used for any purpose other than to complete the transactions
contemplated by this Agreement. This Section 3.5 will not apply to information
that (a) was in the public domain before the disclosing party disclosed it to
the receiving party, (b) entered the public domain through no fault of the
receiving party after the
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disclosing party disclosed it to the receiving party, (c) is required to be
disclosed under applicable law, (d) a party considers appropriate to disclose
under the securities laws of the United States of America; or (e) is disclosed
to potential purchasers of a Shareholder's Exchange Shares, including legal or
financial advisors retained by the Shareholder or potential purchaser in
connection with such sale (including potential sources of financing for the
purchase price of such Exchange Shares), provided each such potential purchaser,
advisor and lender signs a confidentiality agreement, in form and substance
satisfactory to FCI, prohibiting such potential purchaser, advisor or lender
from using such information for any other purpose or from disclosing such
information to any other Person or entity. In addition, this Section 3.5 will
not apply to disclosures made by FCI or any of its affiliates (i) in connection
with due diligence investigations by potential partners of FCI or any of its
affiliates or persons who are considering providing debt, equity or other
financing to or acquiring FCI or any of its affiliates or financial advisors or
underwriters involved in such transactions or (ii) announcing the closing of the
transactions contemplated hereby.
Section 3.6 Capital Contributions. Prior to the Closing, (i) each of
the Direct Shareholders shall fund or cause to be funded such Shareholder's pro
rata portion of the first DM 10,000,000 of the DM 20,000,000 capital call made
in June 1999 (the "Callino Capital Call"), and (ii) each of the Indirect
Shareholders shall fund or cause to be funded its pro rata portion of any
capital call made or to be made by Formus B.V., as applicable, for the purpose
of satisfying such entity's obligation to fund the Callino Capital Call.
Section 3.7 Waivers Under Agreements. Each of the Shareholders who is a
party to the Callino Agreements, Formus B.V., and TCB hereby waives any
restriction on transfer of the Callino shares or its indirect interest in
Callino, preemptive rights (legal or contractual), rights of first offer, tag
along rights, drag along rights or similar matters with respect to the
transactions contemplated by this Agreement and the option agreement described
in Section 4.3(h) and each such party will promptly execute or cause to be
executed such notarial deeds and other documents and take such other actions as
are requested by FCI or FII to effect the foregoing.
ARTICLE IV.
CONDITIONS
Section 4.1 Conditions Precedent to the Obligations of FCI, FII and the
Shareholders. The obligations of each of FCI, FII and the Shareholders under
this Agreement are conditioned upon the satisfaction or waiver, at or prior to
the Closing, of each of the following conditions:
(a) Injunction. No preliminary or permanent injunction or
other order shall have been issued by any court or by any governmental or
regulatory agency, body or authority which prohibits the consummation of the
transactions contemplated by this Agreement or has the effect of making the
transactions contemplated by this Agreement illegal and which is in effect at
the Closing Date (each party agreeing to use its reasonable best efforts to have
any such injunction or order lifted).
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(b) Statutes. No statute, rule, regulation, executive order,
decree or order of any kind shall have been enacted, entered, promulgated or
enforced by any court or governmental authority which prohibits the consummation
of the transactions contemplated by this Agreement or has the effect of making
the transactions contemplated by this Agreement illegal.
Section 4.2 Conditions Precedent to the Obligations of Shareholders.
The obligations of the Shareholders to consummate the transactions contemplated
hereby are additionally subject to the satisfaction or waiver on or before the
Closing Date of the following conditions precedent:
(a) Accuracy of Representations and Warranties. All
representations and warranties of FCI and FII contained herein shall be true and
correct in all material respects as of the date hereof and at and as of the
Closing Date, with the same force and effect as though made at and as of the
Closing Date; provided, that the parties hereto acknowledge and agree that the
representations, including any Schedules related thereto, may be updated in
writing at or prior to Closing to the extent that such update (i) reflects a
change in circumstances that is consistent with FCI's obligations under Section
3.2 and (ii) does not materially affect the legal or economic substance of the
transactions contemplated by this Agreement and does not amount to a material
adverse change in the conditions of FCI, FII and the Subsidiaries, taken as a
whole.
(b) Performance by FCI and FII. Each of FCI and FII shall have
performed in all material respects all obligations and agreements, and complied
in all material respects with all covenants and conditions, contained in this
Agreement to be performed or complied with by its prior to the Closing Date.
(c) Consents and Approvals. All consents, approvals and other
action by, all notices to and all filings with all Persons, including all courts
and administrative and governmental bodies that are required to have been
obtained, taken or made to consummate the transactions contemplated by this
Agreement shall have been obtained, undertaken or made, and all waiting periods
shall have expired or been waived, as the case may be.
(d) No Material Adverse Change. Prior to the Closing no event
shall have occurred or failed to occur, which occurrence, or failure to occur,
as the case may be, has had or is reasonably likely to have a material adverse
effect on FCI and its Subsidiaries, taken as a whole, whether as a result of any
legislative or regulatory change, revocation of any License or rights to do
business, fire, explosion, accident, casualty, labor trouble, flood, drought,
riot, storm, condemnation or act of God or other public force or otherwise.
(e) Opinion of Counsel. Shareholders shall have received an
opinion, dated the Closing Date, of Holme Roberts & Owen LLP, in substantially
the form of Exhibit B attached hereto.
(f) Good Standing and Other Certificates. FCI and FII shall
have delivered (i) copies of the Restated Certificate certified by the Secretary
of State of the State of Delaware, and (ii) a certificate from the Secretary of
State of the State of Delaware to the effect that each of
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FCI and FII is in good standing in such jurisdiction and listing all charter
documents of each on file.
(g) Officer's Certificates. FCI and FII shall have delivered a
certificate of the President or any Vice President of FCI and FII, dated the
Closing Date certifying that the conditions specified in Sections 4.1(b),
4.2(a), 4.2(b) and 4.2(d) have been satisfied.
(h) Deliveries. Each Shareholder shall have received a duly
executed stock certificate representing the Exchange Shares that FII is required
to deliver pursuant to Section 1.1(a) hereof.
(i) Other Agreements. FCI shall have duly executed and
delivered the Investors' Rights Agreement and the Stockholder Agreement.
(j) Cash Consideration. FCI shall have paid the cash
consideration as provided in Section 1.2(d).
Section 4.3 Conditions Precedent to the Obligations of FCI and FII. The
obligation of FCI and FII to consummate the transactions contemplated hereby are
additionally subject to the satisfaction, on or before the Closing Date, of the
following conditions precedent (provided that FCI and FII may waive any
conditions hereunder as to a specific Shareholder without being deemed to have
waived that condition or any other condition as to any other Shareholder):
(a) Accuracy of Representations and Warranties. All
representations and warranties of each Shareholder contained herein shall be
true and correct in all material respects as of the date hereof and on and as of
the Closing Date, with the same force and effect as though made on and as of the
Closing Date.
(b) Performance by Shareholders. Each Shareholder shall have
performed in all material respects all obligations and agreements, and complied
in all material respects with all covenants and conditions, contained in this
Agreement to be performed or complied with by it prior to the Closing Date.
(c) Consents and Approvals. All consents, approvals and other
actions by, all notice to and all filings with all Persons, including all courts
and administrative and governmental bodies that are required to have been
obtained, taken or made to consummate the transactions contemplated by this
Agreement shall have been obtained, undertaken or made, and all waiting periods
shall have expired or been waived, as the case may be.
(d) Opinions of Counsel. FCI and FII shall have received one
or more opinions, dated the Closing Date, of Counsel to the Direct Shareholders,
Chase European Equity Associates I LLC ("Chase I"), Chase II, and TCB, in each
case in form and substance reasonably satisfactory to FCI and FII.
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(e) Certificates. The Shareholders shall have delivered to FCI
and FII a certificate dated the Closing Date certifying that the Conditions set
forth in Sections 4.1(b), 4.3(a) and 4.3(b) have been satisfied.
(f) Deliveries. The deeds of assignment and/or transfer of the
Exchanged Interests, and all related documents, shall have been executed by all
parties thereto, notarized and delivered to FII, as applicable, and all
necessary or appropriate action shall have been taken with respect thereto to
fully effect the transfer of all of the Exchanged Interests to FII or its
designee.
(g) Related Agreements. Each Shareholder shall have duly
executed and delivered the Stockholder Agreement and the Investors' Rights
Agreement.
(h) Non-compete Agreements. Dr. Hoenig, Dr. Diekmann, Angelika
Diekmann, Simone Diekmann, Alexander Diekmann and Mr. Weber shall have entered
into non-compete agreements with Callino containing the terms attached hereto as
Exhibit C.
(i) The Extension Agreement. The Extension Agreement with Mr.
Weber shall have been duly executed and delivered by Mr. Weber to FCI and FII.
(j) Waiver and Consent. Chase I shall have entered into a
Waiver and Consent, in a form acceptable to FCI and FII, waiving its rights
under the Callino Agreements and consenting to the transactions provided for
herein.
(k) Management Option Agreements. Callino shall have
restructured its management option programs as agreed at the July 29, 1999
Callino Shareholder meeting by agreements satisfactory to FCI.
(l) Indirect Shareholder Powers of Attorney. Each of Chase II
and TCB, as transferor, and FII or its designee, as transferee, and Formus B.V.
shall have duly executed and delivered a power of attorney to a civil law notary
of The Netherlands for purposes of executing a notarial deed ("Notarial Deed")
in respect of the transfer of the Exchanged Interest of such Indirect
Shareholder in Formus B.V. to FII or its designee as provided herein and each
Notarial Deed of transfer shall have been duly executed effecting such transfer.
(m) Payment Obligations. All sums due and owing to FII or any
of its affiliates pursuant to the Formus B.V. Investment Agreement shall have
been paid to FII.
(n) Callino Shareholders Resolution. The shareholders of
Callino shall have duly adopted the Callino shareholder resolutions in the form
attached hereto as Exhibit D.
(o) Formus B.V. Board Resolution. The management board of
Formus B.V. shall have duly adopted the Formus B.V. board resolutions in the
form attached hereto as Exhibit E.
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ARTICLE V.
SURVIVAL; INDEMNIFICATION
Section 5.1 Survival. The respective representations and warranties of
the parties hereto contained in this Agreement or in any Schedule, Exhibit or
certificate delivered together herewith or pursuant thereto shall survive the
Closing for a period of one year, except that the representations of FCI and FII
in Sections 2.1(a) and (b) and of Shareholders in Sections 2.2(a) and (b) shall
survive indefinitely; provided, that the obligations to indemnify shall not
terminate at the time provided above if, prior to such time, a notice of claim
relating to Losses (as defined below) specifying the detail the nature thereof
(although the amount of Losses, if not yet determinable, need not be specified)
has been given to Shareholders or FCI, as the case may be. The other covenants
of the parties hereunder shall survive the Closing and shall not terminate
except as expressly provided herein.
Section 5.2 Indemnification. The parties agree to indemnify and hold
each other harmless from all claims, expenses, obligations, damages, costs,
payments, liabilities, losses, interest, fines and penalties, including, without
limitation, costs and expenses of litigation (including costs of investigation),
reasonable attorney's fees and reasonable consultant's fees (collectively,
"Losses") suffered or paid, directly or indirectly, through application of the
indemnified party's assets or otherwise, as a result of or arising out of the
failure of any representation or warranty made by Shareholders or FCI or their
respective affiliates, as the case may be, to be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date.
ARTICLE VI.
TERMINATION AND ABANDONMENT
Section 6.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned, at any time prior to the
Closing Date;
(a) by mutual consent of the Shareholders and FCI and FII;
(b) by FCI or by a majority in interest of Shareholders, if
the Closing shall not have occurred on or prior to September 15, 1999, unless
the failure to so consummate by such time is due to the material breach of any
representation or warranty, or failure to satisfy any covenant or condition
contained in this Agreement by the party seeking to so terminate;
(c) by either a majority of interest of Shareholders or FCI,
if there has been a material breach of any representation or warranty on the
party of the other; provided, that any such breach of a representation or
warranty has not been cured within 30 days following receipt by the breaching
party of notice of such breach;
19
<PAGE> 21
(d) by either Shareholders or FCI, if there shall be any law
or regulation of any competent authority that makes consummation of the
Agreement, or the transactions contemplated hereby, illegal or otherwise
prohibited or if any judgment, injunction, order or decree of any competent
authority prohibiting such transactions is entered and such judgment,
injunction, order or decree shall become final and nonappealable.
Section 6.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 6.1 by either party, written notice thereof
shall forthwith be given to the other party specifying the provisions hereof
pursuant to which such termination is made, and this Agreement shall become void
and have no effect, and there shall be no liability hereunder on the part of
Shareholders or FCI. Nothing in this Section 6.2 shall relieve any party to this
Agreement of liability for breach of this Agreement.
ARTICLE VII.
MISCELLANEOUS
Section 7.1 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of Colorado without regard to the conflict of laws provisions thereof.
Notwithstanding the foregoing, all matters related to the transfer of the
Exchanged Interests to FII pursuant to Section 2.1 hereof shall be governed by
German law or Dutch law, as applicable, to the extent, but only the extent
required under applicable German or Dutch law.
Section 7.2 Headings. The descriptive headings of the several Articles
and Sections of this Agreement are inserted for convenience only, do not
constitute a part of this Agreement and shall not affect in any way the meaning
or interpretation of this Agreement.
Section 7.3 Parties in Interest; Binding Effect. FCI and FII may assign
their obligations hereunder to deliver the Exchange Shares and acquire the
Exchanged Interests to any entity affiliated with FCI or FII, provided neither
shall be relieved of its obligations hereunder. This Agreement may not be
transferred, assigned, pledged or hypothecated by any party hereto, other than
by operation of law. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns. It shall be binding upon each
Shareholder at such time as such Shareholder signs without regard to whether any
other Shareholder has signed.
Section 7.4 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
Section 7.5 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and
20
<PAGE> 22
shall be deemed to have been duly given if delivered in person or by overnight
courier, with postage prepaid, or sent by telecopier (confirmed by overnight
carrier), as follows:
(a) if to Shareholders, to the addresses listed on Schedule 1
hereto
with a copy to:
Dr. Ralph G. Drouven
Gaedertz Rechtsanwalte
Theodore Heuss Ring 19-21
50668 Koln, Germany
(b) if to FCI and FII, to:
Formus Communications, Inc.
Formus International, Inc.
720 South Colorado Boulevard
Suite 600 North
Denver, Colorado 80246
Attention: General Counsel
with a copy to:
Holme Roberts & Owen LLP
1700 Lincoln Street
Suite 1700
Denver, Colorado 80203
Attention: W. Dean Salter, Esq.
or to such other Person or address as any party hereto shall specify in writing
to each of the other parties. Except for a notice of a change of address, which
shall be effective only upon receipt thereof, all such notices, requests,
demands, waivers and communications shall be deemed to have been received on the
date of delivery unless by overnight courier, in which case on the second
business day after the dispatch thereof.
Section 7.6 Entire Agreement. This Agreement and the annexes, schedules
and other documents referred to herein or delivered pursuant thereto,
collectively contain the entire understanding of the parties hereto with respect
to the subject matter contained herein and supersede all prior agreements and
understandings, oral and written, with respect thereto unless specifically set
forth to the contrary herein.
Section 7.7 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in writing by the parties
hereto in any and all respects before the Closing, by action taken by the
respective Boards of Directors of such parties, or by the respective officers
authorized by such Boards of Directors.
21
<PAGE> 23
Section 7.8 Severability. If any term, provision, covenant or
restriction contained in this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void, unenforceable or against
its regulatory policy, the remainder of the terms, provisions, covenants and
restrictions contained in this Agreement shall remain in full force and effect
and shall in no way be affected, impaired or invalidated.
Section 7.9 Third Party Beneficiaries. Each party hereto intends 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.
Section 7.10 "Person" Defined. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, a group and a government or other department or
agency thereof.
Section 7.11 "Business Day" Defined. A "business day" shall be any day
excluding Saturday, Sunday or any day which shall be a legal holiday in the
States of New York or Colorado or the Federal Republic of Germany.
Section 7.12 Shareholder Representative. Each of Dr. Axel Diekmann,
Angelika Diekmann, Simone Diekmann, Alexander Diekmann and Mr. Weber hereby
appoint Dr. Michael Hoenig as his or her representative and attorney-in-fact to
act on behalf of each them in connection with closing the transactions
contemplated by this Agreement. Without limitation, Dr. Hoenig may on behalf of
said Shareholders extend the time for Closing, waive conditions to Closing, and
modify or amend the Agreement provided he cannot change the number of Exchange
Shares to be received by such Shareholder. FCI and FII shall be protected
entirely in relying upon any document purported to be signed by Dr. Hoenig on
behalf of such Shareholders.
Section 7.13 Expenses. Each party to this Agreement shall pay its own
fees and expenses in connection herewith; provided, however, that FII shall pay
the notarial fees actually incurred by the parties in connection with the
notarization of this Agreement and the assignment and transfer of the Exchanged
Interests pursuant hereto.
[SIGNATURE PAGES FOLLOW]
22
<PAGE> 24
SIGNATURE PAGES TO EXCHANGE AGREEMENT
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed in their respective corporate names by their respective officers, each
of whom is duly and validly authorized and empowered, all as of the date and
year first above written.
SHAREHOLDERS:
-----------------------------------
Dr. Michael Hoenig
-----------------------------------
Dr. Axel Diekmann
-----------------------------------
Angelika Diekmann
-----------------------------------
Simone Diekmann
-----------------------------------
Alexander Diekmann
-----------------------------------
Matthias Weber
CHASE CAPITAL PARTNERS (CCP) GERMANY B.V.
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
<PAGE> 25
CHASE EUROPEAN EQUITY ASSOCIATES II LLC
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
TCB BETEILIGUNGS GMBH
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
FORMUS COMMUNICATIONS, INC.
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
FORMUS INTERNATIONAL, INC.
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
<PAGE> 26
SCHEDULE 1 TO EXCHANGE AGREEMENT
EXCHANGE SHARES AND EXCHANGED INTERESTS
<PAGE> 27
<PAGE> 28
<PAGE> 29
SCHEDULE OF EXCEPTIONS
DELIVERED PURSUANT TO SECTION 2.1
OF EXCHANGE AGREEMENT
<PAGE> 30
EXHIBIT A TO EXCHANGE AGREEMENT
FORM OF EXTENSION AGREEMENT
<PAGE> 31
EXHIBIT B TO EXCHANGE AGREEMENT
FORM OF HRO OPINION
<PAGE> 32
EXHIBIT C TO EXCHANGE AGREEMENT
FORM OF NON-COMPETITION AND NON-SOLICITATION PROVISIONS
<PAGE> 33
<PAGE> 34
EXHIBIT D TO EXCHANGE AGREEMENT
FORM OF CALLINO SHAREHOLDER RESOLUTIONS
<PAGE> 35
EXHIBIT E TO EXCHANGE AGREEMENT
FORM OF FORMUS B.V. BOARD RESOLUTIONS
<PAGE> 1
EXHIBIT 4.3
THE FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
FORMUS COMMUNICATIONS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. GENERAL .............................................................. 1
1.1 DEFINITIONS .......................................................... 1
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER ............................... 3
2.1 RESTRICTIONS ON TRANSFER ............................................. 3
2.2 DEMAND REGISTRATION .................................................. 5
2.3 PIGGYBACK REGISTRATIONS .............................................. 6
2.4 FORM S-3 REGISTRATION ................................................ 7
2.5 EXPENSES OF REGISTRATION ............................................. 8
2.6 OBLIGATIONS OF THE COMPANY ........................................... 9
2.7 TERMINATION OF REGISTRATION RIGHTS ................................... 10
2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION ........................ 10
2.9 INDEMNIFICATION ...................................................... 10
2.10 ASSIGNMENT OF REGISTRATION RIGHTS .................................... 13
2.11 AMENDMENT OF REGISTRATION RIGHTS ..................................... 13
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS ......................... 13
2.13 "MARKET STAND-OFF" AGREEMENT ......................................... 13
2.14 RULE 144 REPORTING ................................................... 14
SECTION 3. COVENANTS OF THE COMPANY ............................................. 14
3.1 BASIC FINANCIAL INFORMATION AND REPORTING ............................ 14
3.2 INSPECTION RIGHTS .................................................... 15
3.3 CONFIDENTIALITY OF RECORDS ........................................... 16
3.4 STOCK EQUIVALENT VESTING ............................................. 16
3.5 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT ..................... 16
3.6 REAL PROPERTY HOLDING CORPORATION .................................... 16
3.7 OBSERVER RIGHTS ...................................................... 16
3.8 MEETINGS OF THE BOARD OF DIRECTORS ................................... 16
3.9 NOMINATING COMMITTEE ................................................. 17
3.10 EXPENSES; COMPENSATION ............................................... 17
3.11 COMPLIANCE ........................................................... 17
3.12 BUSINESS PRACTICES ................................................... 18
3.13 TRANSACTIONS WITH AFFILIATES ......................................... 18
3.14 INDEMNIFICATION ...................................................... 18
3.15 BOARD OF DIRECTOR APPROVAL ........................................... 18
3.16 ASSIGNMENT OF COMPANY'S RIGHTS ....................................... 18
3.17 RESTRICTIONS ON FUTURE ISSUANCES OF COMMON STOCK ..................... 18
3.18 COMPLIANCE WITH SMALL BUSINESS INVESTMENT ACT ........................ 18
3.19 USE OF PROCEEDS ...................................................... 19
3.20 NON-DISCRIMINATION COMPLIANCE ........................................ 19
3.21 TERMINATION OF COVENANTS ............................................. 19
SECTION 4. RIGHTS OF FIRST OFFER ................................................ 19
4.1 SUBSEQUENT OFFERINGS ................................................. 19
4.2 EXERCISE OF RIGHTS ................................................... 19
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS ....................... 20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.4 TERMINATION OF RIGHTS OF FIRST OFFER ................................. 20
4.5 TRANSFER OF RIGHTS OF FIRST OFFER .................................... 20
4.6 EXCLUDED SECURITIES .................................................. 20
SECTION 5. MISCELLANEOUS ........................................................ 21
5.1 GOVERNING LAW ........................................................ 21
5.2 SURVIVAL ............................................................. 21
5.3 SUCCESSORS AND ASSIGNS ............................................... 21
5.4 SEVERABILITY ......................................................... 22
5.5 AMENDMENT AND WAIVER ................................................. 22
5.6 DELAYS OR OMISSIONS .................................................. 22
5.7 NOTICES .............................................................. 22
5.8 ENTIRE AGREEMENT ..................................................... 22
5.9 TERMINATION OF PRIOR AGREEMENT ....................................... 22
5.10 ATTORNEYS' FEES ...................................................... 23
5.11 TITLES AND SUBTITLES ................................................. 23
5.12 COUNTERPARTS ......................................................... 23
</TABLE>
ii
<PAGE> 4
INDEX OF SCHEDULES
Schedule A Schedule of Investors
Schedule B Schedule of Employee Stockholders
iii
<PAGE> 5
FIFTH AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Agreement") is entered into as of the ___ day of May 2000, by and among FORMUS
COMMUNICATIONS, INC., a Delaware corporation (the "Company"), and certain
holders of the Company's capital stock identified on Schedule A hereto (the
"Investors").
RECITALS
WHEREAS, certain of the Investors entered into the Fourth Amended and
Restated Investors' Rights Agreement, dated as of September 3, 1999, to provide
certain registration rights, information rights and other rights to such
Investors (the "Prior Agreement");
WHEREAS, the Company proposes to sell and issue shares of Series G
Preferred Stock pursuant to that certain Preferred Stock Purchase Agreement
dated as of even date herewith (the "Purchase Agreement"); and
WHEREAS, as a condition to entering into the Purchase Agreement, the
purchasers of the Series G Preferred Stock have requested that the Company
extend to them registration rights, information rights and other rights as set
forth below, and the Company and the parties to the Prior Agreement are willing
to terminate the rights given to them pursuant to the Prior Agreement and
replace their rights in their entirety with the rights set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
SECTION 1. GENERAL
1.1 DEFINITIONS. As used in this Agreement the following terms
shall have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FORM S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC that permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Shares or Registrable
Securities that have not been sold to the public or any assignee of record (in
accordance with Section 2.10 hereof) of such Registrable Securities; provided,
that a holder of Employee Shares (as defined in the
<PAGE> 6
definition of "Shares" below) shall be deemed to be a "Holder" with respect to
such Employee Shares only for the purposes of Section 2 hereof.
"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the Securities
Act.
"MAJOR INVESTOR" shall mean a holder of Registrable Securities
representing, together with the Registrable Securities held by any affiliated
entity of such holder, at least, ten percent (10%) of the fully diluted Common
Stock of the Company.
"PREFERRED STOCK" means the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock of the
Company.
"QUALIFIED PUBLIC OFFERING" shall mean the Company's first firm
commitment underwritten public offering of its Common Stock registered under the
Securities Act in which (i) the per share price is at least (A) $16.50 per share
(as adjusted for stock splits, combinations and the like) if the offering occurs
on or prior to September 3, 2000, and (B) $20.00 per share (as adjusted for
stock splits, combinations and the like) if the offering occurs after September
3, 2000, and (ii) the gross cash proceeds to the Company (before deducting
underwriting, discounts, commissions, and fees) are at least $100,000,000.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"REGISTRABLE SECURITIES" means (i) Common Stock of the Company issued
or issuable upon conversion of the Shares; (ii) the November Shares (as defined
in the definition of "Shares" below); (iii) for the purposes of Section 2
hereof, the Employee Shares (as defined below); and (iv) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security that is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, such above-described
securities. Notwithstanding the foregoing, Registrable Securities shall not
include any securities sold by a person to the public either pursuant to a
registration statement or Rule 144 under the Securities Act or sold in a private
transaction in which the transferor's rights under Section 2 of this Agreement
are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (i) are then issued and
outstanding or (ii) are issuable pursuant to then exercisable or convertible
securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company
in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements of a
single special counsel for the Holders, blue sky fees and
2
<PAGE> 7
expenses and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company that shall be paid in any event by the Company).
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"SHARES" shall mean (i) the shares of the Company's Series G Preferred
Stock issued pursuant to the Purchase Agreement; (ii) the shares of the
Company's Series E and Series F Preferred Stock issued pursuant to that certain
Preferred Stock Purchase Agreement dated September 3, 1999; (iii) the shares of
Series C Stock and Series D Stock issued pursuant to that certain Preferred
Stock Purchase Agreement, dated September 28, 1998; (iv) the shares of the
Company's Series A Preferred Stock and Series B Preferred Stock issued pursuant
to that certain Preferred Stock Purchase Agreement, dated August 13, 1997, as
amended; (v) the shares of the Company's Common Stock issued pursuant to that
certain Common Stock Purchase Agreement, dated as of November 20, 1996 as
amended and restated February 28, 1997 (the "November Shares"); (vi) any shares
of the Company's Class B Common Stock issued upon conversion of or in exchange
for any of the November Shares; (vii) the shares of the Company's Class B Common
Stock issued upon conversion of shares of Preferred Stock; and (viii) for the
purposes of Section 2 hereof, the shares of the Company's Common Stock held as
of September 1, 1999, by the stockholders who are parties to that certain
Employee Stockholders Agreement dated as of August 1, 1997 (the "Employee
Stockholders Agreement"), such stockholders and the number of shares held by
them as of April 1, 2000 are set forth on Schedule B hereto (the "Employee
Shares").
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all
or any portion of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to
be bound by the terms of this Agreement if it is still in effect (provided that
no such agreement of the transferee shall be required if the disposition of
Shares or Registrable Securities is made in compliance with Rule 144 under the
Securities Act), (B) such Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (C) if reasonably
requested by the
3
<PAGE> 8
Company, such Holder shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, or such other evidence that the
Company may reasonably request, that such disposition will not result in a
violation of the Securities Act. Except in the case of unusual circumstances,
the Company agrees that it will not require opinions of counsel for transactions
made pursuant to Rule 144 by the Investors initially party to this Agreement to
the extent that such Investors provide reasonable evidence of compliance with
such rule.
(iii) Notwithstanding the provisions of paragraphs
(i) and (ii) above, no such registration statement or opinion of counsel shall
be necessary for a transfer by a Holder (A) that is a partnership to its
partners or former partners in accordance with partnership interests, (B) that
is a corporation to its stockholders in accordance with their interest in the
corporation, (C) that is a limited liability company to its members or former
members in accordance with their interest in the limited liability company, (D)
to the Holder's family member or trust for the benefit of an individual Holder,
(E) to an affiliated investment fund managed or co-managed by a Holder (its
partners or managing members of the general partner) or (F) to any controlled
affiliate of a Holder (its partners or managing members of the general partner);
provided the transferee will be subject to the terms of this Agreement to the
same extent as if such transferee were an original Holder hereunder.
(b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws or as provided elsewhere in this Agreement or any other agreement between
the Company and the holder of such certificate):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED. SUCH SECURITIES ARE SUBJECT TO
AN AGREEMENT, A COPY OF WHICH IS AVAILABLE UPON REQUEST FROM
THE COMPANY, WHICH GRANTS THE COMPANY AND THE HOLDER CERTAIN
RIGHTS AND SUBJECTS THE COMPANY AND THE HOLDER TO CERTAIN
OBLIGATIONS.
(c) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any Holder thereof if the Holder shall
have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend. The Company shall bear the costs of any such
4
<PAGE> 9
reissuance, including the reasonable legal fees and expenses incurred in
connection with the rendering of the aforementioned legal opinion.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if the
Company shall receive at any time following the earlier of (i) August 1, 2003,
or (ii) the Initial Offering, a written request from the Holders of twenty-five
percent (25%) or more of the Registrable Securities (excluding for the purposes
of such calculation any of the Employee Shares) then outstanding (the
"Initiating Holders") that the Company file a registration statement under the
Securities Act covering the registration of Registrable Securities having an
aggregate offering price to the public in excess of $2,500,000, then the Company
shall, within thirty (30) days of the receipt thereof, give written notice of
such request to all Holders. An Investor requesting to include Registrable
Securities held by it in the requested registration shall be considered an
Initiating Holder for purposes of this Section 2.2. Subject to the limitations
of this Section 2.2, the Company shall use its best efforts to effect, as soon
as practicable, the registration under the Securities Act of all Registrable
Securities that the Holders request to be registered.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.2 and the Company shall include such information in the written
notice referred to in Section 2.2(a). In such event, the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by the Company and a majority in interest of the Initiating Holders and
such Holder) to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Board of
Directors of the Company). Notwithstanding any other provision of this
Agreement, if the underwriter advises the Company that marketing factors require
a limitation of the number of securities to be underwritten (including
Registrable Securities) then the Company shall so advise all Holders of
Registrable Securities that would otherwise be underwritten pursuant hereto, and
the number of Registrable Securities that may be included in the underwriting
shall be allocated to the Initiating Holders on a pro rata basis based on the
number of Registrable Securities held by all such Initiating Holders. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration. In no event will shares of any other selling
stockholder be included in such registration that would reduce the number of
shares that may be included by the Holders without the written consent of
Holders of not less than two-thirds (66-2/3%) of the Registrable Securities
proposed to be sold in the offering.
5
<PAGE> 10
(c) The Company shall not be required to effect a
registration pursuant to this Section 2.2:
(i) after the Company has effected four (4)
registrations pursuant to this Section 2.2, and each such registration has been
declared or ordered effective, subject to Section 2.2(d) below; or
(ii) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 2.2, a certificate
signed by the Chairman of the Board stating that in the good faith judgment of
the Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be effected at
such time, in which event the Company shall have the right to defer commencing
to prepare such filing for a period of not more than one hundred eighty (180)
days after receipt of the request of the Initiating Holders; provided that if
the circumstances or event causing it to be detrimental to file a registration
statement ceases to exist, the right to defer such filing shall terminate, and
provided further such right to delay a request shall be exercised by the Company
not more than once in any twelve (12) month period and if the Company undertakes
a primary registration in connection with the issuance of its Common Stock
following such a delay, the Holders shall have "piggyback" rights under Section
2.3 hereof with respect to not less than one-third (1/3) of the number of shares
to be sold in such offering.
(d) Notwithstanding anything to the contrary contained in
this Section 2.2, Investors shall not be deemed to have used or forfeited their
rights to registration of their Registrable Securities under this Section 2.2,
if a registration of Registrable Securities is conducted pursuant to an
underwritten offering undertaken after the exercise of the Holders rights under
this Section 2.2 and the underwriters advise the Company and/or the Holders that
marketing factors require the Company to limit the number of Registrable
Securities to be sold in such offering to less than seventy-five percent (75%)
of the Registrable Securities then outstanding requested to be registered by the
persons exercising such demand right.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders
of Registrable Securities in writing at least thirty (30) days prior to the
filing of any registration statement under the Securities Act for purposes of a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within twenty (20) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or
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registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(a) Underwriting. If the registration statement under
which the Company gives notice under this Section 2.3 is for an underwritten
offering, the Company shall so advise the Holders of Registrable Securities. In
such event, the right of any such Holder to be included in a registration
pursuant to this Section 2.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of the Agreement (except Section 2.2(b)
above), if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Company; second, to the Holders on a pro rata basis based on the total
number of Registrable Securities held by the Holders desiring inclusion in such
registration; and third, to any other stockholder of the Company (other than a
Holder) on a pro rata basis. No such reduction shall reduce the securities being
offered by the Company for its own account to be included in the registration
and underwriting, and in no event shall the amount of securities of the selling
Holders included in the registration be reduced below twenty-five percent (25%)
of the total amount of securities included in such registration, unless such
offering is the Initial Offering and such registration does not include shares
of any other selling stockholders (other than the stockholder(s), if any,
invoking the demand registration) in which event any or all of the Registrable
Securities of the Holders may be excluded in accordance with the immediately
preceding sentence. In no event will shares of any other selling stockholder be
included in such registration that would reduce the number of shares that may be
included by Holders without the written consent of Holders of not less than
two-thirds (66 2/3%) of the Registrable Securities proposed to be sold in the
offering.
(b) Right to Terminate Registration. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 2.3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.5 hereof.
2.4 FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders representing at least twenty-five percent (25%) of the
then outstanding Registrable Securities a written request or requests that the
Company effect a registration on Form S-3 (or any successor to Form S-3) or any
similar short-form registration statement and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
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(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this Section 2.4:
(i) if Form S-3 (or any successor or similar
form) is not available for such offering by the Holders, or
(ii) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $2,500,000, or
(iii) if the Company shall furnish to the Holders
a certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than one hundred eighty (180) days after
receipt of the request of the Holder or Holders under this Section 2.4;
provided, that such right to delay a request shall be exercised by the Company
not more than once, or
(iv) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders.
2.5 EXPENSES OF REGISTRATION. Except as specifically provided
herein, all Registration Expenses incurred in connection with the first four (4)
registrations, qualifications or compliances pursuant to Section 2.2 and all
Registration Expenses incurred in connection with any registration under Section
2.3 or Section 2.4 herein shall be borne by the Company. All Selling Expenses
incurred in connection with any registrations hereunder, shall be borne by the
holders of the securities so registered pro rata on the basis of the number of
shares so registered. The Company shall not, however, be required to pay for
expenses of any registration proceeding begun pursuant to Section 2.2 or 2.4,
the request of which has been subsequently withdrawn by the Initiating Holders
unless (a) the withdrawal is based upon material adverse information concerning
the Company of which the Initiating Holders were not aware, or should not have
reasonably been aware, at the time of such request, or (b) the Holders of a
majority of Registrable Securities agree to forfeit their right to one requested
registration pursuant to Section 2.2 or 2.4 as applicable, in which event such
right shall be forfeited by all Holders. If the
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Holders are required to pay the Registration Expenses, such expenses shall be
borne by the holders of securities (including Registrable Securities) requesting
such registration in proportion to the number of shares for which registration
was requested. If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to clause (a) above, then the Holders shall not
forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand
registration.
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
eighty (180) days or, if earlier, until the Holder or Holders have completed the
distribution related thereto; provided that if for any reason the Holders are
prohibited from selling their Registrable Securities during that time, the
Company will extend the effective date of the registration statement for the
length of time of any such prohibition.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use all reasonable efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto 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 a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
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(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
2.7 TERMINATION OF REGISTRATION RIGHTS. All of a Holder's
registration rights shall expire on the fifth anniversary of the Qualified
Public Offering. In addition, the right of any particular Holder shall expire
when (i) such Holder (together with its affiliates, partners, members and former
partners and members) holds less than 1% of the Company's outstanding Common
Stock; or (ii) all Registrable Securities held by and issuable to such Holder
(and its affiliates, partners, members and former partners and members) may be
sold under Rule 144 during any ninety (90) day period.
2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
(c) The Company shall have no obligation with respect to
any registration requested pursuant to Section 2.2 or Section 2.4 if, due to the
operation of subsection 2(b), the number of shares or the anticipated aggregate
offering price of the Registrable Securities to be included in the registration
does not equal or exceed the number of shares or the anticipated aggregate
offering price required to originally trigger the Company's obligation to
initiate such registration as specified in Section 2.2 or Section 2.4, whichever
is applicable.
2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
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(a) To the extent permitted by law, the Company will
indemnify a hold harmless each Holder, the partners, officers, directors and
legal counsel of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) 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
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director, legal
counsel, underwriter or controlling person 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 the
indemnity agreement contained in this Section 2.9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, underwriter or other
such Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other Holder, or
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or
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action if it is judicially determined that there was such a Violation; provided,
however, that the indemnity agreement contained in this Section 2.9(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; provided further, that in no
event shall any indemnity under this Section 2.9 exceed the net proceeds from
the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of liability to the
indemnified party under this Section 2.9 only to the extent it has been so
prejudiced, but the omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 2.9.
(d) If the indemnification provided for in this Section
2.9 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by a court of law 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
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, that in no event shall any contribution by
a Holder hereunder exceed the proceeds (net of commissions and discounts but not
of any other expenses) from the offering received by such Holder, and in no
event shall any contribution by a Holder hereunder exceed the amount such Holder
would have been obligated to pay pursuant to Section 2.9(b) had such clause been
enforceable.
(e) The obligations of the Company and Holders under this
Section 2.9 shall survive completion of any offering of Registrable Securities
in a registration statement. No
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Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of Registrable Securities that
(i) is a subsidiary, parent or affiliated entity or general partner, limited
partner, member or retired partner or member of a Holder, (ii) is a Holder's
family member or trust for the benefit of an individual Holder, or (iii)
acquires at least ten thousand (10,000) shares of Registrable Securities (as
adjusted for stock splits, combinations an the like); provided, however, (a) the
transferor shall, within ten (10) days before such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (b) such transferee shall agree to be subject to all restrictions
set forth in this Agreement. Any such transferee or assignee shall be deemed an
"Investor" for purposes hereunder. In each case, such rights may only be
transferred together with the underlying Registrable Securities in a transfer
permitted by the Company's certificate of incorporation, this Agreement, the
Purchase Agreement and the Stockholders Agreement, as defined in the Purchase
Agreement.
2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Section 2 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
more than fifty percent (50%) of the Registrable Securities then outstanding.
Any amendment or waiver effected in accordance with this Section 2.11 shall be
binding upon each Holder and the Company. By acceptance of any benefits under
this Section 2, Holders of Registrable Securities hereby agree to be bound by
the provisions hereunder.
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date
of this Agreement, the Company shall not, without the prior written consent of
the Holders of at least two-thirds in interest of the Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would grant such holder registration rights that (i) are
more favorable than the registration rights granted hereunder or (ii) would
reduce the number of shares of Registrable Securities includable by the Holders
in any registration under Sections 2.1, 2.2 or 2.3.
2.13 "MARKET STAND-OFF" AGREEMENT. If requested by the Company or
the representative of the underwriters of Common Stock (or other securities) of
the Company, each Holder shall not sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such Holder for a
period specified by the representative of the underwriters not to exceed one
hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act (the "Lock Up Period"),
other than (i) transfers permitted by Section 2.1(a)(iii), (ii) except in the
case of a Qualified Public Offering, sales by non-participating Holders under
Rule 144 that comply with the volume restrictions under Rule 144 even if the
limitations do not apply by the terms of the rule, or (iii)
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transfers by such Holder pursuant to such registration statement in compliance
with the terms of this Agreement, provided that:
(i) such agreement shall apply only to the
Company's Initial Offering and any other offering requested by the Holders
pursuant to Section 2.2 hereof; and
(ii) all officers and directors of the Company
and holders of at least one percent (1%) of the Company's voting securities at
the time of the Initial Offering enter into similar agreements.
The obligations described in this Section 2.13 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The obligations in this Section
2.13 shall only apply during the Lock Up Period. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.
2.14 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC that may permit
the sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in SEC Rule 144 or any similar or analogous
rule promulgated under the Securities Act, at all times after the effective date
of the first registration filed by the Company for an offering of its securities
to the general public;
(b) File with the SEC, in a timely manner, all reports
and other documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
SECTION 3 COVENANTS OF THE COMPANY
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting
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principles consistently applied, and will set aside on its books all such proper
accruals and reserves as shall be required under generally accepted accounting
principles consistently applied.
(b) As soon as practicable after the end of each fiscal
year of the Company, and in any event within ninety (90) days thereafter, the
Company will furnish each Investor a consolidated balance sheet of the Company,
as at the end of such fiscal year, and a consolidated statement of income and a
consolidated statement of cash flows of the Company, for such year, all of which
shall be prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail. Such financial
statements shall be audited by independent public accountants of national
standing selected by the Company's Board of Directors.
(c) The Company will furnish each Investor, as soon as
practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within forty-five
(45) days thereafter, a current capitalization table setting forth the issued
and outstanding capital stock and derivative securities of the Company, a
consolidated balance sheet of the Company as of the end of each such quarterly
period, a consolidated statement of income and a consolidated statement of cash
flows of the Company for such period and for the current fiscal year to date,
all of which shall be prepared in accordance with generally accepted accounting
principles consistently applied and certified by the chief financial officer of
the Company (or the chief accounting officer if no chief financial officer is in
place), with the exception that no notes need be attached to such statements and
year-end audit adjustments may not have been made.
(d) The Company will furnish each Investor (i) at least
thirty (30) days prior to the beginning of each fiscal year an annual budget and
operating plans for such fiscal year as well as an updated five-year strategic
plan for the Company, in such manner and form as approved by the Board of
Directors of the Company (and as soon as available, any subsequent revisions
thereto); and (ii) copies of all press releases and other statements made
available generally by the Company to the public concerning material
developments in the Company's business, including copies of any reports or
communications delivered to the financial community. The Company will furnish to
each Investor holding 2% or more of the Company's outstanding capital stock
copies of all reports and other written material submitted to the Board of
Directors of the Company that such Investor shall reasonably request, provided,
however, that the Company shall not be obligated to provide information that the
Board of Directors determines in good faith is confidential and should not,
therefore, be disclosed.
3.2 INSPECTION RIGHTS. Each Investor shall have the right to visit
and inspect any of the properties of the Company or any of its subsidiaries, and
to discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such information as is reasonably
requested all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under this
Section 3.2 with respect to a competitor of the Company or with respect
disclosure which the Board of Directors determines in good faith could adversely
affect the Company.
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3.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and
to use its best efforts to insure that its authorized representatives use, the
same degree of care as such Investor uses to protect its own confidential
information to keep confidential any information furnished to it that the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Investor may disclose
such proprietary or confidential information to any partner, subsidiary, member
or parent of such Investor for the purpose of evaluating its investment in the
Company as long as such partner, subsidiary, member or parent is advised of the
confidentiality provisions of this Section 3.3 or to the extent required by law.
All confidential disclosures between Intel Corporation and the Company shall not
be governed by this Section 3.3 and instead shall be governed solely by the
terms of the Corporate Non-Disclosure Agreement No. 0283540 dated June 17, 1999,
executed between the Company and Intel Corporation and any related Confidential
Information Transmittal Records provided in connection therewith.
3.4 STOCK EQUIVALENT VESTING. Unless otherwise approved by the
Board of Directors, all stock options and other similar stock equivalents issued
after the date of this Agreement to employees, directors, consultants and other
service providers shall be subject to vesting in accordance with the terms of
any stock option plan or similar plan approved by the Board of Directors.
3.5 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company
shall require all officers, employees and consultants of the Company to execute
and deliver a Proprietary Information and Inventions Agreement in substantially
the form attached to the Purchase Agreement.
3.6 REAL PROPERTY HOLDING CORPORATION. The Company covenants that
it will operate in a manner such that it will not become a "United States real
property holding corporation" as that term is defined in Section 897(c)(2) of
the Internal Revenue Code of 1986, as amended, and the regulations thereunder
("FIRPTA") and shall, from time to time upon the request of any Purchaser,
confirm to such Purchaser that it is not a United States real property holding
corporation. If at any time in the future the Company should become a United
States real property holding corporation, the Company shall, as promptly as
possible, notify each Investor of such change in status.
3.7 OBSERVER RIGHTS. The Company shall allow one representative
designated by each Investor (except in the case of Capital Communications CDPQ
Inc., that is not otherwise represented by a director and that holds 2% or more
of the Company's outstanding capital stock) to attend all meetings of the
Company's Board of Directors in a nonvoting capacity, and in connection
therewith, the Company shall give each such representative copies of all
notices, minutes, consents and other materials, financial or otherwise, which
the Company provides to its Board of Directors concurrently with the delivery of
such information to the Board of Directors.
3.8 MEETINGS OF THE BOARD OF DIRECTORS. The Board of Directors
shall meet at least six (6) times each calendar year in accordance with an
agreed upon schedule.
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<PAGE> 21
3.9 NOMINATING COMMITTEE. If the Board of Directors establishes a
nominating committee, at least one director who is designated by a Major
Investor shall serve on such committee.
3.10 EXPENSES; COMPENSATION. The reasonable travel expenses of each
director (or observer) incurred to attend Board or committee meetings shall be
reimbursed by the Company. If the Company adopts a program to compensate its
"outside" or "independent" directors generally either with cash or with stock
options, then it shall also extend the same compensation to the directors who
are designated by an Investor (unless any such representative is also an officer
or employee of the Company), and in the case of stock options, such options
shall be transferable by the individual Board members to the Investors they
represent.
3.11 COMPLIANCE. The Company shall, and shall cause each of its
subsidiaries to:
(a) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material licenses,
authorization and permits necessary to the conduct of its businesses;
(b) maintain and keep its properties in good repair,
working order and condition, and from time to time make all necessary and
desirable repairs, renewals and replacements, so that its businesses may be
properly and advantageously conducted at all times;
(c) pay and discharge all taxes, assessments and
governmental charges imposed upon its properties or upon the income or profits
therefrom (in each case before the same becomes delinquent and before penalties
accrue thereon) and all claims for labor, materials or supplies to the extent to
which the failure to pay or discharge such obligations would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company and
its subsidiaries taken as a whole, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with generally accepted accounting
principles in the applicable jurisdictions, consistently applied) have been
established on its books with respect thereto;
(d) comply with all other material obligations that it
incurs pursuant to any material contract or agreement, whether oral or written,
express or implied, as such obligations become due unless and to the extent that
the same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its books
with respect thereto;
(e) comply with all applicable laws, rules and
regulations of all governmental authorities, the violation of which would
reasonably be expected to have a material adverse effect upon the financial
condition, operating results, assets, operations or business prospects of the
Company and its subsidiaries taken as a whole; and
17
<PAGE> 22
(f) apply for and continue in force with good and
responsible insurance companies adequate insurance covering risks of such types
and in such amounts as are customary for corporations of similar size engaged in
similar lines of business.
3.12 BUSINESS PRACTICES. None of the Company, any Subsidiary (as
defined in the Purchase Agreement), any affiliate of the Company, or any person
acting on behalf of the Company, any Subsidiary or affiliate of the Company has
paid or delivered, or promised to pay or deliver, directly or indirectly through
any other person, any monies or anything of value to any government official or
employee of any political party, for the purpose of illegally or improperly
inducing or rewarding any action by the official favorable to the Company, any
Subsidiary or any affiliate of the Company.
3.13 TRANSACTIONS WITH AFFILIATES. The Company will not engage in
any transaction with any affiliate on terms more favorable to the affiliate than
would have been obtainable on an arm's-length basis in the ordinary course of
business unless approved by a majority of the unaffiliated members of the Board
of Directors.
3.14 INDEMNIFICATION. The Company's Certificate of Incorporation
and Bylaws shall provide, to the maximum extent permitted by law, for
elimination of the liability of directors and for indemnification of directors
and officers for acts on behalf of the Company.
3.15 BOARD OF DIRECTOR APPROVAL. The Company shall not without the
approval of a majority of the Board of Directors, with all disinterested
Directors voting, incur debt, including without limitation, borrowings from any
bank or financial institution, in any twelve month period in excess of two
hundred fifty thousand dollars ($250,000.00).
3.16 ASSIGNMENT OF COMPANY'S RIGHTS. In the event the Company
elects not to exercise, in whole or in part, its right of first refusal set
forth in Section 1.3 of the Employee Stockholders Agreement, the Company shall
assign to the Investors the portion of such right that is not exercised. The
Company shall notify each Investor of such assignment promptly, but in no event
later than ten (10) days following the Company's receipt of a notice of proposed
transfer from a holder of Common Stock (a "Transferring Holder") pursuant to
Section 1.2 of the Employee Stockholders Agreement (the "Transfer Notice"). Each
Investor shall have the right and option to purchase its Pro Rata Share (as
defined in Section 4.1 below) of the securities subject to such assigned right
of first refusal. Any purchases made by the Investors pursuant to the exercise
of the foregoing right shall be made in accordance with the terms set forth in
Section 1.3 of the Employee Stockholders Agreement.
3.17 RESTRICTIONS ON FUTURE ISSUANCES OF COMMON STOCK. With respect
to the issuance of any additional shares of Common Stock to employees of the
Company, the Company shall subject such shares to a right of first refusal
similar to that in Section 1 of the Employee Stockholders Agreement and a market
stand-off agreement similar to that set forth in Section 2.13 hereof.
3.18 COMPLIANCE WITH SMALL BUSINESS INVESTMENT ACT. The Company
agrees to provide each SBIC Purchaser with sufficient information to permit such
Purchasers to comply
18
<PAGE> 23
with their obligations under the Small Business Act. Within 90 days following
the Closing (as defined in the Purchase Agreement) and within 90 days after the
end of each calendar year during which the proceeds from the sale of the Shares
are being applied, the Company shall provide to each SBIC Purchaser (as defined
in the Purchase Agreement) a certificate of its chief financial officer
describing the use of such proceeds and verifying that the use of such proceeds
is in accordance with Section 3.19 below. The Company shall provide each SBIC
Purchaser and the Small Business Administration (the "SBA") reasonable access to
the Company's books and records for the purpose of confirming the use of the
proceeds received hereunder.
3.19 USE OF PROCEEDS. The Company agrees to use the investment
proceeds from each SBIC Purchaser for working capital purposes or to otherwise
finance the anticipated growth of the Company.
3.20 NON-DISCRIMINATION COMPLIANCE. So long as an SBIC Purchaser
holds any securities of the Company, the Company will at all times comply with
the non-discrimination requirements of 13 C.F.R. Parts 112, 113 and 117.
3.21 TERMINATION OF COVENANTS. All covenants of the Company
contained in Section 3, other than Section 3.11, of this Agreement shall expire
and terminate as to each Investor on the earlier of (i) the consummation of the
Qualified Public Offering; and (ii) the first date on which no shares of
Preferred Stock are outstanding.
SECTION 4 RIGHTS OF FIRST OFFER.
4.1 SUBSEQUENT OFFERINGS. Each Investor shall have a right of
first offer to purchase its Pro Rata Share, as defined below, of eighty percent
(80%) of all Equity Securities, as defined below, that the Company may, from
time to time, propose to sell and issue after the date of this Agreement, other
than the Equity Securities excluded by Section 4.6 hereof. Each Investor's Pro
Rata Share is equal to the ratio of (a) the number of shares of Registrable
Securities that such Investor is deemed to be a holder immediately prior to the
issuance of the Equity Securities to (b) the total number of shares of
Registrable Securities held by all Investors immediately prior to the issuance
of the Equity Securities. The term "Equity Securities" shall mean (i) any Common
Stock, Class B Common Stock, Preferred Stock or other security of the Company,
(ii) any security convertible, with or without consideration, into any Common
Stock, Class B Common Stock, Preferred Stock or other security (including any
option to purchase such a convertible security), (iii) any security carrying any
warrant or right to subscribe to or purchase any Common Stock, Class B Common
Stock, Preferred Stock or other security or (iv) any such warrant or right.
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity Securities, it shall give each Investor written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same. Each Investor shall have fifteen
(15) business days from the giving of such notice to agree to purchase its Pro
Rata Share of the Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to the Company and
stating therein the quantity of Equity Securities to be purchased.
Notwithstanding the foregoing, the Company shall not be
19
<PAGE> 24
required to offer or sell such Equity Securities to any Investor who would cause
the Company to be in violation of applicable federal securities laws by virtue
of such offer or sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If not all of
the Investors elect to purchase their Pro Rata Share of the Equity Securities,
then the Company shall promptly notify in writing the Investors who do so elect
and shall offer such Investors the right to acquire such unsubscribed shares.
The Investors shall have ten (10) business days after receipt of such notice to
notify the Company of its election to purchase all or a portion thereof of the
unsubscribed shares. If the Investors fail to exercise in full their respective
rights of first offer, the Company shall have ninety (90) days thereafter to
sell the Equity Securities in respect of which the Investors' rights were not
exercised, at a price and upon general terms and conditions materially no more
favorable to the purchasers thereof than specified in the Company's notice to
the Investors pursuant to Section 4.2 hereof. If the Company has not sold such
Equity Securities within ninety (90) days of the notice provided pursuant to
Section 4.2, the Company shall not thereafter issue or sell any Equity
Securities, without first offering such securities to the Investors in the
manner provided above.
4.4 TERMINATION OF RIGHTS OF FIRST OFFER. The rights of first
offer established by this Section 4 shall not apply to, and shall terminate upon
the earlier to occur of (i) the effective date of the registration statement
pertaining to the Company's Qualified Public Offering; and (ii) the date on
which no shares of Preferred Stock are outstanding.
4.5 TRANSFER OF RIGHTS OF FIRST OFFER. The rights of first offer
of each Investor under this Section 4 may be transferred to the same parties,
subject to the same restrictions, as any transfer of registration rights
pursuant to Section 2.10.
4.6 EXCLUDED SECURITIES. The rights of first offer established by
this Section 4 shall have no application to any of the following Equity
Securities:
(a) shares of Common Stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to the Company or any subsidiary, pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board of Directors;
(b) stock issued pursuant to any rights or agreements
outstanding as of the date of this Agreement, options and warrants outstanding
as of the date of this Agreement; and stock issued pursuant to any such rights
or agreements granted after the date of this Agreement, provided that the rights
of first offer established by this Section 4 applied with respect to the initial
sale or grant by the Company of such rights or agreements;
(c) any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination;
(d) shares of Common Stock or Class B Common Stock issued
in connection with any stock split, stock dividend or recapitalization by the
Company;
20
<PAGE> 25
(e) shares of Preferred Stock issued pursuant to the
Purchase Agreement;
(f) shares of (i) Common Stock issued upon conversion of
the Class B Common Stock, Series A Preferred Stock, Series C Preferred Stock,
Series E Preferred Stock and/or Series G Preferred Stock, and (ii) Class B
Common Stock, Series A Preferred Stock, Series C Preferred Stock and/or Series E
Preferred Stock issued upon conversion of the Series B Preferred Stock, Series D
Preferred Stock and/or Series F Preferred Stock;
(g) any Equity Securities that are issued by the Company
pursuant to a registration statement filed under the Securities Act;
(h) warrants originally issued to, or shares of Common
Stock issued pursuant to the exercise of warrants originally issued to, lenders,
arrangers, managers or agents party to the Loan Agreement to be entered into
among the Company, certain guarantors, lenders, arrangers and managers and DLJ
Bridge Finance, Inc., as agent; or
(i) shares of Common Stock, Preferred Stock other
securities issued pursuant to antidilution or similar provisions contained in
the Company's certificate of incorporation or any of the agreements or
instruments referred to above.
SECTION 5 MISCELLANEOUS.
5.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Colorado as applied to agreements among
Colorado residents entered into and to be performed entirely within Colorado,
except that the General Corporation Law of the State of Delaware shall govern as
to matters of corporate law.
5.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
21
<PAGE> 26
5.4 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
5.5 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of a majority in interest of the Registrable Securities;
provided that any amendment or modification to Section 3.3 affecting the
confidential disclosures between Intel and the Company requires the prior
written approval of Intel Corporation.
(b) Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the written consent of the holders of at least a
majority in interest of the Registrable Securities.
5.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders shall be cumulative and not
alternative.
5.7 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth on the signature
pages hereof or Exhibit A hereto or at such other address as such party may
designate by ten (10) days advance written notice to the other parties hereto.
5.8 ENTIRE AGREEMENT. This Agreement, the exhibits and schedules
hereto, the Purchase Agreement and the other documents delivered pursuant
thereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof.
5.9 TERMINATION OF PRIOR AGREEMENT. Certain of the undersigned
Investors, who together constitute the requisite parties to terminate the Prior
Agreement, hereby terminate the Prior Agreement in its entirety and the Prior
Agreement shall be of no further force and effect.
22
<PAGE> 27
5.10 ATTORNEYS' FEES. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
5.11 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.12 COUNTERPARTS. This Agreement may be delivered via facsimile
and executed in any number of counterparts, each of which shall be an original,
but all of which together shall constitute one instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
23
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have executed this FIFTH AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
<TABLE>
<CAPTION>
COMPANY: INVESTORS:
<S> <C>
FORMUS COMMUNICATIONS, INC. CENTENNIAL FUND V, L.P.
BY: CENTENNIAL HOLDINGS V, L.P.
ITS: GENERAL PARTNER
By: By:
----------------------------------------- -------------------------------------------
Bernard G. Dvorak Steven C. Halstedt, A General Partner
Acting Chief Executive Officer,
Senior Vice President and
Chief Executive Officer CENTENNIAL ENTREPRENEURS FUND V, L.P.
BY: CENTENNIAL HOLDINGS V, L.P.
ITS: GENERAL PARTNER
By:
-------------------------------------------
Steven C. Halstedt, A General Partner
CENTENNIAL FUND VI, L.P.
BY: CENTENNIAL HOLDINGS VI, LLC
ITS: GENERAL PARTNER
By:
-------------------------------------------
Steven C. Halstedt, Managing Principal
CENTENNIAL ENTREPRENEURS FUND VI, L.P.
BY: CENTENNIAL HOLDINGS VI, LLC
ITS: GENERAL PARTNER
By:
-------------------------------------------
Steven C. Halstedt, Managing Principal
CENTENNIAL HOLDINGS I, LLC
By:
-------------------------------------------
Steven C. Halstedt, Managing Member
</TABLE>
(Signature Page for Formus Communications, Inc.
Fifth Amended and Restated Investors' Rights
Agreement)
24
<PAGE> 29
<TABLE>
<S> <C>
CENTENNIAL STRATEGIC PARTNERS VI, L.P.
BY: CSP VI MANAGEMENT, LLC
ITS: GENERAL PARTNER
BY: CENTENNIAL HOLDINGS VI, LLC
ITS: MANAGING MEMBER
By:
-------------------------------------------
Steven C. Halstedt, Managing Principal
MILLENNIAL HOLDINGS LLC
By:
-------------------------------------------
Laura I. Beller
Managing Member
TELECOM PARTNERS I, L.P.
BY: TELECOM MANAGEMENT I, L.L.C.
ITS: GENERAL PARTNER
By:
-------------------------------------------
Mark D. Adolph
Chief Operating Officer
TELECOM PARTNERS II, L.P.
BY: TELECOM MANAGEMENT II, L.L.C.
ITS: GENERAL PARTNER
By:
-------------------------------------------
Mark D. Adolph
Chief Operating Officer
TELECOM PARTNERS III, L.P.
BY: TELECOM MANAGEMENT III, L.L.C.
ITS: GENERAL PARTNER
By:
-------------------------------------------
Mark D. Adolph
Chief Operating Officer
</TABLE>
(Signature Page for Formus Communications, Inc.
Fifth Amended and Restated Investors' Rights
Agreement)
25
<PAGE> 30
<TABLE>
<S> <C>
SPECTRUM EQUITY INVESTORS, L.P.
BY: SPECTRUM EQUITY ASSOCIATES, L.P.
ITS: GENERAL PARTNER
By:
-------------------------------------------
Kevin J. Maroni
Attorney-in-Fact
SPECTRUM EQUITY INVESTORS II, L.P.
BY: SPECTRUM EQUITY ASSOCIATES II, L.P.
ITS: GENERAL PARTNER
By:
-------------------------------------------
Kevin J. Maroni
A General Partner
MEDIA/COMMUNICATIONS PARTNERS III
LIMITED PARTNERSHIP
BY: M/C III L.L.C., ITS GENERAL PARTNER
By:
-------------------------------------------
James F. Wade
Manager
M/C INVESTORS L.L.C.
By:
-------------------------------------------
James F. Wade
Manager
BARING COMMUNICATIONS EQUITY LIMITED
By:
-------------------------------------------
Christopher Cochrane
Director
</TABLE>
(Signature Page for Formus Communications, Inc.
Fifth Amended and Restated Investors' Rights
Agreement)
26
<PAGE> 31
<TABLE>
<S> <C>
NORTHWOOD VENTURES LLC
By:
-------------------------------------------
Peter G. Schiff
President
NORTHWOOD CAPITAL PARTNERS LLC
By:
-------------------------------------------
Peter G. Schiff
President
CRESCENDO WORLD FUND, LLC
BY: CRESCENDO VENTURES - WORLD FUND, LLC
ITS: MANAGING MEMBER
By:
-------------------------------------------
EAGLE VENTURES WF, LLC
By:
-------------------------------------------
BANCBOSTON INVESTMENTS, INC.
By:
-------------------------------------------
Lars A. Swanson, Vice-President
CIBC WMC INC.
By:
-------------------------------------------
P. Kenneth Kilgour, Managing Director
</TABLE>
(Signature Page for Formus Communications, Inc.
Fifth Amended and Restated Investors' Rights
Agreement)
27
<PAGE> 32
<TABLE>
<S> <C>
DOEG HILL I, LLC
By:
-------------------------------------------
Dennis Patrick, Manager
CHASE EQUITY ASSOCIATES, L.P.
BY: CHASE CAPITAL PARTNERS
ITS: GENERAL PARTNER
By:
-------------------------------------------
Michael R. Hannon, General Partner
CHASE CAPITAL INVESTMENTS, L.P.
BY: CHASE CAPITAL PARTNERS
ITS: INVESTMENT MANAGER
By:
-------------------------------------------
Michael R. Hannon, General Partner
HARBOURVEST INTERNATIONAL PRIVATE
EQUITY PARTNERS III-DIRECT FUND L.P.
BY: HIPEP III-DIRECT ASSOCIATES L.L.C.
ITS: GENERAL PARTNER
BY: HARBOURVEST PARTNERS, L.L.C.
ITS: MANAGING MEMBER
By:
-------------------------------------------
William A. Johnston
Managing Director
-------------------------------------------
William J. Elsner
-------------------------------------------
Frederick Vierra
</TABLE>
(Signature Page for Formus Communications, Inc.
Fifth Amended and Restated Investors' Rights
Agreement)
28
<PAGE> 33
<TABLE>
<S> <C>
-------------------------------------------
Roxanne Vierra
-------------------------------------------
Trygve Myhren
MYHREN VENTURES, L.P.
By:
-------------------------------------------
Trygve E. Myhren, Manager
PART'COM
By:
-------------------------------------------
Pierre de Fouquet
Managing Director
MEDIATEL CAPITAL FCP
BY: MEDIATEL MANAGEMENT S.A.
ITS: MANAGEMENT COMPANY
By:
-------------------------------------------
Antoine Garrigues
Senior Advisor
CRI MEDIA PARTNERS, L.P.
By:
-------------------------------------------
Ellen Berland Gibbs
President of General Partner
</TABLE>
(Signature Page for Formus Communications, Inc.
Fifth Amended and Restated Investors' Rights
Agreement)
29
<PAGE> 34
<TABLE>
<S> <C>
CRI MEDIA PARTNERS II, L.P.
By:
-------------------------------------------
Ellen Berland Gibbs
President of General Partner
INTEL CORPORATION
By:
-------------------------------------------
Name:
Title:
CITIZENS CAPITAL, INC.
By:
-------------------------------------------
Gregory F. Mulligan
Managing Director
JANCO CAPITAL, LP
By: Janco Capital Management, LLC
Its: General Partner
By:
-------------------------------------------
Jan E. Helen
Managing Member
-------------------------------------------
Ronald D. Buckman
-------------------------------------------
David L. Jones
-------------------------------------------
Kenneth D. Moelis
</TABLE>
(Signature Page for Formus Communications, Inc.
Fifth Amended and Restated Investors' Rights
Agreement)
30
<PAGE> 35
<TABLE>
<S> <C>
-------------------------------------------
Mark W. Lanigan
-------------------------------------------
Laurence E. Paul
-------------------------------------------
Jeffrey A. Raich
-------------------------------------------
Susan C. Schnabel
-------------------------------------------
David F. Posnick
-------------------------------------------
Thomas C. Davidov
-------------------------------------------
John S. Ehlinger
-------------------------------------------
Randall L. Bort
-------------------------------------------
Arpad Komjathy
-------------------------------------------
Navid Mahmoodzadegan
-------------------------------------------
Steven Rattner
-------------------------------------------
David Miller
</TABLE>
(Signature Page for Formus Communications, Inc.
Fifth Amended and Restated Investors' Rights
Agreement)
31
<PAGE> 36
<TABLE>
<S> <C>
-------------------------------------------
David Dennis
WOO FAMILY TRUST DATED NOVEMBER 30,
1998
By:
-------------------------------------------
Warren C. Woo, Trustee
HOOKS TRUST DATED NOVEMBER 4, 1998
By:
-------------------------------------------
Michael K. Hooks, Trustee
-------------------------------------------
Eric S. Swanson
-------------------------------------------
Scott M. Honour
-------------------------------------------
Donald S. Kinsey
-------------------------------------------
Barry A. Sholem
-------------------------------------------
Andrew R. Kassoy
-------------------------------------------
Brian McLoughlin
</TABLE>
(Signature Page for Formus Communications, Inc.
Fifth Amended and Restated Investors' Rights
Agreement)
32
<PAGE> 37
<TABLE>
<S> <C>
-------------------------------------------
James T. Sington
-------------------------------------------
Dr. Michael Hoenig
-------------------------------------------
Dr. Axel Diekmann
-------------------------------------------
Angelika Diekmann
-------------------------------------------
Simone Diekmann
-------------------------------------------
Alexander Diekmann
-------------------------------------------
Matthias Weber
TCB BETEILIGUNGS GMBH
By:
-------------------------------------------
Dr. Thomas Kuhmann, Managing Director
CHASE CAPITAL PARTNERS (CCP) GERMANY
B.V.
By:
-------------------------------------------
Jonathan Meggs, Partner
</TABLE>
(Signature Page for Formus Communications, Inc.
Fifth Amended and Restated Investors' Rights
Agreement)
33
<PAGE> 38
<TABLE>
<S> <C>
CHASE EUROPEAN EQUITY ASSOCIATES II LLC
By:
-------------------------------------------
Jonathan Meggs, Partner
CAPITAL COMMUNICATIONS CDPQ
By:
-------------------------------------------
Andre DeMontigny, Vice President
By:
-------------------------------------------
Sebastien Rheaume, Manager
M.G. KLEIN AND S. DIANE KLEIN LIVING
TRUST
By:
-------------------------------------------
-------------------------------------------
Eric G. Klein
</TABLE>
(Signature Page for Formus Communications, Inc.
Fifth Amended and Restated Investors' Rights
Agreement)
34
<PAGE> 39
<TABLE>
<S> <C>
-------------------------------------------
Jeffrey M. Klein
GMT COMMUNICATIONS PARTNERS II, L.P.
By:
-------------------------------------------
</TABLE>
(Signature Page for Formus Communications, Inc.
Fifth Amended and Restated Investors' Rights
Agreement)
35
<PAGE> 40
<TABLE>
<S> <C>
TRIMUS II PARTNERS
By:
-------------------------------------------
Laurence E. Paul, Trustee
</TABLE>
(Signature Page for Formus Communications, Inc.
Fifth Amended and Restated Investors' Rights
Agreement)
36
<PAGE> 41
SCHEDULE A
SCHEDULE OF INVESTORS
<PAGE> 42
SCHEDULE B
SCHEDULE OF EMPLOYEE STOCKHOLDERS
<PAGE> 1
EXHIBIT 4.4
WARRANT
THE WARRANT EVIDENCED OR CONSTITUTED HEREBY, AND ALL SHARES OF PREFERRED STOCK
ISSUABLE HEREUNDER AND COMMON STOCK ISSUABLE UPON THE CONVERSION OF THE
PREFERRED STOCK, HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT") AND MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT
UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR (ii) THE
COMPANY IS REASONABLY SATISFIED THAT THE SALE OF SUCH SECURITIES IS MADE
PURSUANT TO SECURITIES AND EXCHANGE COMMISSION RULE 144.
WARRANT TO PURCHASE SERIES E PREFERRED STOCK OF FORMUS COMMUNICATIONS, INC.
(Subject to Adjustment)
NO. 1
THIS CERTIFIES THAT, for value received, Intel Corporation, or its
permitted registered assigns ("Holder"), is entitled, at any time or from time
to time after September 9, 1999 (the "Exercise Date") and before the expiration
date defined in Section 2.8 below (the "Expiration Date"), to purchase from
Formus Communications, Inc., a Delaware corporation (the "Company"), one million
two hundred and fifty thousand (1,250,000) shares of Warrant Stock (as defined
in Section 1 below) of the Company at a price per share of $13.50 (the "Purchase
Price"), subject to the vesting schedule listed in Attachment A hereto. Both the
number of shares of Warrant Stock purchasable upon exercise of this Warrant and
the Purchase Price are subject to adjustment and change as provided herein.
1. CERTAIN DEFINITIONS. As used in this Warrant the following terms shall
have the following respective meanings:
"Fair Market Value" of a share of Warrant Stock as of a particular date
shall mean:
(a) If traded on a securities exchange or the Nasdaq National
Market, the Fair Market Value shall be deemed to be the average of the closing
prices of the Warrant Stock of the Company on such exchange or market over the 5
business days ending immediately prior to the applicable date of valuation;
(b) If actively traded over-the-counter, the Fair Market Value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending immediately prior to the applicable date of valuation; and
(c) If there is no active public market, the Fair Market Value
shall be the value thereof, as determined in good faith by the Company's board
of directors; provided, however,
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that if the Holder objects in good faith to such determination, then, such value
shall be determined by an independent valuation firm experienced in valuing
businesses such as that of the Company and jointly selected in good faith by the
Company and the Holder. Fees and expenses of the valuation firm shall be shared
equally by the Company and the Holder.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976.
"IPO" shall mean the Company's first firm commitment underwritten
public offering of the Company's Common Stock pursuant to a registration
statement filed with the Securities and Exchange Commission.
"Registered Holder" shall mean any Holder in whose name this Warrant is
registered upon the books and records maintained by the Company.
"Warrant" as used herein, shall include this Warrant and any warrant
delivered in substitution or exchange therefor as provided herein.
"Warrant Stock" shall mean the Series E Preferred Stock of the Company
and any other securities at any time receivable or issuable upon exercise of
this Warrant.
2. EXERCISE OF WARRANT
2.1. Payment. Subject to compliance with the terms and conditions of
this Warrant and applicable securities laws and subject to the vesting
conditions referenced in Section 2.8, this Warrant may be exercised, in whole or
in part at any time or from time to time, on or before the Expiration Date by
the delivery (including, without limitation, delivery by facsimile) of the form
of Notice of Exercise attached hereto as Exhibit 1 (the "Notice of Exercise"),
duly executed by the Holder, at the principal office of the Company, and as soon
as practicable after such date, surrendering
(a) this Warrant at the principal office of the Company, and
(b) payment, (i) in cash (by check) or by wire transfer, (ii) by
cancellation by the Holder of indebtedness of the Company to the Holder; or
(iii) by a combination of (i) and (ii), of an amount equal to the product
obtained by multiplying the number of shares of Warrant Stock being purchased
upon such exercise by the then effective Purchase Price (the "Exercise Amount"),
except that if Holder is subject to HSR Act Restrictions (as defined in Section
2.6 below), the Exercise Amount shall be paid to the Company within five (5)
business days of the termination of all HSR Act Restrictions.
2.2. Net Issue Exercise. In lieu of the payment methods set forth in
Section 2.1(b) above, the Holder may elect to exchange all or some of the
Warrant for shares of Warrant Stock equal to the value of the amount of the
Warrant being exchanged on the date of exchange. If Holder elects to exchange
this Warrant as provided in this Section 2.2, Holder shall tender to the Company
the Warrant for the amount being exchanged, along with written notice of
Holder's election to exchange some or all of the Warrant, and the Company shall
issue to Holder the number of shares of Warrant Stock computed using the
following formula:
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X = Y (A-B)
-------
A
Where X = the number of shares of Warrant Stock to be issued
to Holder.
Y = the number of shares of Warrant Stock purchasable under
the amount of the Warrant being exchanged (as adjusted to the
date of such calculation).
A = the Fair Market Value of one share of the Company's
Warrant Stock.
B = Purchase Price (as adjusted to the date of such
calculation).
All references herein to an "exercise" of the Warrant shall include an
exchange pursuant to this Section 2.2.
2.3. Initial Public Offering. Upon receipt of a written notice of the
Company's intention to raise capital by selling shares of Common Stock in an IPO
(the "IPO Notice"), which notice shall be delivered to Holder at least thirty
(30) but not more than ninety (90) days before the anticipated date of the
filing with the Securities and Exchange Commission of the registration statement
associated with the IPO, the Holder shall notify the Company within 15 days
after receiving the IPO Notice whether or not the Holder will exercise this
Warrant pursuant to Section 2.2 prior to consummation of the IPO. If the Holder
notifies the Company that it does not intend to exercise this Warrant before
consummation of the IPO or if the Holder does not give timely notice in response
to the IPO Notice, then the Holder will not be allowed to exercise this Warrant
until after consummation of the IPO and completion of the distribution of the
IPO shares or, if sooner, abandonment of the IPO by the Company. Notwithstanding
whether or not an IPO Notice has been delivered to Holder or any other provision
of this Warrant to the contrary, if Holder decides to exercise this Warrant
while a registration statement is on file with the Securities and Exchange
Commission (the "SEC") in connection with the IPO, this Warrant shall be deemed
exercised immediately prior to the consummation of the IPO and the Fair Market
Value of a share of Warrant Stock will be the price of the Common Stock of the
Company issuable upon conversion of the Warrant Stock as such Common Stock price
is stated in the final prospectus used in for the IPO. If Holder has elected to
exercise this Warrant pursuant to Section 2.2 while a registration statement is
on file with the Securities and Exchange Commission in connection with an IPO
and the IPO is not consummated, then Holder's exercise of this Warrant shall not
be effective unless Holder confirms in writing Holder's intention to go forward
with the exercise of this Warrant.
2.4. "Easy Sale" Exercise. In lieu of the payment methods set forth in
Section 2.1(b) above, when permitted by law and applicable regulations
(including Nasdaq and NASD rules), the Holder may pay the Purchase Price through
a "same day sale" commitment from the Holder (and if applicable a broker-dealer
that is a member of the National Association of Securities Dealers (a "NASD
Dealer")), whereby the Holder irrevocably elects to exercise this Warrant and to
sell a portion of the Shares so purchased to pay for the Purchase Price and the
Holder (or, if applicable, the NASD Dealer) commits upon sale (or, in the case
of the NASD Dealer, upon receipt) of such Shares to forward the Purchase Price
directly to the Company.
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2.5. Stock Certificates; Fractional Shares. As soon as practicable on
or after such date, the Company shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for the number of
whole shares of Warrant Stock issuable upon such exercise, together with cash in
lieu of any fraction of a share equal to such fraction of the current Fair
Market Value of one whole share of Warrant Stock as of the date of exercise of
this Warrant. No fractional shares or scrip representing fractional shares shall
be issued upon an exercise of this Warrant.
2.6. HSR Act. The Company hereby acknowledges that exercise of this
Warrant by Holder may subject the Company and/or the Holder to the filing
requirements of the HSR Act and that Holder may be prevented from exercising
this Warrant until the expiration or early termination of all waiting periods
imposed by the HSR Act ("HSR Act Restrictions"). If on or before the Expiration
Date Holder has sent the Notice of Exercise to Company and Holder has not been
able to complete the exercise of this Warrant prior to the Expiration Date
because of HSR Act Restrictions, the Holder shall be entitled to complete the
process of exercising this Warrant in accordance with the procedures contained
herein notwithstanding the fact that completion of the exercise of this Warrant
would take place after the Expiration Date or the completion of the IPO.
2.7. Partial Exercise; Effective Date of Exercise. In case of any
partial exercise of this Warrant, the Company shall cancel this Warrant upon
surrender hereof and shall execute and deliver a new Warrant of like tenor and
date for the balance of the shares of Warrant Stock purchasable hereunder. This
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above. However,
if Holder is subject to HSR Act filing requirements this Warrant shall be deemed
to have been exercised on the date immediately following the date of the
expiration of all HSR Act Restrictions. The person entitled to receive the
shares of Warrant Stock issuable upon exercise of this Warrant shall be treated
for all purposes as the holder of record of such shares as of the close of
business on the date the Holder is deemed to have exercised this Warrant.
2.8. Vesting. This Warrant may be exercised only to the extent it has
vested in accordance with attached Schedule A.
2.8 Expiration Date. This Warrant shall expire on the earliest to occur
of the following: (i) September 9, 2006 or (ii) the closing of an acquisition of
the Company by another entity by means of a merger or consolidation.
3. VALID ISSUANCE: TAXES. All shares of Warrant Stock issued upon the exercise
of this Warrant (and shares of Common Stock for issuance on conversion of such
Warrant Stock) shall be validly issued, fully paid and non-assessable, and the
Company shall pay all taxes and other governmental charges that may be imposed
in respect of the issue or delivery thereof. The Company shall not be required
to pay any tax or other charge imposed in connection with any transfer involved
in the issuance of any certificate for shares of Warrant Stock in any name other
than that of the Registered Holder of this Warrant, and in such case the Company
shall not be required to issue or deliver any stock certificate or security
until such tax or other charge has
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been paid, or it has been established to the Company's reasonable satisfaction
that no tax or other charge is due.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. In addition to any
adjustment to the Warrant Stock required by the terms of such Warrant Stock in
the Company's Certificate of Incorporation, the number of shares of Warrant
Stock issuable upon exercise of this Warrant (or any shares of stock or other
securities or property receivable or issuable upon exercise of this Warrant) and
the Purchase Price are subject to adjustment upon occurrence of the following
events:
4.1. Adjustment for Stock Splits, Stock Subdivisions or Combinations of
Shares. The Purchase Price of this Warrant shall be proportionally decreased and
the number of shares of Warrant Stock issuable upon exercise of this Warrant (or
any shares of stock or other securities at the time issuable upon exercise of
this Warrant) shall be proportionally increased to reflect any stock split or
subdivision of the Company's Warrant Stock. The Purchase Price of this Warrant
shall be proportionally increased and the number of shares of Warrant Stock
issuable upon exercise of this Warrant (or any shares of stock or other
securities at the time issuable upon exercise of this Warrant) shall be
proportionally decreased to reflect any combination of the Company's Warrant
Stock.
4.2. Adjustment for Dividends or Distributions of Stock or Other
Securities or Property. In case the Company shall make or issue, or shall fix a
record date for the determination of eligible holders entitled to receive, a
dividend or other distribution with respect to the Warrant Stock (or any shares
of stock or other securities at the time issuable upon exercise of the Warrant)
payable in (a) securities of the Company or (b) assets (excluding cash dividends
paid or payable solely out of retained earnings), then, in each such case, the
Holder of this Warrant on exercise hereof at any time after the consummation,
effective date or record date of such dividend or other distribution, shall
receive, in addition to the shares of Warrant Stock (or such other stock or
securities) issuable on such exercise prior to such date, and without the
payment of additional consideration therefor, the securities or such other
assets of the Company to which such Holder would have been entitled upon such
date if such Holder had exercised this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period giving effect to all adjustments called
for by this Section 4.
4.3. Reclassification. If the Company, by reclassification of
securities or otherwise, shall change any of the securities as to which purchase
rights under this Warrant exist into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Warrant immediately prior to such
reclassification or other change and the Purchase Price therefore shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 4. No adjustment shall be made pursuant to this Section 4.3 upon any
conversion or redemption of the Warrant Stock which is the subject of Section
4.5.
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4.4. Adjustment for Capital Reorganization. In case of any capital
reorganization of the capital stock of the Company (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), then, as a part of such reorganization, lawful provision shall be made
so that the Holder of this Warrant shall thereafter be entitled to receive upon
exercise of this Warrant, during the period specified herein and upon payment of
the Purchase Price then in effect, the number of shares of stock or other
securities or property of the successor corporation resulting from such
reorganization that a holder of the shares deliverable upon exercise of this
Warrant would have been entitled to receive in such reorganization if this
Warrant had been exercised immediately before such reorganization, all subject
to further adjustment as provided in this Section 4. The foregoing provisions of
this Section 4.4 shall similarly apply to successive reorganizations and to the
stock or securities of any other corporation that are at the time receivable
upon the exercise of this Warrant. If the per-share consideration payable to the
Holder hereof for shares in connection with any such transaction is in a form
other than cash or marketable securities, then the value of such consideration
shall be determined in good faith by the Company's Board of Directors. In all
events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Warrant with respect to the rights and interests of the Holder after the
transaction, to the end that the provisions of this Warrant shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon exercise of this Warrant.
4.5. Conversion of Warrant Stock. In case all or any portion of the
authorized and outstanding shares of Warrant Stock of the Company are redeemed
or converted or reclassified into other securities or property pursuant to the
Company's Certificate of Incorporation or otherwise, or the Warrant Stock
otherwise ceases to exist, then, in such case, the Holder of this Warrant, upon
exercise hereof at any time after the date on which the Warrant Stock is so
redeemed or converted, reclassified or ceases to exist (the "Termination Date"),
shall receive, in lieu of the number of shares of Warrant Stock that would have
been issuable upon such exercise immediately prior to the Termination Date, the
securities or property that would have been received if this Warrant had been
exercised in full and the Warrant Stock received thereupon had been
simultaneously converted immediately prior to the Termination Date, all subject
to further adjustment as provided in this Warrant. Additionally, the Purchase
Price shall be immediately adjusted to equal the quotient obtained by dividing
(x) the aggregate Purchase Price of the maximum number of shares of Warrant
Stock for which this Warrant was exercisable immediately prior to the
Termination Date by (y) the number of shares of Warrant Stock of the Company for
which this Warrant is exercisable immediately after the Termination Date, all
subject to further adjustment as provided herein.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in the Purchase
Price, or number or type of shares issuable upon exercise of this Warrant, the
Chief Financial Officer or Controller of the Company shall compute such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, including a statement of the adjusted Purchase
Price. The Company shall promptly send (by facsimile and by either first class
mail, postage prepaid or overnight delivery) a copy of each such certificate to
the Holder.
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6. LOSS OR MUTILATION. Upon receipt of evidence reasonably satisfactory to the
Company of the ownership of and the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to it, and (in the case
of mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver in lieu thereof a new Warrant of like tenor as the lost,
stolen, destroyed or mutilated Warrant.
7. RESERVATION OF WARRANT STOCK. The Company hereby covenants that at all times
there shall be reserved for issuance and delivery upon exercise of this Warrant
such number of shares of Common Stock or other shares of capital stock of the
Company as are from time to time issuable upon exercise of this Warrant and,
from time to time, will take all steps necessary to amend its Certificate of
Incorporation to provide sufficient reserves of shares of Warrant Stock issuable
upon exercise of this Warrant (and shares of its Common Stock for issuance on
conversion of such Warrant Stock). All such shares shall be duly authorized, and
when issued upon such exercise, shall be validly issued, fully paid and
non-assessable, free and clear of all liens, security interests, charges and
other encumbrances or restrictions on sale and free and clear of all preemptive
rights, except encumbrances or restrictions arising under federal or state
securities laws. Issuance of this Warrant shall constitute full authority to the
Company's officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Warrant Stock (and
shares of Common Stock for issuance on conversion of such Warrant Stock) upon
the exercise of this Warrant.
8. TRANSFER AND EXCHANGE. Upon the closing of the Company's initial public
offering of securities and after Intel Corporation has fully vested all shares
of Warrant Stock pursuant to the conditions described in Attachment A hereto,
subject to the terms and conditions of this Warrant and compliance with all
applicable securities laws, this Warrant and all rights hereunder may be
transferred to any Registered Holder parent, subsidiary or affiliate, in whole
or in part, on the books of the Company maintained for such purpose at the
principal office of the Company referred to above, by the Registered Holder
hereof in person, or by duly authorized attorney, upon surrender of this Warrant
properly endorsed and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. Upon any permitted partial
transfer, the Company will issue and deliver to the Registered Holder a new
Warrant or Warrants with respect to the shares of Warrant Stock not so
transferred. Each taker and holder of this Warrant, by taking or holding the
same, consents and agrees that when this Warrant shall have been so endorsed,
the person in possession of this Warrant may be treated by the Company, and all
other persons dealing with this Warrant, as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby,
any notice to the contrary notwithstanding; provided, however that until a
transfer of this Warrant is duly registered on the books of the Company, the
Company may treat the Registered Holder hereof as the owner for all purposes.
In addition, the Holder agrees that this Warrant and the Warrant Stock
will be deemed Stockholder Shares under the terms of that Second Amended and
Restated Stockholder Agreement dated September 3, 1999 by and among the Company,
the Holder and certain other holders of the Company's securities (the
"Stockholders' Agreement"), and this Warrant and the Warrant Stock will be
subject to all restrictions contained in the Stockholders' Agreement to the
extent such restrictions have not terminated.
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9. RESTRICTIONS ON TRANSFER. The Holder, by acceptance hereof, agrees that,
absent an effective registration statement filed with the SEC under the
Securities Act of 1933, as amended (the "1933 Act"), covering the disposition or
sale of this Warrant or the Warrant Stock issued or issuable upon exercise
hereof or the Common Stock issuable upon conversion thereof, as the case may be,
and registration or qualification under applicable state securities laws, such
Holder will not sell, transfer, pledge, or hypothecate any or all such Warrants
or Warrant Stock, as the case may be, unless (A) the conditions and restriction
of Section 8 above have been met, and (B) either (i) the Company has received an
opinion of counsel, in form and substance reasonably satisfactory to the
Company, to the effect that such registration is not required in connection with
such disposition or (ii) the Company is reasonably satisfied that the sale of
such securities is made pursuant to SEC Rule 144.
10. COMPLIANCE WITH SECURITIES LAWS. By acceptance of this Warrant, the holder
hereby represents, warrants and covenants that any shares of stock purchased
upon exercise of this Warrant or acquired upon conversion thereof shall be
acquired for investment only and not with a view to, or for sale in connection
with, any distribution thereof; that the Holder has had such opportunity as such
Holder has deemed adequate to obtain from representatives of the Company such
information as is necessary to permit the Holder to evaluate the merits and
risks of its investment in the Company; that the Holder is able to bear the
economic risk of holding such shares as may be acquired pursuant to the exercise
of this Warrant for an indefinite period; that the Holder understands that the
shares of stock acquired pursuant to the exercise of this Warrant or acquired
upon conversion thereof will not be registered under the 1933 Act (unless
otherwise required pursuant to exercise by the Holder of the registration
rights, if any, previously granted to the registered Holder) and will be
"restricted securities" within the meaning of Rule 144 under the 1933 Act and
that the exemption from registration under Rule 144 will not be available for at
least one year from the date of exercise of this Warrant, subject to any special
treatment by the SEC for exercise of this Warrant pursuant to Section 2.2, and
even then will not be available unless a public market then exists for the
stock, adequate information concerning the Company is then available to the
public, and other terms and conditions of Rule 144 are complied with; and that
all stock certificates representing shares of stock issued to the Holder upon
exercise of this Warrant or upon conversion of such shares may have affixed
thereto a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN
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COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
11. NO RIGHTS OR LIABILITIES AS STOCKHOLDERS. This Warrant shall not entitle the
Holder to any voting rights or other rights as a stockholder of the Company. In
the absence of affirmative action by such Holder to purchase Warrant Stock by
exercise of this Warrant, no provisions of this Warrant, and no enumeration
herein of the rights or privileges of the Holder hereof shall cause such Holder
hereof to be a stockholder of the Company for any purpose.
12. REGISTRATION RIGHTS. All shares of Warrant Stock issuable upon exercise of
this Warrant shall be "Registrable Securities" or such other definition of
securities entitled to registration rights pursuant to the Investor Rights
Agreement dated September 3, 1999, as amended (the "Rights Agreement"), by and
among the Company, the Holder and certain other holders of the Company's
securities.
13. NOTICES. All notices and other communications from the Company to the Holder
shall be given in accordance with the Rights Agreement.
14. HEADINGS. The headings in this Warrant are for purposes of convenience in
reference only, and shall not be deemed to constitute a part hereof.
15. LAW GOVERNING. This Warrant shall be construed and enforced in accordance
with, and governed by, the laws of the State of Delaware.
16. NO IMPAIRMENT. The Company will not, by amendment of its Certificate of
Incorporation or bylaws, or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Registered Holder of this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock issuable
upon the exercise of this Warrant above the amount payable therefor upon such
exercise, and (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
non-assessable shares of Warrant Stock upon exercise of this Warrant and Common
Stock issued in conversion thereof.
17. NOTICES OF RECORD DATE. In case:
17.1. the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
this Warrant), for the purpose of entitling them to receive any dividend or
other distribution, or any right to subscribe for or purchase any shares of
stock of any class or any other securities or to receive any other right; or
17.2. of any consolidation or merger of the Company with or into
another corporation, any capital reorganization of the Company, any
reclassification of the Capital Stock of the
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Company, or any conveyance of all or substantially all of the assets of the
Company to another corporation in which holders of the Company's stock are to
receive stock, securities or property of another corporation; or
17.3. of any voluntary dissolution, liquidation or winding-up of the
Company; or
17.4. of any redemption or conversion of all outstanding Common Stock
or Warrant Stock;
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation,
winding-up, redemption or conversion is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock or (such stock or
securities as at the time are receivable upon the exercise of this Warrant),
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities), for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be delivered at least
thirty (30) days prior to the date therein specified.
18. SEVERABILITY. If any term, provision, covenant or restriction of this
Warrant is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
19. COUNTERPARTS. For the convenience of the parties, any number of counterparts
of this Warrant may be executed by the parties hereto and each such executed
counterpart shall be, and shall be deemed to be, an original instrument.
20. NO INCONSISTENT AGREEMENTS. The Company will not on or after the date of
this Warrant enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Holders of this Warrant or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to holders of the Company's securities under any other
agreements, except rights that have been waived.
21. SATURDAYS, SUNDAYS AND HOLIDAYS. If the Expiration Date falls on a Saturday,
Sunday or legal holiday, the Expiration Date shall automatically be extended
until 5:00 p.m. the next business day.
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IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
September 9, 1999.
INTEL CORPORATION FORMUS COMMUNICATIONS, INC.
By: By:
---------------------------- ---------------------------
- ------------------------------- Bernard G. Dvorak
Printed Name Printed Name
Senior Vice President and Chief
- ------------------------------- --------------------------------
Financial Officer
--------------------------------
Title Title
SIGNATURE PAGE TO WARRANT TO PURCHASE
SERIES E PREFERRED STOCK OF
FORMUS COMMUNICATIONS, INC.
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EXHIBIT 4.6
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FORMUS POLSKA Sp. z o.o.
SHAREHOLDERS' AGREEMENT
Dated as of _____________ 1997
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TABLE OF CONTENTS
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Page
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1. Definitions........................................................ 1
2. Establishment; Purposes; Covenant Not to Compete; Other Matters.... 5
(a) Establishment of the Company.............................. 5
(b) Purposes.................................................. 5
(c) Covenant Not to Compete................................... 6
(d) Amendment of the Deed; Adoption of Rules and Regulations.. 6
(e) Compliance with Laws...................................... 6
(f) Reimbursement Obligations................................. 7z
3. Funding............................................................ 7
(a) Initial Funding........................................... 7
(b) Additional Funding........................................ 7
(c) External Funding.......................................... 8
(d) Additional Partners....................................... 8
(e) Credit for Costs; Payments from Escrow; Closing Fee....... 9
4. Economic and Voting Interests...................................... 10
(a) Economic Interest......................................... 10
(b) Voting Interest; Adjustment of Voting Interests........... 11
5. Management......................................................... 11
(a) Supervisory Board of the Company.......................... 11
(b) Management Board of the Company........................... 15
(c) Budgets; Financial Reporting.............................. 17
6. Distributions...................................................... 18
(a) First One Percent of Nonliquidating Distributions......... 18
(b) Remaining Nonliquidating Distributions.................... 18
(c) Definitions of Premium Amount............................. 19
(d) Liquidating Distributions................................. 19
(e) Exchange Rates............................................ 19
(f) Example................................................... 19
7. Transfer and Liquidity Rights...................................... 20
(a) General Restriction....................................... 20
(b) Permitted Transfers....................................... 20
(c) Right of First Refusal.................................... 20
(d) Call Option............................................... 22
(e) No Change of Domicile..................................... 24
(f) The Bonds................................................. 24
8. Disposition of Interests of a Bankrupt or Dissolved Shareholder.... 24
(a) Bankruptcy or Dissolution of Elmedia...................... 24
(b) Purchase Price............................................ 25
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<TABLE>
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(c) Company Liability......................................... 26
9. Representations and Warranties; Acknowledgment..................... 26
(a) Representations and Warranties of the Polish Partners..... 26
(b) Acknowledgment of the Polish Partners..................... 27
(c) Representations and Warranties of Formus.................. 27
10. Miscellaneous...................................................... 28
(a) Term; Consequences of Termination......................... 28
(b) Governing Law, Dispute Resolution, Remedies............... 28
(c) U.S. Tax Election......................................... 28
(d) Amendment................................................. 29
(e) No Waiver................................................. 29
(f) Assignment................................................ 29
(g) Counterparts.............................................. 29
(h) Severability.............................................. 29
(i) Interpretation............................................ 29
(j) Entire Agreement.......................................... 29
(k) No Partnership............................................ 30
(l) Costs..................................................... 30
(m) Injunctive Relief......................................... 30
(n) Representative............................................ 30
(o) Polish Law................................................ 30
(p) Notices................................................... 30
(q) Further Assurances........................................ 31
(r) Indemnification by Polish Partners........................ 31
(s) Confidentiality........................................... 31
</TABLE>
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SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT, dated as of November ____, 1997, is among FORMUS
INTERNATIONAL - POLAND, INC., a corporation organized and existing under the
laws of the State of Delaware, USA ("Formus"), ELMEDIA Sp. z o.o., a limited
liability company organized and existing under the laws of the Republic of
Poland ("Elmedia"), and Kazimierz Jan DEMBSKI, Jan Jozef CHROSTOWSKI, and Leszek
Jan STRAWINSKI. Elmedia and Messrs. Dembski, Chrostowski and STRAWINSKI are
sometimes referred to herein, individually, as a "Polish Partner" and,
collectively, as the "Polish Partners." Formus and the Polish Partners are
sometimes referred to herein, individually, as a "Party" and, collectively, as
the "Parties."
RECITALS
A. Pursuant to the agreement, dated as of July 30, 1997 (the "Formation
Agreement"), among the Parties, Formus and Elmedia formed Formus Polska
Sp. z o.o. (the "Company") as a limited liability company (Spolka z
ograniczona odpowiedzialnoscia) under the laws of the Republic of
Poland.
B. The Parties desire to enter into this Agreement to regulate the
relationship of Formus and Elmedia as Shareholders and to provide for
the operations of the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Definitions
As used in this Agreement, the following terms will have the following
meanings:
"Additional Funding" will mean any funding of the Company or any of its
Subsidiaries in accordance with the terms of this Agreement, including
the amount specified in Section 3(b)(i)(A) and the amount identified as
Excess Funding in Section 3(b)(i)(B), but excluding the amounts
specified in Section 3(a). In relation to a particular Shareholder,
Additional Funding will mean the Additional Funding of the Company or
any of its Subsidiaries made by such Shareholder or any of its
Affiliates.
"Affiliate" will mean, with respect to any Person, any other Person
other than the Company and its Subsidiaries, controlling, controlled by
or under common control with such Person.
"Agreement" will mean this Shareholders' Agreement, together with any
exhibits and schedules attached hereto.
"Appraiser" will have the meaning specified in Section 7(d).
"Bankrupt Acceptance Notice" will have the meaning specified in Section
8(a).
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"Bankruptcy" will mean a situation in which a court has issued a
decision ordering the bankruptcy of an Entity under applicable Law.
"Bankruptcy Notice" will have the meaning specified in Section 8(a).
"Bankrupt Shareholder" will have the meaning specified in Section 8(a).
"Bonds" will have the meaning specified in Section 7(f).
"Bring Along Buyer" will have the meaning specified in Section 7(d).
"Bring Along Notice" will have the meaning specified in Section 7(d).
"Bring Along Transaction" will have the meaning specified in Section
7(d).
"Bring Along Transaction Agreements" will have the meaning specified in
Section 7(d).
"Budget" will mean a 12-month operating budget showing figures on a
monthly basis combined with projections for four additional years
showing figures on an annual basis prepared and approved in accordance
with Section 5(c), as amended, supplemented or replaced from time to
time.
"Business of the Company" will mean the businesses and activities
specified in Section 2(b).
"Business Day" will mean all days other than Saturday, Sunday or any
day which is a bank or public holiday in the State of Colorado or the
Republic of Poland.
"Buy Notice" will have the meaning specified in Section 7(c).
"Called Interest" will have the meaning specified in Section 7(d).
"Call Exercise Price" will have the meaning specified in Section 7(d).
"Call Notice" will have the meaning specified in Section 7(d).
"Closing" will have the meaning specified in Section 3(b).
"Company" will have the meaning specified in Recital A.
"Constituent Documents" will mean the deed of formation, articles or
certificate of incorporation, bylaws, managing body rules and
regulations, partnership documentation or similar organizational
documents of an Entity.
"Deed" will mean the Deed of Formation of the Company, dated August 1,
1997, as amended from time to time.
"Designated Purchaser" will have the meaning specified in Section 7(c).
"Determination Date" will have the meaning specified in Section 7(d).
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"Economic Interest" with respect to a Shareholder will have the meaning
specified in Section 4(a).
"EF" will have the meaning specified in Section 4(b).
"Election Notice" will have the meaning specified in Section 3(b).
"Elmedia" will have the meaning specified in the preamble of this
Agreement.
"Elmedia Appraiser" will have the meaning specified in Section 7(d).
"Elmedia Assistance Agreement" will mean the consulting agreement dated
the date hereof between Elmedia and the Company, as the same may be
amended, modified and replaced from time to time.
"Encumbrances" will have the meaning specified in Section 7(c).
"Entity" will mean any Person other than an individual.
"Escrow" will mean the escrow established pursuant to the Escrow
Agreement, dated as of September 15, 1997, between Formus
International, Inc. and Hogan & Hartson Sp. z o.o.
"Equity Interest" will mean any share, stake, interest, participation,
right or other equivalent, however designated, of an Entity, including
any share, stake, interest, participation, right or other equivalent
that confers on a Person the right to receive dividends or
distributions from such Entity, and any warrant, option or other right
to acquire any such share, stake, interest, participation, right or
other equivalent, but excluding any Indebtedness convertible into or
redeemable or exchangeable for any such share, stake, interest,
participation, right or other equivalent.
"Excess Funding" will have the meaning specified in Section 3(b).
"Fair Market Value" will mean the price at which the subject being
valued could be sold in an arm's length transaction to an unaffiliated
bona fide third party purchaser.
"Finance Director" will have the meaning specified in Section 5(b).
"Foreign Interest Company" will have the meaning specified in Section
4(b).
"Formation Agreement" will have the meaning specified in Recital A.
"Formus" will have the meaning specified in the preamble of this
Agreement.
"Indebtedness" will mean, with respect to any Person, any indebtedness
of such Person, whether or not contingent, in respect of borrowed money
or evidenced by bonds, notes, debentures or similar instruments or
letters of credit, or reimbursement agreements in respect thereof, or
lease obligations or the balance deferred and unpaid of the purchase
price of any property, or guarantees (other than by endorsement of
negotiable instruments for collection in the ordinary course of
business), of all or any part of any such indebtedness.
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"Interests" will mean, with respect to any Party to this Agreement, any
of its Equity Interests in the Company including its Shares, any of its
rights or obligations with respect to such Equity Interests arising
under this Agreement, any Indebtedness of the Company owed to it or any
of its Affiliates, any of the rights or obligations with respect to
such Indebtedness.
"Law" or "Laws" will mean the laws, statutes, decrees, ordinances,
codes, rules, regulations, orders and other instruments having the
force of law in any designated jurisdiction.
"LMDS" will mean a Local Multipoint Distribution System based on a high
frequency wireless broadband telecommunication system.
"Losses" will have the meaning specified in Section 10(r).
"Management Board" will mean the management board of an Entity.
"Managing Director" will mean any member of a Management Board.
"MVDS" will mean a Multipoint Video Distribution System based on a high
frequency wireless broadband telecommunication system.
"Nonelecting Shareholder" will have the meaning specified in Section
3(b).
"Offered Interest" will have the meaning specified in Section 7(c).
"Party" or "Parties" will have the meanings specified in the preamble
of this Agreement.
"Permitted Transfer" will have the meaning specified in Section 7(b).
"Payor Shareholder" will have the meaning specified in Section 2(f).
"Person" will mean any individual, partnership, association, joint
stock company, limited liability company, joint venture, corporation,
trust, unincorporated association or organization, or a government or
agency or political subdivision thereof.
"PLN" or "Polish zloty" or "zloty" will mean the lawful currency of the
Republic of Poland.
"Polish GAAP" will mean generally accepted accounting principles as
applied in the Republic of Poland.
"Polish Partner" and "Polish Partners" will have the meanings specified
in the preamble of this Agreement.
"Preference Distribution Amount" will have the meaning specified in
Section 6(b).
"Premium Amount" will have the meanings specified in Section 6(c).
"Qualified Person" will mean any Person (a) that is reasonably
acceptable to Formus, (b) whose ownership of Shares or any other
Interests in the Company (provided required consents are obtained) is
not reasonably likely, in Formus' opinion, to cause the Company or any
of its Subsidiaries to be in violation or breach of, or be in default
under, any material license,
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franchise, permit, indenture, agreement or other instrument and (c)
that is not reasonably likely, in Formus' opinion, to be a competitor
of Formus or any of its Affiliates.
"Sale Notice" will have the meaning specified in Section 7(c).
"Senior Managing Director" will mean a Managing Director designated as
the Senior Managing Director of the Company by Formus in accordance
with this Agreement.
"Shareholder" will mean each of the holders of the Shares and their
respective successors and permitted assigns.
"Shareholders' Meeting" will mean any general meeting of shareholders
of an Entity, whether annual, regular or extraordinary.
"Shares" will mean the shares, nominal value of 50 zloty each, of the
Company outstanding from time to time and as such shares may be
converted, transformed, subdivided, combined, reclassified or otherwise
changed from time to time.
"Subsidiary" will mean, with respect to any Person, any partnership of
which such Person is a general partner or of which such Person's
Subsidiary is a general partner, or any other Entity of which, at the
time any determination is being made, such Person has the power to vote
directly or indirectly more than 50% of the shares, stakes or other
Equity Interests of such Entity or otherwise control the management and
affairs of such Entity (including by way of the power to veto) any
material act or decision.
"Supervisory Board" will mean the supervisory board of an Entity.
"Supervisory Director" will mean any member of a Supervisory Board.
"TA Restrictions" will have the meaning specified in Section 4(b).
"Tax Liabilities" will have the meaning specified in Section 2(f).
"TEF" will have the meaning specified in Section 4(a).
"Telecommunications Act" will mean the Polish Telecommunications Act as
of November 23, 1990 (Journal of Laws No. 117/1995, item 564), as
amended, or any successor Republic of Poland Law to the Polish
Telecommunications Act, and the rules and regulations promulgated
thereunder.
"Territory" will mean the Republic of Poland.
"Third Appraiser" will have the meaning specified in Section 7(d).
"Transfer" will have the meaning specified in Section 7(a).
"US GAAP" will mean generally accepted accounting principles as applied
in the United States of America.
"US$" or "United States dollars" will mean the lawful currency of the
United States of America.
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"Voting Interest" will have, with respect to a Shareholder, the meaning
specified in Section 4(b).
"V/V/D Services" will have the meaning specified in Section 2(b).
2. Establishment; Purposes; Covenant Not to Compete; Other Matters.
(a) Establishment of the Company. On August 12, 1997, the Company
was registered in the Commercial Register kept by the District
Court for the City of Warsaw, Republic of Poland under number
RHB 51078 and presently has issued share capital of PLN 5,000,
represented by 100 Shares with a total nominal value of PLN
5,000.
(b) Purposes. The Company has the right to (i) pursue the business
of providing integrated voice, video and data services ("V/V/D
Services") in the Territory including the cities of Warsaw,
Lodz, Poznan, Gdynia, Gdansk, Krakow, Katowice, Wroclaw,
Bydgoszcz and Szczecin using the high frequency wireless
broadband technology known as LMDS and/or MVDS; (ii) obtain
appropriate licences and approvals for the ownership,
construction and operation of V/V/D Services, including data
transmission and Internet access services to business and
residential customers, multi-channel television services in
specified markets, and authorized voice telephony services in
the Territory; (iii) construct, own and operate an integrated
V/V/D Services business in the Territory; and (iv) pursue
other telecommunications businesses as approved by the
Supervisory Board of the Company.
(c) Covenant Not to Compete. During the term of this Agreement and
for one year thereafter, each Polish Partner shall be jointly
responsible with the other Polish Partners, unless Formus
otherwise consents in writing, that he, his Affiliates any of
his relatives, employees, consultants, agents and proxies and
any other Persons for which any Polish Partner is responsible
(including the employees, officers and directors of the
Company, for which any Polish Partner is responsible) will not
engage directly or indirectly (whether through his spouse,
children or stepchildren or any other relative) or as an
owner, partner, shareholder (other than a holder of less than
5% of the shares or other securities of a public company),
joint venturer, manager, investor, advisor, consultant or
otherwise), in the business of providing integrated V/V/D
Services using the high frequency wireless broadband
technology known as LMDS and/or MVDS and any related
businesses that could be in competition with the Business of
the Company in the Territory. If any court shall determine
that the duration or geographical limit of any restriction
contained in this Section 2(c) is unenforceable under
applicable Law, the restrictive covenant set forth in this
Section 2(c) will not thereby be terminated, but shall be
deemed amended to the minimum extent required to render it
valid and enforceable.
In addition, each Polish Partner shall be jointly responsible
with each other Polish Partner, unless Formus otherwise
consents in writing, that his Affiliates, any of his
relatives, employees, consultants, agents and proxies , and
any other persons for which the Polish Partner is responsible
(including the employees, officers and directors of the
Company, for which any Polish Partner is responsible) will
observe Polish Laws concerning unfair competition and
non-competition, including the following Polish Laws: the
Labor Code dated June 26,1884, the Law on Rendering Commercial
Activities dated December 23, 1988, the Commercial Code dated
June 27, 1934 and the Act on Combating Unfair Competition
dated April 16, 1993.
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(d) Amendment of the Deed; Adoption of Rules and Regulations.
Concurrently with the entering into of this Agreement, the
Shareholders will enter into a notarial deed amending the
Deed, which notarial deed will be in form and substance
reasonably satisfactory to Formus and will effect to the
fullest extent permitted by applicable Law, as advised to
Formus by its legal counsel in Poland, the provisions of this
Agreement, including the provisions of Sections 6
(Distributions) and 7 (Transfer and Liquidity Rights). As
promptly as practicable following the entering into of this
Agreement, an extraordinary Shareholders' Meeting shall be
convened and each Shareholder shall vote or consent to action
with respect to its Shares to cause rules and regulations of
the Supervisory Board and rules and regulations of the
Management Board to be adopted, which rules and regulations
will be in form and substance reasonably satisfactory to
Formus and will effect to the fullest extent permitted by
applicable Law, as advised to Formus by its legal counsel in
Poland, the provisions of this Agreement, including the
provisions of Section 5 (Management).
(e) Compliance with Laws. The Parties will cause the Company to
comply in all material respects with will the United States
Foreign Corrupt Practices Act of 1977, as amended, and any
other applicable Law, and will not engage in any activity
related to the Company's business that would cause Formus
Communications, Inc. or any of its Affiliates or the Company
to be in violation of such Laws.
(f) Reimbursement Obligations. Each Shareholder (a "Payor
Shareholder") agrees to pay the other Shareholder on demand
within 30 Business Days after such demand from time to time an
amount equal to (i) the Economic Interest of the Payor
Shareholder times the aggregate amount of Tax Liabilities paid
by the Payor Shareholder and by the other Shareholder minus
(ii) the amount of the Tax Liabilities paid by the Payor
Shareholder. "Tax Liabilities" mean liabilities for unpaid
Polish taxes and social security payments owed by the Company
with respect to which the Shareholders of the Company become
liable by operation of Polish law in their capacity as
Shareholders of the Company. Notwithstanding the foregoing to
the contrary, a Payor Shareholder will not be liable to the
other Shareholder pursuant to this Section 2(f), if and to the
extent the Tax Liabilities in question arise from the other
Shareholder's action or omission, or the action or inaction of
its Affiliates. Any payments hereunder will be made in United
States dollars (or at Formus' option in Polish zloty).
3. Funding.
(a) Initial Funding. The Company has issued to the Shareholders
and the Shareholders have taken Shares for Shareholder
contributions in the Company as follows:
<TABLE>
<CAPTION>
Additional
Capital
Nominal Contribution Total Number
Value Exceeding Purchase of
Shareholder Funded Nominal Value Price Shares
- ----------- ------ ------------- ----- ------
<S> <C> <C> <C> <C>
Formus PLN2,450 PLN12,000 PLN 14,450 49
Elmedia PLN2,550 -- PLN 2,550 51
</TABLE>
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(b) Additional Funding.
(i) Except as provided in Section 3(e)(iii), no
Shareholder or any of its Affiliates will be required
to contribute any funding in addition to the amounts
specified in Section 3(a). If Additional Funding is
required to meet the funding requirements specified
in an applicable Budget or to meet other specific
investment objectives approved by the Supervisory
Board, the Senior Managing Director by written notice
to the Shareholders may request such funding from the
Shareholders pursuant to a funding methodology
approved by the Supervisory Board of the Company
(e.g. share capital contributions, Indebtedness,
additional payments and other forms of payment) for
the Additional Funding in question, and the
Shareholders will have the right to participate in
the Additional Funding according to the following
rules:
(A) Formus, directly or through any of its
Affiliates, will have the right to fund the
first US$15,000,000 of Additional Funding;
and
(B) after Formus, directly or through any of its
Affiliates, has funded US$15,000,000 of
Additional Funding to the Company as
evidenced by a resolution by the Supervisory
Board, each Shareholder, directly or through
any of its Affiliates, will have the right
to participate in any funding in excess of
US$15,000,000 of Additional Funding ("Excess
Funding") in proportion to its Economic
Interest in the Company.
(ii) A Shareholder may elect to participate in any
Additional Funding in which it is entitled to
participate by delivering a written notice (an
"Election Notice") to the Company and the other
Shareholder within 30 days after the delivery of the
Senior Managing Director's notice requesting such
funding or within such longer period as reasonably
determined by Formus. Such 30-day period may be
extended by Formus with or without notice to the
Company or Elmedia.
(iii) With respect to any Additional Funding that
constitutes Excess Funding, if a Shareholder (a
"Nonelecting Shareholder") elects to participate in
less than all of its proportionate share of such
Excess Funding or fails to deliver an Election Notice
in accordance with Section 3(b)(ii), the other
Shareholder may elect to fund all or part of the
proportionate share of such Excess Funding of the
Nonelecting Shareholder and the Nonelecting
Shareholder will have its Economic Interest diluted
relative to the Economic Interest of the Shareholder
that has funded any portion of its share of such
Excess Funding as such Economic Interests are
calculated in accordance with Section 4(a)(ii) and
will have its Voting Interest diluted to the extent
then possible under Polish Law in accordance with
Section 4(b).
(iv) The funding of any Additional Funding and adjustment
of the Economic Interests of the Shareholders (each
such funding and adjustment being hereinafter
referred to as a "Closing") will take place at such
time and place and in such manner as Formus may
reasonably determine. Each Shareholder will take, and
will instruct the Supervisory Directors and Managing
Directors of the Company nominated, elected or
appointed by it, and will vote or consent to
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action with respect to its Shares, in each case, to
take, such actions as Formus deems reasonably
necessary or appropriate in order to effect each such
Closing.
(v) If the funding methodology approved by the
Supervisory Board of the Company permits a
Shareholder to participate in Additional Funding
through one or more of its Affiliates, Formus will
have the right to approve or disapprove of any
Affiliate funding arrangements proposed by a
Shareholder. If Formus disapproves of any such
funding arrangement, the Shareholder who initially
presented such funding arrangement shall have 14 days
to present to Formus an alternative funding
arrangement for Formus' approval. If the funding
methodology approved by the Supervisory Board of the
Company provides for the issuance of Shares and
Indebtedness of the Company, Formus will have the
right to specify how the funding by the Shareholders
will be allocated between such issuance of Shares and
Indebtedness of the Company and such funding will be
completed as so specified by Formus.
(c) External Funding. Before any Excess Funding is requested from
the Shareholders or their Affiliates, each Shareholder will
instruct the Supervisory Directors of the Company nominated or
elected by it to cause the Company to use its reasonable
efforts to investigate available external sources of funding
(such as trade credit from vendors, Polish development funds
and other sources). Each Shareholder will take, and will
instruct the Supervisory Directors and Managing Directors of
the Company nominated, elected or appointed by it, and will
vote or consent to action with respect to its Shares, in each
case, to take, such actions reasonably required by Formus to
cause the Company to complete such external funding if Formus
shall have approved such external funding. The providers of
external sources of funding to the Company or any of its
Subsidiaries will not be offered or granted the benefit of any
guaranty from any Shareholder or any of its Affiliates, unless
the affected Shareholder or its Affiliates, as the case may
be, agrees otherwise.
(d) Additional Partners. Except as provided in this Section 3(d),
the issuance of Shares in the Company to any Person that will
thereby become a Shareholder will require the vote or consent
of the Shareholders in accordance with Section 13.6 of the
Deed. The Parties acknowledge that the Business of the Company
may be expanded by additional acquisitions and mergers or may
be consolidated with other businesses, which may require from
time to time acceptance of additional strategic or financial
partners. On one or more occasions, Formus may determine that
one or more additional strategic or financial partners are
required for such purposes or otherwise. In such event and
promptly after delivery by Formus to Elmedia of a notice
specifying the terms and conditions for admission of one or
more such partners, Elmedia will instruct the Supervisory
Directors and the Managing Directors of the Company nominated
by it to vote or consent to action, and, if necessary or
appropriate, Elmedia will vote or consent to action with
respect to its Shares, in each case, to cause whatever action
Formus reasonably requires in respect of such admission. In
connection therewith, none of the Polish Partners will
unreasonably withhold its vote or consent to amendments to be
made to this Agreement and the Constituent Documents of the
Company, as Formus deems reasonably necessary or appropriate
to effect the intents and purposes of this Section 3(d).
Notwithstanding anything under Section 4(a) to the contrary,
in no event will any dilution resulting from the admission of
one or more such partners be borne by the
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Shareholders other than proportionally in accordance with
their relative Economic Interests in the Company or as
otherwise agreed by Formus and Elmedia.
(e) Credit for Costs.
(i) Formus will submit for approval of the Supervisory
Board of the Company one or more schedules of costs
incurred by it and its Affiliates for the benefit of
the Company and its Subsidiaries, including expenses
incurred in completing marketing studies, Budgets,
licence application fees and other costs and
expenses. As promptly as practical after submission
of such schedules to the Supervisory Board of the
Company, it will consider such schedules for
approval. Promptly following the approval of any such
schedule, each Shareholder will instruct the
Supervisory Directors and Managing Directors of the
Company nominated, elected or appointed by it, and
will vote or consent to action with respect to its
Shares as Formus deems reasonably necessary or
appropriate, in each case, to cause the Company to
issue to Formus or any of its Affiliates it
designates Indebtedness of the Company in an amount
equal to the amount of the costs and expenses
approved. The amount of such Indebtedness, as the
case may be, issued to Formus or any of its
Affiliates will constitute Additional Funding by
Formus for purposes of Section 3(b)(i)(A).
(ii) To the extent not otherwise included in any schedule
delivered by Formus pursuant to Section 3(e)(i), each
Shareholder will instruct the Supervisory Directors
and Managing Directors of the Company nominated,
elected or appointed by it, and will vote or consent
to action with respect to its Shares as Formus deems
reasonably necessary or appropriate, in each case, to
cause the Company to issue to Formus or any of its
Affiliates it designates additional Shares,
Indebtedness of the Company or some combination of
Shares and Indebtedness of the Company as Formus
deems reasonably appropriate in an amount equal to
the amount of all payments from the Escrow or
otherwise in respect of certain unpaid fees due in
connection with Telecommunications Licence No.
LR48/95 issued to Zeta Technology Poland Sp. z o.o.
The amount of such Shares and Indebtedness, as the
case may be, issued to Formus or any of its
Affiliates will constitute Additional Funding by
Formus for purposes of Section 3(b)(i)(A).
(iii) If the approvals of the Supervisory Board have been
granted pursuant to Sections 3(e)(i) and 3(e)(ii),
promptly following the later of the date hereof and
the date on which Formus has been issued additional
Shares, Indebtedness of the Company or some
combination thereof in accordance with Sections
3(e)(i) and 3(e)(ii), Formus, directly or through an
Affiliate it designates, will pay to Elmedia or such
other Person designated by Elmedia and approved by
Formus, the amount of US$200,000 (or the equivalent
PLN funds at Formus' option) in consideration of
Elmedia's execution and delivery of this Agreement
and the efforts of the Polish Partners in bringing
this investment opportunity to Formus and the costs
and expenses incurred by them in respect thereof
through the date of this Agreement; and
(iv) Any Indebtedness of the Company issued to either
Shareholder or any of its Affiliates pursuant to this
Agreement shall bear interest at an annual rate of
20%
10
<PAGE> 14
(or such other lower rate as Formus approves),
compounded annually, and have such other terms and
features as Formus reasonably approves. All such
Indebtedness shall be repaid in full prior to the
Company's payment of dividends or making of other
distributions to the Shareholders with respect to
their Shares.
4. Economic and Voting Interests.
(a) Economic Interest. The "Economic Interest" in the Company for
each Shareholder at any time will be determined as follows:
(i) Until the funding of US$15,000,000 of Additional
Funding is completed and except as provided otherwise
in Section 3(d), the Economic Interest of Formus is
85% and the Economic Interest of Elmedia is 15%.
(ii) At any time and from time to time from and after the
funding of US$15,000,000 of Additional Funding has
been completed and except as provided otherwise in
Section 3(d), including at such times immediately
following each funding (whether by share capital
contributions, Indebtedness, additional payments or
other forms of payment) that constitutes Excess
Funding, the Economic Interest for each Shareholder
will equal a fraction, expressed as a percentage,
determined as follows (provided that the Elmedia
Fraction, expressed as a percentage, will not be less
than 4.5%):
Formus Fraction = 1 - Elmedia Fraction
Elmedia Fraction = the greater of 45/1000 or
(US$2,050,000 + EF)/(US$15,000,000 + TEF)
where:
"EF" means the aggregate amount of all Excess Funding
made by Elmedia and its Affiliates (including the
funding in question, if any); and
"TEF" means the aggregate amount of all Excess
Funding made by all the Shareholders and their
Affiliates (including the funding in question, if
any).
(b) Voting Interest; Adjustment of Voting Interests.
(i) The "Voting Interest" in the Company for each
Shareholder at any time will be determined in
accordance with Polish Law by reference to the
nominal value of Shares owned by each Shareholder.
(ii) Pursuant to the currently binding Telecommunications
Act, a company with foreign participation which is
formed and exists under Polish Law (a "Foreign
Interest Company") may obtain a license to render
certain telecommunications services, such as
integrated V/V/D Services using the high frequency
wireless broadband technology known as LMDS and/or
MVDS, in the territory of the Republic of Poland if
the following requirements are met: (A) the
shareholding of foreign entities in a Foreign
Interest Company's share capital does not exceed 49%;
(B) the Foreign Interest Company's Constituent
Documents stipulate that
11
<PAGE> 15
the majority of the members of such company's
management board and supervisory board shall be
Polish citizens domiciled in Poland; and (C) the
Foreign Interest Company's Constituent Documents
stipulate that, at the meeting of shareholders, votes
of foreign entities and entities controlled by
foreign entities cannot exceed 49% of all votes (such
limitations and requirements being hereinafter
referred to as the "TA Restrictions"). Upon receipt
of a license under the Telecommunications Act, the
Company will be required to comply with the TA
Restrictions; however, it is expected that one or
more of the TA Restrictions will be liberalized.
Promptly after the liberalization of one or more of
the TA Restrictions from time to time, the
Shareholders will instruct the chairman of the
Supervisory Board of the Company to call a meeting of
the Supervisory Board of the Company to take whatever
action Formus reasonably deems necessary to implement
any such liberalization, and each Shareholder will
instruct the Managing Directors of the Company
nominated, elected or appointed by it to vote or
consent to action to cause the Management Board of
the Company to call an extraordinary Shareholders
Meeting of the Company to implement in respect of the
Company's Constituent Documents or otherwise any such
liberalization, as Formus reasonably deems necessary.
Elmedia will instruct the Supervisory Directors and
the Managing Directors of the Company nominated,
elected or appointed by it to vote or consent to
action and, if necessary or appropriate, Elmedia will
vote or consent to action with respect to its Shares,
in each case, to cause whatever action Formus
reasonably requires to be taken so that the
shareholdings of the Shareholders will be adjusted in
the manner required by Formus to the maximum extent
then permitted by one or more such liberalizations in
order that the Shares of the Company will be owned by
the Shareholders in the same proportions as the
Economic Interests in the Company of the
Shareholders.
5. Management.
(a) Supervisory Board of the Company.
(i) Composition. The Supervisory Board will consist of
five Supervisory Directors. Two Supervisory Directors
will be elected directly by Formus and the remaining
Supervisory Directors will be elected by the
Shareholders' Meeting of the Company. Two of the
Supervisory Directors of the Company elected by the
Shareholders Meeting will be nominated by Elmedia. In
respect of the Supervisory Directors to be elected by
the Shareholders' Meeting of the Company, Formus will
be entitled to nominate such number of individuals to
serve as Supervisory Directors in order that the
requirements of the last sentence of this Section
5(a)(i) are satisfied and Elmedia will vote or
consent to action with respect to its Shares to cause
such nominees to be elected to the Supervisory Board.
The Supervisory Directors will be elected annually.
None of the Supervisory Directors may be Managing
Directors or employees of the Company or its
Subsidiaries. Each Shareholder will vote or consent
to action with respect to its Shares to cause at
least 85% of the Supervisory Board to consist of
Supervisory Directors elected or nominated by Formus,
and, if the Economic Interest of Formus exceeds 85%,
each Shareholder will vote or consent to action with
respect to its Shares so that the composition of the
12
<PAGE> 16
Supervisory Board reflects the proportionate Economic
Interests of the Shareholders.
(ii) Chairman. The Supervisory Board will elect annually a
chairman, who will preside at all meetings of the
Supervisory Board, but who will have and perform no
other special duties. Unless otherwise approved by
Formus, the chairman will be chosen from among the
Supervisory Directors who are elected directly or
nominated by Formus.
(iii) Term. The Supervisory Board will have an annual term.
Each Supervisory Director will hold his office until
the next annual Shareholders' Meeting to elect
Supervisory Directors and until his successor has
been duly elected and qualified, or until his earlier
death, resignation or removal.
(iv) Vacancies. Whenever any vacancy has occurred in the
Supervisory Board as a result of death, resignation
or other action or inaction of a Supervisory
Director, such vacancy will be filled by the
Shareholder that elected directly or nominated the
Supervisory Director, as the case may be. If the
vacant Supervisory Director position being filled is
being filled by nomination, each Shareholder will
vote or consent to action with respect to its Shares
so that the Person so nominated is elected to the
Supervisory Board. The term of office of any Person
elected directly by Formus or elected by the
Shareholders' Meeting, as the case may be, to fill a
vacant Supervisory Director position will hold office
until the next annual Shareholders' Meeting to elect
Supervisory Directors and until his successor has
been duly elected and qualified, unless sooner
removed.
(v) Removal. No Supervisory Director may be removed
without the consent of the Shareholder that elected
directly or nominated such Supervisory Director.
Formus may remove at any time any Supervisory
Director it has elected directly, and, if Formus
delivers a notice to Elmedia of Formus' desire to
remove from the Supervisory Board any Supervisory
Director nominated by Formus, the Shareholders will
promptly do all things necessary or appropriate as
Formus requests to remove such director and Elmedia
will vote or consent to action with respect to its
Shares in favor of such removal. If Elmedia delivers
a notice to Formus of Elmedia's desire to remove from
the Supervisory Board any Supervisory Director
nominated by Elmedia, the Shareholders will promptly
do all things necessary or appropriate as Elmedia
requests to remove such director and Formus will vote
or consent to action with respect to its Shares in
favor of such removal.
(vi) Meetings; Notice. Regular Supervisory Board meetings
will be held at such times, intervals and at such
places as may be fixed by resolution of the
Supervisory Board. Until the Supervisory Board
determines that the interval between its regular
meetings should be changed, regular Supervisory Board
meetings will be held at least once every three
months at such times and at such places as may be
fixed by resolution of the Supervisory Board.
Extraordinary Supervisory Board meetings may be held
at any time upon the request of its chairman or any
two Supervisory Directors. Unless all of the
Supervisory Directors waive their right to such
notice, notice of Supervisory Board meetings will be
in writing and delivered by any of the methods
described in Section 10(p)
13
<PAGE> 17
at least three days prior to any Supervisory Board
meeting. Supervisory Directors may participate in any
meeting of the Supervisory Board or any committee
thereof by conference telephone or other
communications equipment through which all Persons
participating in the meeting can hear each other, and
participation thereby will constitute presence in
person for purposes of Section 5(a)(vii). Supervisory
Directors will take all actions necessary to effect
any resolutions taken during a meeting of the
Supervisory Board or any committee thereof whereby
they participate by conference telephone or other
communications equipment, including the execution of
a written protocol memorializing the resolutions
taken during any such meeting.
(vii) Quorum; Manner of Acting. A quorum for transacting
business will be present at any meeting of the
Supervisory Board if 60% of the Supervisory Directors
then in office are present in person. Any action
taken by the Supervisory Board will be approved or
disapproved at a meeting, at which a quorum is
present and acting throughout, in accordance with the
votes of a majority of 60% of the Supervisory
Directors, provided that such majority includes at
least one Supervisory Director elected directly or
nominated by Formus. Any action required or permitted
to be taken at any meeting of the Supervisory Board
or any committee thereof may be taken without a
meeting if the requisite number of Supervisory
Directors or committee members, as the case may be,
necessary to take such action, consent to such action
in writing.
(viii) Duties. The duties of the Supervisory Board will be
the supervision of the conduct of management by the
Company's Management Board and the general course of
affairs of the Company. The duties and the rights of
the Supervisory Board will in particular include the
following:
(A) approving and amending the Company's Budget;
(B) advising the Shareholders' Meeting regarding
any of the following matters:
(1) the Company's financial statements,
balance sheet and profit and loss
account;
(2) the acknowledgment of the
fulfillment of the Supervisory and
Management Boards' duties;
(3) the liquidation or dissolution of
the Company;
(4) the increase of the capital of the
Company, except that any increase
on the basis of Section 11 of the
Deed will not constitute an
amendment to the Deed;
(5) amendments to the Constituent
Documents of the Company that have
been adopted by the Shareholders or
the Shareholders' Meeting;
14
<PAGE> 18
(6) claims to redress damage inflicted
while forming the Company or
managing it or supervising it;
(7) the sale and lease of all, or
substantially all of, the assets of
the Company and the grant of the
right of usufruct or other
encumbrance over such assets;
(8) the purchase or sale of the real
estate by the Company;
(9) the appointment of the Company's
auditors;
(10) the distribution of dividends and
preference distributions;
(11) the issuance of bonds;
(12) the redemption of Shares; and
(13) any other proposal requested by the
Shareholders' Meeting of the
Company.
(C) approving any borrowing by the Company or
any of its Subsidiaries in excess of
US$10,000 (or the equivalent amount in any
other currency) other than those borrowings
made pursuant to previously approved credit
facilities or specifically identified in the
Budget of the Company then in effect;
(D) giving consent for the grant or creation by
the Company or any of its Subsidiaries of
mortgages, usufruct, assignments or other
encumbrances on the assets of the Company or
any of its Subsidiaries other than pursuant
to previously approved credit facilities;
(E) giving consent for the purchase by the
Company or any of its Subsidiaries of any
capital stock, obligations or securities of,
or otherwise invest in, or make any capital
contribution to any Entity, other than
investments in cash deposits by the Company
or any of its Subsidiaries with leading
commercial banks;
(F) giving consent for the purchase, assumption,
guarantee or endorsement by the Company or
any of its Subsidiaries, or other act by
which the Company or any of its Subsidiaries
becomes liable for, the indebtedness of any
Person, other than pursuant to previously
approved credit facilities and other than
the endorsement by the Company or any of its
Subsidiaries of negotiable instruments for
deposit and collection in the ordinary
course of business, or contingent
liabilities incurred by the Company or any
of its Subsidiaries in connection with the
opening of documentary letters of credit in
the ordinary course of business and cash
deposits by the Company or any of its
Subsidiaries with leading commercial banks;
15
<PAGE> 19
(G) giving consent for the formation by the
Company or any of its Subsidiaries of any
Subsidiary;
(H) appointing and dismissing members of the
Management Board, except as Section 5(b)(i)
provides otherwise, and adopting and
changing the level of compensation and
benefits (including employee share options,
bonuses, profit-sharing or other incentive
schemes) for the Managing Directors and
other employees;
(I) giving consent for the incurrence by the
Company or any of its Subsidiaries of any
expenditure or related expenditures in
excess of US$10,000 (or the equivalent
amount in any other currency) by the Company
and which is not otherwise specifically
identified in the Budget of the Company then
in effect;
(J) giving consent for the lease by the Company
or any of its Subsidiaries of any property
or the renewal by the Company or any of its
Subsidiaries of any lease that requires
payment in excess of US$10,000 (or the
equivalent amount in any other currency) and
is not otherwise specifically identified in
the Budget of the Company then in effect;
(K) giving consent for the sale, lease,
assignment, transfer or other disposal of
the property and assets of the Company or
any of its Subsidiaries, in any transaction
or series of related transactions, for an
aggregate consideration in excess of 5% of
the consolidated assets of the Company and
its Subsidiaries, other than in the ordinary
course of business or as otherwise
specifically identified in the Budget of the
Company then in effect;
(L) giving consent for the commencement by the
Company or any of its Subsidiaries of any
voluntary proceeding seeking relief under
bankruptcy or similar law, or the suspension
by the Company or any of its Subsidiaries of
payments to its creditors; and
(M) approving the entering into or amendment of
any agreement or obligation of the Company
or any of its Subsidiaries with or for the
direct or indirect benefit of any
Shareholder or any of its Affiliates,
shareholders, officers or directors.
(b) Management Board of the Company.
(i) Composition. The Management Board will consist of at
least one and no more than five Managing Directors.
The Senior Managing Director and the Managing
Director designated by Formus as the finance director
or other equivalent title (the "Finance Director")
will be appointed directly by Formus, and the
remaining Managing Directors will be appointed by the
Shareholders Meeting of the Company from candidates
recommended by the Supervisory Board of the Company
and one of them by Elmedia. Each Shareholder will
instruct each Supervisory Director that it has
nominated or elected to vote or consent to action so
that at least 85% of the Management Board consists of
Managing Directors
16
<PAGE> 20
appointed or nominated by Formus, and, if the
Economic Interest of Formus exceeds 85%, each
Shareholder will instruct each Supervisory Director
that it has nominated or elected to vote or consent
to action so that the composition of the Management
Board reflects the proportionate Economic Interests
of the Shareholders. The appointment of a Managing
Director will not in itself create any contract
rights between the Company and the Person appointed.
Such contract rights, if any, will be established
under an employment or services agreement between the
Company and each of its Managing Directors.
(ii) Senior Managing Director. The Senior Managing
Director will be the chief executive officer of the
Company. Subject to the supervision of the
Supervisory Board and the provisions of this
Agreement, the Constituent Documents of the Company
and applicable Law, the Senior Managing Director
will:
(A) exercise general management and control of
the Company's affairs and its business and
general supervision of its Managing
Directors, officers, agents and employees;
(B) see that all orders and resolutions of the
Shareholders' Meeting and the Supervisory
Board are effected;
(C) have the power to make declarations and sign
in the name of the Company; and
(D) do and perform such other duties as the
Supervisory Board assigns from time to time.
(iii) Finance Director. The Finance Director will be the
chief financial officer of the Company. Subject to
the supervision of the Senior Managing Director and
the Supervisory Board and the provisions of this
Agreement, the Constituent Documents of the Company
and applicable Law, the Finance Director will:
(A) exercise the care and custody of all the
Company's funds, securities, evidences of
indebtedness and other personal property and
deposit the same in accordance with the
instructions of the Supervisory Board;
(B) receive and give receipts for moneys paid in
on account of the Company, and pay out with
funds on hand all bills, payrolls and other
just debts of the Company of whatever nature
upon maturity;
(C) be the principal accounting officer of the
Company and as such maintain the methods and
systems of accounting prescribed by Formus
to be followed, keep complete books and
records of account, prepare and file all tax
returns, prescribe and maintain an adequate
system of internal audits and prepare on a
monthly basis and furnish to the Senior
Managing Director and the Supervisory Board
a statement of accounts showing the
financial position of the Company and the
results of its operations; and
17
<PAGE> 21
(D) do and perform such other duties as the
Senior Managing Director or the Supervisory
Board assigns from time to time.
(iv) Other Managing Directors. Subject to the supervision
of the Senior Managing Director and the Supervisory
Board and the provisions of this Agreement, the
Constituent Documents of the Company and applicable
Law, each Managing Director other than the Senior
Managing Director will have the power to make
declarations and sign in the name of the Company with
the Senior Managing Director, but not otherwise, and
will do and perform such duties as the Senior
Managing Director on the Supervisory Board assigns
from time to time. Subject to approval of the
Supervisory Board, the Senior Managing Director may
set an amount up to which each Managing Director may
act with authority on behalf of the Company
(v) Deputy Directors. In addition, the Supervisory Board
or the Senior Managing Director may appoint such
deputy, assistant and other subordinate directors, as
the Supervisory Board or the Senior Managing Director
shall deem necessary or appropriate. Such deputy,
assistant and other subordinate directors shall not
be members of the Management Board.
(vi) Vacancies. Whenever any vacancy has occurred in the
Management Board as a result of death, resignation or
other action or inaction of a Managing Director, such
vacancy will be filled, in the case of the Senior
Managing Director and the Finance Director by Formus,
and in all other cases by the Supervisory Board from
among the candidates recommended by the Senior
Managing Director or otherwise. If the vacant
Managing Director position being filled is being
filled by the Supervisory Board, each Shareholder
will instruct each Supervisory Director that it has
nominated or elected to vote so that upon filling the
vacancy the requirements of Section 5(b)(i) are met.
(vii) Removal. The Senior Managing Director and the Finance
Director may be removed at any time by Formus by
notice to the affected Managing Director and the
Company, and if Formus delivers a notice to Elmedia
of Formus' desire to remove any Managing Director
appointed by the Supervisory Board, each Shareholder
will instruct each Supervisory Director that it has
nominated or elected to vote or consent to action to
remove such Managing Director. The removal of a
Managing Director will not in itself prejudice any
contract rights between the Company and the Person
removed.
(c) Budgets; Financial Reporting.
(i) The Shareholders approve the Budget attached as
Exhibit 5.3(c) for the periods reflect in it. Each
Shareholder will instruct the Supervisory Directors
elected or nominated by it to procure that the Senior
Managing Director and the Finance Director prepare
and revise every three months a revised Budget for
approval by the Supervisory Board of the Company. The
Company will conduct its business in accordance with
the Budget approved hereby or the most recent revised
Budget approved by the Supervisory Board, as the case
may be, in each case for the periods reflected in the
applicable Budget.
18
<PAGE> 22
(ii) Each Shareholder will instruct the Supervisory
Directors elected or nominated by it to vote or
consent to action and vote or consent to action with
respect to its Shares, in each case, to cause the
Company to maintain one set of financial accounts
according to Polish GAAP and one according to US
GAAP. Unless Formus approves any longer period, each
Shareholder will instruct the Supervisory Directors
elected or nominated by it to vote or consent to
action and vote or consent to action with respect to
its Shares, in each case, to cause the Company to
deliver to each Shareholder as soon as they become
available, but in no event later than:
(A) 60 days after the end of each financial year
of the Company, its audited financial
statements for such year;
(B) 30 days after the end of each quarter during
each of its financial years, its unaudited
financial statements for such quarter; and
(C) 10 days after the end of each month during
each of its financial years, its unaudited
financial statements for such month.
(iii) The Company will bear all costs and expenses
associated with the performance of its obligations
and those of its directors, officers, employees,
agents and independent contractors under this Section
5(c).
(d) Certain References. For avoidance of doubt, references in
Sections 5(a), (b) and (c) to the Shareholders' Meeting, the
Supervisory Board, Supervisory Directors, the Management Board
and Managing Directors, unless otherwise specified or the
context suggests otherwise, are to the Shareholders' Meeting,
the Supervisory Board, Supervisory Directors, the Management
Board and Managing Directors of the Company.
6. Distributions. For purposes of Sections 20 and 23 of the Deed and
notwithstanding anything to the contrary therein, each Shareholder will
instruct each Supervisory Director that it has nominated or elected to
vote or consent to action, and vote or consent to action with respect
to its Shares, in each case, to cause the profit of the Company, after
paying taxes and fulfilling other obligations (including Indebtedness
of the Company to its Shareholders and their Affiliates), to be
distributed according to the following rules. Each Shareholder hereby
agrees that it will waive any right such Shareholder may have to
require the distribution of profit of the Company to be distributed in
way other than according to the following rules at the time such
distribution is to be made. Before any distribution is made to the
Shareholders on account of their Shares, the Company shall discharge in
full all Indebtedness of the Company owing to any Shareholder or its
Affiliates.
(a) First One Percent of Nonliquidating Distributions. With
respect to the first one percent of each distribution made
pursuant to Section 20 of the Deed, each Shareholder will be
entitled to an amount of such distribution determined for each
Shareholder as of the date of the distribution equal to the
nominal value of the Shares owned by such Shareholder divided
by the total nominal value of the Shares owned by all
Shareholders.
(b) Remaining Nonliquidating Distributions. The amount of each
distribution made pursuant to Section 20 of the Deed that
remains after distribution of the amounts
19
<PAGE> 23
specified in Section 6(a) will be apportioned among the
Shareholders in the following order of priority:
(i) First, to each Shareholder to whom a Premium Amount
is attributable as of the date of the distribution,
in an amount (the "Preference Distribution Amount")
equal to the sum of (A) the Premium Amount
attributable to such Shareholder as of the date of
the distribution plus (B) an annual return on the
actual amounts contributed by such Shareholder to the
capital of the Company in excess of the nominal value
of the Shares owned by the Shareholder at an annual
rate of 20%, compounded annually, from the date of
each such excess contribution to the date of the
distribution. Distributions pursuant to this Section
6(b)(i) will be made among the Shareholders in
proportion to the relative Preference Distribution
Amounts attributable to each Shareholder, determined
as of the date of the distribution; and
(ii) The balance, to the Shareholders in proportion to the
relative Economic Interest attributable to each
Shareholder, determined as of the date of the
distribution.
(c) Definitions of Premium Amount.
(i) For purposes hereof and with respect to Elmedia, the
"Premium Amount" as of any date will equal all
contributions for Shares actually made in the Company
by Elmedia exceeding the nominal value of the Shares
taken by Elmedia in respect of such contributions as
of such date minus the aggregate amount of all
distributions made to Elmedia prior to such date
pursuant to Section 6(a) or Section 6(b)(i).
(ii) For purposes hereof and with respect to Formus, the
"Premium Amount" as of any date will equal all
contributions for Shares actually made in the Company
by Formus exceeding the nominal value of the Shares
taken by Formus in respect of such contributions as
of such date minus the aggregate amount of all
distributions made to Formus prior to such date
pursuant to Section 6(a) or Section 6(b)(i).
(d) Liquidating Distributions. With respect to any liquidating
distribution made pursuant to Section 23 of the Deed and
notwithstanding anything to the contrary therein, each
Shareholder will instruct each Supervisory Director that it
has nominated or elected to vote or consent to action, and
will vote or consent to action with respect to its Shares, in
each case, to cause any such liquidating distributions to be
made in the order of priority specified in Section 6(b).
(e) Exchange Rates. For purposes of this Agreement, each
contribution or funding that is made other than in United
States dollars will be converted to a United States dollar
amount at the US$-PLN exchange rate on the date such
contribution or funding is made reported in The Wall Street
Journal (Western Edition). If, for any reason, such rate
cannot be determined by reference to The Wall Street Journal
(Western Edition), or The Wall Street Journal (Western
Edition) ceases to be available, Formus will determine the
US$-PLN exchange rate using the midpoint of interbank bid and
asked quotations advised to it by one major bank selected by
Formus after consultation with the Company.
20
<PAGE> 24
(f) Example. For example, assuming Elmedia has contributed the
nominal value of PLN2,550 and Formus has contributed the
nominal value of PLN2,450 and the additional contribution of
PLN12,000 and no other funding has been completed, if the
Company were making a distribution of PLN50,000 pursuant to
Section 20 of the Deed one year after such contributions,
Elmedia and Formus would receive the following amounts by
virtue of Sections 6(a) and (b):
<TABLE>
<CAPTION>
Elmedia Formus Total
------- ------ -----
(amounts in PLN)
<S> <C> <C> <C>
6(a) 255 245 500
6(b)(i) 0 14,400 14,400
6(b)(ii) 5,265 29,835 35,100
----- ------ ------
5,520 44,480 50,000
----- ------ ------
</TABLE>
7. Transfer and Liquidity Rights.
(a) General Restriction. Except as otherwise provided herein and
at all times during the term of this Agreement, no Party will,
directly or indirectly, sell, assign, pledge, hypothecate,
grant any rights of usufruct or otherwise encumber, transfer
or dispose of ("Transfer") all or any portion of its Shares or
other Interests in the Company. For -------- purposes of this
Agreement, any direct or indirect Transfer of any Equity
Interest in Elmedia (or any Equity Interest in any Entity
through which any Polish Partner owns any Shares or other
Interests in the Company) will be deemed to be a Transfer of a
corresponding portion of Elmedia's Shares and other Interests
in the Company.
(b) Permitted Transfers. Each of the following will be deemed a
"Permitted Transfer" and not subject to the restrictions on
Transfer specified in Section 7(a):
(i) the Transfer by Elmedia of all of its Shares and its
other Interests in the Company to an Entity that is
and remains organized and existing under Polish Laws
wholly owned by Elmedia, if:
(A) in the reasonable judgment of Formus, the
proposed transferee has the capacity,
financial or otherwise, to meet its
obligations hereunder; and
(B) the proposed transferee has executed and
delivered an instrument reasonably
satisfactory to Formus pursuant to which the
proposed transferee has agreed to become a
Party and to assume, perform and discharge
all the obligations and liabilities of the
transferring Party under this Agreement; and
(ii) any Transfer by Formus of all or any portion of its
Shares or its other Interests in the Company.
(iii) For purposes of this Agreement, references to an
Entity being "wholly owned" by another Person will
mean that (A) all voting and other consensual rights
with respect to such Entity may be exercised by the
other Person and (B) the other Person is solely
entitled, legally and beneficially, to all dividends,
distributions to shareholders and other economic
rights that under applicable Law accrue to
21
<PAGE> 25
the holders of all Equity Interests or Indebtedness
in such Entity, including the rights to proceeds
realized upon disposition of such Equity Interests or
Indebtedness.
(c) Right of First Refusal.
(i) After three years from the date hereof and if the
Transfer in question is not a Permitted Transfer,
Elmedia may Transfer all or any portion of its Shares
and other Interests in the Company (the "Offered
Interest") if it follows the procedures set forth in
this Section 7(c). If the Transfer in question is a
Permitted Transfer, Elmedia shall follow the
procedures set forth in Section 7(b). If at any time
after three years from the date hereof, Elmedia
determines to Transfer, other than by way of a
Permitted Transfer, all or any portion of the Offered
Interest in a bona fide transaction to any Person
(other than Formus or any of its Affiliates), Elmedia
will first make a written offer to sell the Offered
Interest to Formus by delivering to Formus a written
notice of its offer to sell the Offered Interest (the
"Sale Notice"), which offer will be on the same terms
and conditions as those on which Elmedia proposes to
Transfer the Offered Interest in such bona fide
transaction. Elmedia will identify in the Sale Notice
the Person it proposes to Transfer the Offered
Interest to in the bona fide transaction. If the
Person to whom Elmedia proposes to Transfer the
Offered Interests is an Entity, the Sale Notice will
identify all of the direct and indirect owners of
such Entity. A transaction shall not be a bona fide
transaction if its terms provide for consideration
other than cash or cash plus deferred payments of
cash.
(ii) Formus will have the right for a 60-day period after
receipt of the Sale Notice to negotiate with Elmedia
for the purchase of all, but not less than all, the
Offered Interest from Elmedia on such terms and
conditions as Elmedia and Formus may agree. If
agreement is reached within such 60-day period, the
Offered Interest will be sold to Formus (or one or
more other Persons designated by Formus, each
hereinafter referred to as a "Designated Purchaser")
on the terms and conditions agreed. If no agreement
is reached within such 60-day period, Formus will
have the right for 30 days after such 60-day period
ends to elect to purchase all, but not less than all,
of the Offered Interest from Elmedia on the terms and
conditions specified in the Sale Notice by delivering
to Elmedia written notice of its election (the "Buy
Notice"). If Formus delivers a Buy Notice to Elmedia
within such 30-day period, the Offered Interest will
be sold to Formus (or one or more Designated
Purchasers) against payment to Elmedia of the
purchase price specified in the Sale Notice as
promptly as practicable after delivery of the Buy
Notice (subject to delays reasonably beyond the
control of Formus and Elmedia in obtaining
governmental consents and approvals and the consent
and approvals of any other Person). In connection
with such sale, each of Elmedia and Formus will, and
will cause their respective Affiliates to, execute
and deliver such instruments of conveyance,
assignment and transfer, and will take such actions
as either Elmedia or Formus may reasonably request to
effect such sale, free and clear of all liens,
encumbrances, restrictions and claims of every kind
("Encumbrances").
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<PAGE> 26
(iii) If Formus and Elmedia do not reach agreement as to
the sale of the Offered Interest within the 60-day
period specified in Section 7(c)(ii) and Formus has
not delivered a Buy Notice to Elmedia within the
30-day period specified in such Section, Elmedia may
Transfer all, but not less than all, of the Offered
Interest to the Person identified in the Sale Notice
on the conditions that:
(A) the proposed transferee is a Qualified
Person;
(B) such Transfer is at a price and on other
terms and conditions no less favorable than
the most favorable price and other terms and
conditions offered by Elmedia to Formus;
(C) such Transfer closes within 45 days after
the expiration of the 30-day period
specified in Section 7(c)(ii);
(D) in the reasonable judgment of Formus, the
proposed transferee has the capacity,
financial or otherwise, to meet its
obligations hereunder; and
(E) the proposed transferee executes and
delivers an instrument reasonably
satisfactory to Formus pursuant to which the
proposed transferee agrees to become a Party
and to assume, perform and discharge all the
obligations and liabilities of Elmedia under
this Agreement.
(d) Call Option.
(i) At any time either (x) after five years from the date
hereof or (y) after the occurrence of any breach by
any of the Polish Partners of (or in the event any
third party alleges facts that, if true, would mean
any of the Polish Partners has breached) any of their
representations, warranties or covenants under this
Agreement and within two years after Formus has
actual knowledge of such breach or alleged facts,
Formus may deliver a notice (the "Call Notice") to
Elmedia stating the intention of Formus to purchase
(or to cause one or more Designated Purchasers to
purchase) all, but not less than all, Elmedia's
Interests in the Company (the "Called Interest") at a
purchase price (the "Call Exercise Price") equal to:
(A) the price agreed by Formus and Elmedia
within 30 days after the delivery of the
Call Notice; or
(B) if Formus and Elmedia fail to so agree
within such 30-day period, the price will
equal the Fair Market Value of Elmedia's
Interests determined in accordance with
Section 7(d)(ii).
(ii) The Fair Market Value of Elmedia's Interests will be
determined as of the date on which the Call Notice
was delivered to Elmedia (the "Determination Date")
by an independent, internationally recognized
investment banking firm appointed by Formus (the
"Appraiser"); provided that the Appraiser will not
have provided services to Formus and its Affiliates
for which such appraiser was paid an aggregate amount
exceeding US$100,000 within the year prior to the
date of its appointment hereunder. The Company shall
bear all of the costs and expenses of
23
<PAGE> 27
the Appraiser, which costs and expenses will be
treated as a liability of the Company for purposes of
the determinations to be made according to this
Section 7(d)(ii). Elmedia will afford the Appraiser
and its representatives full access during normal
business hours to the properties, books and records
of Elmedia and cause the directors and employees of
Elmedia to furnish such other information as the
Appraiser and its representatives from time to time
reasonably request. In addition, each Shareholder
will cause the Company to afford the Appraiser and
its representatives full access during normal
business hours to the properties, books and records
of the Company and its Subsidiaries and cause the
Managing Directors of the Company and its
Subsidiaries to furnish such other information as the
Appraiser and its representatives from time to time
reasonably request. The Appraiser will submit its
written determination of the Fair Market Value of
Elmedia's Interests to Elmedia and Formus within 30
days after the date it is retained. If Elmedia
disputes the Appraiser's determination of the Fair
Market Value of Elmedia's Interests, Elmedia may hire
its own independent appraiser (the "Elmedia
Appraiser"); provided that the Elmedia Appraiser will
not have provided services to Elmedia and its
Affiliates for which such appraiser was paid an
aggregate amount exceeding US$100,000 within the year
prior to the date of its appointment hereunder.
Elmedia shall bear all the costs and expenses of the
Elmedia Appraiser. The Elmedia Appraiser will submit
its written determination of the Fair Market Value of
Elmedia's Interests as of the Determination Date to
Elmedia and Formus within 30 days after the date it
is retained. If the higher determination of the
Appraiser and the Elmedia Appraiser is not greater
than 110% of the lower determination, the Fair Market
Value of Elmedia's Interests will be the average of
such determinations. If the higher determination is
greater than 110% of the lower determination, then
the Appraiser and the Elmedia Appraiser will jointly
select, within 15 days after the date on which Formus
informs them of such difference, a third Appraiser to
be retained by Formus and Elmedia (the "Third
Appraiser"). The Third Appraiser will deliver its
written determination of the Fair Market Value of
Elmedia's Interests as of the Determination Date
within 30-days after the date it is retained, and the
Fair Market Value of Elmedia's Interests will be the
average of the two closest determinations or, if
there are not two closest determinations, the average
of all three determinations. The fees and expenses of
the Third Appraiser will be shared equally by the
Shareholders. If Elmedia breaches any of its
covenants under this Section 7(d)(ii), the Fair
Market Value of Elmedia's Interests as of the
Determination Date will be established by the
determination of the Appraiser and the fees and
expenses of the Appraiser retained will be borne
solely by Elmedia.
(iii) Within 10 days after the Call Exercise Price is
established, Formus may withdraw its Call Notice by
delivering a notice of withdrawal to Elmedia. If
Formus does not withdraw its Call Notice within such
10-day period, Elmedia will sell, and cause its
Affiliates to sell, the Called Interest to Formus (or
one or more Designated Purchasers), free and clear of
all Encumbrances, against payment to Elmedia of the
Call Exercise Price as promptly as practicable after
the expiration of such 10-day period (subject to
delays reasonably beyond the control of Formus and
Elmedia in obtaining governmental consents and
approvals and the consent and approvals of any other
Person). In connection with such sale, each of
Elmedia and Formus will, and will cause their
respective
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<PAGE> 28
Affiliates to, execute and deliver such instruments
of conveyance, assignment and transfer, and will take
such actions as either Elmedia or Formus may
reasonably request to effect such sale.
(iv) (A) If Formus withdraws its Call Notice, it will
have the right, which it may exercise at any
time and from time to time thereafter,
either (x) to deliver another Call Notice
pursuant to Section 7(d)(i) or (y) to
deliver a notice (the "Bring Along Notice")
pursuant to this Section 7(d)(iv)(A) to
Elmedia stating Formus' intention to cause
the Company to be sold to a Person or
Persons, other than to Formus or an
Affiliate of Formus (such Person or Persons,
individually or collectively, referred to as
the "Bring Along Buyer"), in a transaction
or series of transactions (the "Bring Along
Transaction"), structured in any manner
(including, for example, as a sale by the
Shareholders of all of their Interests, as a
sale of the assets of the Company, or as a
merger of the Company with or into another
Entity) reasonably acceptable to Formus,
effecting the sale of all, but not less than
all, the Interests.
(B) On delivery of the Bring Along Notice to
Elmedia, Elmedia, in such manner and at such
times as Formus reasonably requests, will
take, and will instruct the Supervisory
Directors and Managing Directors of the
Company nominated, elected or appointed by
it, will vote or consent to action with
respect to its Shares, and will cause its
Affiliates, in each case, to take, such
actions as are required to complete a Bring
Along Transaction in accordance with the
terms and conditions of a definitive
agreement or agreements pursuant to which
such Bring Along Transaction is to be
completed (the "Bring Along Transaction
Agreements"). Without limiting the
generality of the foregoing, if reasonably
requested by Formus, Elmedia will, and will
cause each of its Affiliates to, Transfer
all of Elmedia's Interests to the Bring
Along Buyer.
(C) In consideration of the performance of its
obligations under this Section 7(d)(iv) and
in connection with the completion of a Bring
Along Transaction pursuant to this Section
7(d)(iv), Elmedia will be paid on completion
of such Bring Along Transaction a zloty
amount in cash (or, at Formus' option, the
equivalent amount in any other currency)
equal to the lesser of (x) the Fair Market
Value of its Interests, if determined, as
most recently determined pursuant to Section
7(d)(ii) and (y) the amount that would be
distributed to Elmedia if in connection with
the Bring Along Transaction the Company were
liquidated and the total consideration being
paid for the Shares and other Interests of
the Shareholders was distributed to the
Shareholders pursuant to Section 6(d).
Notwithstanding the foregoing to the
contrary, if any such consideration will be
deferred pursuant to the Bring Along
Transaction Agreements, the Bring Along
Buyer or Formus, as the case may be, will
have the right to defer payment of part of
the amount to be paid Elmedia hereunder.
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<PAGE> 29
(D) For purposes of Section 7(d)(iv)(C)(y) and
7(d)(v)(B), if the terms and conditions of
the Bring Along Transaction Agreements
provide for consideration other than cash or
cash plus deferred payments of cash, Elmedia
will be paid the cash equivalent of
Elmedia's share of such other consideration.
Elmedia and Formus shall attempt to agree on
a cash equivalent amount of such other
consideration. If they cannot agree on such
cash equivalent amount prior to completion
of the Bring Along Transaction, (x) the
payment of any such consideration to Elmedia
will be deferred until 10 days after the
cash equivalent amount shall be determined
by the Appraiser selected in the manner
described in Section 7(d)(ii); (y) the
Appraiser will be retained promptly
following completion of the Bring Along
Transaction; and (z) the Appraiser will
submit its written determination of the cash
equivalent amount within 30 days after the
date it is retained. For purposes of this
Section 7(d)(iv)(D), the fees and expense of
the Appraiser shall be paid by the Company.
(v) (A) Notwithstanding any thing in the foregoing
to the contrary, Formus will have the right,
which it may exercise at any time and from
time to time, to deliver a Bring Along
Notice to Elmedia pursuant to this Section
7(d)(v)(A) stating Formus' intention to
cause the Company to be sold to a Bring
Along Buyer in a Bring Along Transaction
structured in any manner (including, for
example, as a sale by the Shareholders of
all of their Interests, as a sale of the
assets of the Company, or as a merger of the
Company with or into another Entity)
reasonably acceptable to Formus, effecting
the sale of all, but not less than all, the
Interests. On delivery of the Bring Along
Notice to Elmedia, Elmedia, in such manner
and at such times as Formus reasonably
requests, will take such actions as are
described in Section 7(d)(iv)(B).
(B) In consideration of the performance of its
obligations under this Section 7(d)(v) and
in connection with the completion of a Bring
Along Transaction pursuant to this Section
7(d)(v), Elmedia will be paid on completion
of such Bring Along Transaction a zloty
amount in cash (or, at Formus' option, the
equivalent amount in any other currency)
equal to the amount that would be
distributed to Elmedia if in connection with
such Bring Along Transaction the Company
were liquidated and the total consideration
being paid for the Shares and other
Interests of the Shareholders was
distributed to the Shareholders pursuant to
Section 6(d). Notwithstanding the foregoing
to the contrary, if any such consideration
will be deferred pursuant to the Bring Along
Transaction Agreements, the Bring Along
Buyer or Formus, as the case may be, will
have the right to defer payment of part of
the amount to be paid Elmedia hereunder.
(e) No Change of Domicile. Each of Messrs. Dembski, Chrostowski
and STRAWINSKI will at all times maintain his Polish
citizenship and domicile. Elmedia will at all times maintain
its corporate existence as a company organized and existing
under the Laws of the Republic of Poland and will at all times
maintain 100% of its shareholders being Polish citizens or
entities.
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<PAGE> 30
8. Disposition of Interests of a Bankrupt or Dissolved Shareholder.
(a) Bankruptcy or Dissolution of Elmedia.
(i) Upon the dissolution or Bankruptcy of Elmedia (the
"Bankrupt Shareholder"), the Bankrupt Shareholder
will have only the rights with respect to its Shares
and other Interests provided in this Section 8. Upon
the dissolution or Bankruptcy of the Bankrupt
Shareholder:
(A) the Bankrupt Shareholder will be permitted
to Transfer any or all of its Shares and
other Interests by way of a Permitted
Transfer;
(B) the Bankrupt Shareholder will give written
notice (the "Bankruptcy Notice") to the
Company and Formus of such event and whether
all of its Shares and other Interests have
been Transferred by way of a Permitted
Transfer; and
(C) the Bankrupt Shareholder will have no right
with respect to its Shares and other
Interests except the right to receive
nonliquidating distributions and
distributions in liquidation made by the
Company prior to the purchase of the
Bankrupt Shareholder's Interests in
accordance herewith. Prior to the receipt of
the Bankruptcy Notice, the Company and
Formus may treat the Bankrupt Shareholder as
the owner of its Interests.
(ii) Upon the dissolution or Bankruptcy of the Bankrupt
Stockholder and if the Bankrupt Shareholder has not
Transferred all of its Interests by way of a
Permitted Transfer, Formus will have the right for a
period of 30 days after delivery of the Bankruptcy
Notice (unless such 30-day period is extended in
accordance with Section 8(b)) to elect to purchase
(or to cause one or more Designated Purchasers to
purchase) at the purchase price determined in
accordance with Section 8(b) the Bankrupt
Shareholder's Interests. Formus may exercise such
right by giving written notice (the "Bankrupt
Acceptance Notice") to the Bankrupt Shareholder.
(b) Purchase Price.
(i) The purchase price for the Bankrupt Shareholder's
Interests will be equal to:
(A) the price agreed by the trustee or receiver
of the Bankrupt Shareholder and Formus
within 30 days after the delivery of the
Bankrupt Acceptance Notice; or
(B) if they cannot agree within such 30-day
period, the price will equal the Fair Market
Value of the Bankrupt Shareholder's
Interests determined in accordance with
Section 7(d)(ii), except that for such
purpose the date on which the Bankruptcy
Notice was delivered to Formus will be the
Determination Date.
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<PAGE> 31
(ii) If Formus has not withdrawn its Bankrupt Acceptance
Notice, the purchase price due to such trustee or
receiver for the Bankrupt Shareholder's Interests
will be paid in full at a closing to occur as
promptly as practicable after such purchase price is
determined in accordance with this Section 8(b), but
in any event within 30 days after such determination
(subject to delays reasonably beyond the control of
Formus and such trustee or receiver in obtaining
governmental consents and approvals and the consent
and approvals of any other Person). At the closing,
which will be held at the principal executive offices
of the Company, such trustee or receiver will be paid
the purchase price against delivery to Formus or one
or more Designated Purchasers, as the case may be,
of:
(A) duly executed instruments of transfer and
assignment, transferring and assigning good,
and marketable title to the Bankrupt
Shareholder's Interests, which title shall
be free and clear of Encumbrances except
those created hereby;
(B) an instrument pursuant to which such trustee
or receiver agrees to be bound by the
provisions of Section 8(c); and
(C) all other documents and instruments
necessary or appropriate under applicable
law to convey to Formus or one or more
Designated Purchasers, as the case may be,
all of the Bankrupt Shareholder's rights,
title and interests in its Interests.
(c) Company Liability. If at any time a claim is asserted against
the Company based on a state of facts arising wholly or in
part before this Section 8 became applicable to the Bankrupt
Shareholder, Formus may (unless such claim has been explicitly
taken into account in determining the purchase price for the
Bankrupt Shareholder's Interests or unless the trustee or
receiver of the Bankrupt Shareholder has otherwise provided
adequate security for the Bankrupt Shareholder's obligation in
the form of a surety bond or suitable letter of credit)
withhold from the purchase price determined in accordance with
Section 8(b) the estimated amount of such claim until the
amount of such claim shall be determined by adjudication,
settlement, compromise or otherwise, at which time so much of
the withheld amount as equals the Bankrupt Shareholder's share
of such claim will be applied toward payment thereof and the
balance, if any, will be paid to such trustee or receiver on
behalf of the Bankrupt Shareholder. If at the time the amount
of the claim is finally determined the closing referred to in
Section 8(b) has occurred or the amount withheld is not
sufficient to offset the Bankrupt Shareholder's share of such
claim, such trustee or receiver on behalf of the Bankrupt
Shareholder will reimburse Formus for any part of the Bankrupt
Shareholder's share of such claim borne by Formus in excess of
the amount withheld, if any. Nothing in this Section 8(c) will
be interpreted as releasing or relieving the Bankrupt
Shareholder from any part of the Indebtedness of the Company
of any of its Subsidiaries that the Bankrupt Shareholder
undertook during the time such Bankrupt Shareholder was a
Shareholder.
(d) The restrictions contained in this Section 8 shall be binding
for the Parties to the Agreement and be enforceable with
respect to the Company under applicable Law, but only to the
extent such restrictions will not conflict with the mandatory
provisions of applicable Law.
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<PAGE> 32
9. Representations and Warranties; Acknowledgment.
(a) Representations and Warranties of the Polish Partners. Each of
the Polish Partners represents and warrants to Formus as
follows:
(i) Elmedia is a limited liability company duly organized
and validly existing under the laws of the Republic
of Poland and has full power and authority to execute
and deliver this Agreement and to perform its
obligations hereunder. The execution, delivery and
performance of this Agreement have been duly and
validly authorized by all actions necessary on the
part of Elmedia and its management and owners. Each
of Messrs. Dembski, Chrostowski and STRAWINSKI is of
the age of majority, of full legal capacity, and
lawfully entitled to execute and deliver this
Agreement and perform his obligations hereunder.
(ii) This Agreement has been duly executed and delivered
by each of the Polish Partners and constitutes the
valid and binding obligation of each of them
enforceable against them in accordance with its
terms.
(iii) The execution, delivery and performance of this
Agreement by each of the Polish Partners (A) will not
violate any provision of the Constituent Documents of
Elmedia, (B) will not violate any Law by which any of
the Polish Partners or any of their respective
properties or assets is bound, (C) will not require
any filing with, or permit, consent or approval of,
or the giving of any notice to any court,
administrative agency or governmental body or
representative, and (D) will not result in a
violation or breach of, or constitute a default under
any license, franchise, permit, indenture, agreement
or other instrument to which any of the Polish
Partners or any of their respective properties or
assets is bound.
(iv) Each of Messrs. Dembski, Chrostowski and STRAWINSKI
is domiciled in Poland and a Polish citizen, and
together they own all the issued and outstanding
shares of Elmedia. Except for an agreement in respect
of the issuance of registered bonds to Mr.
Christopher Wilkes and Mr. Marek Janicki, there are
no other securities of Elmedia and no outstanding
subscriptions, options, warrants, puts, calls,
rights, exchangeable or convertible securities or
other commitments or agreements of any nature
relating to the shares or other securities of
Elmedia, or otherwise obligating Elmedia to issue,
transfer, sell, purchase, redeem or otherwise acquire
such shares or other securities.
(v) There are no actions, proceedings, claims or
investigations pending, or, to the best knowledge of
any of the Polish Partners, threatened by or before
any court, administrative agency or governmental body
or representative to which any Polish Partner or any
Affiliate thereof is a party or which concerns the
GHz Licences, the Business or Elmedia's participation
in the Company in which an adverse determination or
action might adversely affect the GHz Licences, the
Business or Elmedia's or Formus' participation in the
Company or that questions the validity of this
Agreement or any related agreement or seeks to
restrain or enjoin the consummation of the
transactions contemplated hereby. No Polish Partner
is aware of any fact or circumstance that might give
rise to any such action, proceeding, claim or
investigation.
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<PAGE> 33
(b) Acknowledgment of the Polish Partners. Each Polish Partners
acknowledges the unique competence and experience of Formus in
the area of telecommunications activities and Formus'
capabilities in arranging for the necessary financing of the
Company's activities as described by the Agreement. Therefore,
each of the Polish Partners accepts the leading role of Formus
in implementing the project contemplated by this Agreement,
which role is express in the specific provisions of this
Agreement. Each of the Polish Partners also acknowledges that
he has been counseled regarding the provisions of this
Agreement and has received adequate consideration for his
obligations under this Agreement. Each of the Polish Partners
confirms his intention to fulfill his obligations under this
Agreement to the fullest extent permitted by Law.
(c) Representations and Warranties of Formus. Formus represents
and warrants to the Polish Partners as follows:
(i) Formus is a corporation duly organized and validly
existing under the laws of the State of Delaware and
has full power and authority to execute and deliver
this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of
this Agreement have been duly and validly authorized
by all actions necessary on the part of Formus and
its management and owner.
(ii) This Agreement has been duly executed and delivered
by Formus and constitutes the valid and binding
obligation of Formus enforceable against Formus in
accordance with its terms.
10. Miscellaneous.
(a) Term; Consequences of Termination. This Agreement will be
effective on the date first written above and will terminate
on the occurrence of any of the following events: (i) the
dissolution of the Company, (ii) the acquisition of all of the
Interests in the Company of the Shareholders and their
respective Affiliates by one Shareholder and/or its Affiliates
or (iii) the written consent of all Parties. If this Agreement
terminates in accordance with this Section 10(a), it will
become null and void and of no further force and effect except
as otherwise specifically provided for in this Agreement and
except for the provisions of this Section 10, which will
remain in effect. No termination of this Agreement, however,
will affect any obligation or liability of any of the Parties
arising before or as a result of circumstances existing before
such termination.
(b) Governing Law, Dispute Resolution, Remedies.
(i) This Agreement will be governed by the laws of the
State of Colorado.
(ii) Subject to Section 10(m), any dispute arising out of
or in connection with this contract, including any
question regarding its existence, validity or
termination, will be referred to and finally resolved
by arbitration under the Rules of the London Court of
International Arbitration ("LCIA"), which Rules are
deemed to be incorporated by reference into this
clause. Such dispute will be finally resolved by one
arbitrator nominated by agreement of the Parties
within 30 days after the submission of a request for
arbitration is delivered to the LCIA, or if the
Parties cannot agree, the nomination of an arbitrator
will be made in accordance
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<PAGE> 34
with the Rules. The sole arbitrator will have
substantial experience in arbitrating international
commercial disputes pursuant to the Rules. The
proceedings will unless otherwise agreed by the
Parties be held in London. The English language will
be the official language for all purposes. The
arbitrator will be authorized to order production of
evidence and witnesses reasonably required to resolve
the Parties' dispute. The decision of the sole
arbitrator will be final and binding and will be
enforceable in any court of competent jurisdiction
and the Parties hereby waive any objections to or
claims of immunity in respect of such enforcement.
(iii) The indemnification provisions of this Agreement are
in addition to, and not in derogation of, any
statutory, equitable, or common law remedies Formus
may have with respect to the transactions
contemplated by this Agreement.
(c) U.S. Tax Election. At Formus' written request to Elmedia,
which Formus may make in its sole discretion, Formus and
Elmedia will cause the Company to elect to obtain fiscal
transparency for US tax purposes.
(d) Amendment. This Agreement may be amended or modified only by
an instrument in writing signed by the Parties and designated
as such.
(e) No Waiver. No provision of this Agreement may be waived except
in a writing designated as such and signed by the Party or
Parties against which such waiver is sought. No failure or
delay by any Party in exercising any right, power or privilege
hereunder will operate as a waiver thereof, nor will any
single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power
or privilege hereunder.
(f) Assignment. No Party may, without the written consent of the
other Parties, assign or delegate any of its rights or
obligations under this Agreement, except to a transferee being
Transferred its Shares and other Interests pursuant to a
Permitted Transfer or as otherwise permitted in accordance
with Section 7. This Agreement will be binding upon the
Parties and their respective successors and permitted assigns.
(g) Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, and
all of which together will constitute one instrument.
(h) Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance is held by a
court of competent jurisdiction or the arbitrator or
arbitrators described in Section 10(b) to be invalid, void or
unenforceable to any extent, the remainder of this Agreement
and the application of such provision to other Persons or
circumstances remain in full force and effect, will not be
affected, impaired or invalidated thereby and will be enforced
to the greatest extent permitted by Law.
(i) Interpretation. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter
forms, and with respect to the Parties shall include, where
the context does not prohibit, their respective permitted
successors and assigns. The words "include," "includes" and
"including" will be deemed to be followed by the phrase
"without limitation." All references to Articles, Sections,
Exhibits and Schedules will mean Articles, Sections, Exhibits
and Schedules to this Agreement,
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<PAGE> 35
unless otherwise stated. Unless otherwise specified herein,
each provision of this Agreement will be effective from the
date hereof. Article, Section, Exhibit and Schedule headings,
captions and numbers in this Agreement are for convenience
only and will not be used in its interpretation or considered
part of this Agreement. Unless otherwise expressly provided in
this Agreement, whenever this Agreement refers to a matter
requiring the action, consent, approval, agreement of, or
determination, specification, designation or exercise of any
option or other right by, Formus, such action, consent,
approval, agreement, determination, specification, designation
or exercise, unless otherwise expressly provided herein, may
be taken, given, granted, made, done, omitted, withheld or
refused, by Formus in its sole and absolute discretion.
(j) Entire Agreement. This Agreement contains the entire
understanding of the Parties with respect to the subject
matter hereof and supersedes all prior negotiations,
understandings and agreements with respect thereto. The
Formation Agreement will cease to have any force or effect
from the date hereof.
(k) No Partnership. Nothing in this Agreement will be deemed or
construed as creating a partnership or joint venture among the
Parties or permit a Party to act as a mandatory or agent of
any other Party, except as otherwise provided in Section
10(n).
(l) Costs. Except as otherwise provided herein, each Party will
bear its own costs and expenses in connection herewith and the
negotiation and consummation of the transactions contemplated
hereby and the Definitive Documents.
(m) Injunctive Relief. Each of the Polish Partners acknowledges
and agrees that Formus would be damaged irreparably in the
event any of the provisions of this Agreement are not
performed by any Polish Partner in accordance with its
specific terms or are otherwise breached by any Polish
Partner. Accordingly and notwithstanding Section 10(b)(ii) or
anything else to the contrary herein, each of the Polish
Partners agrees that Formus, in addition to any other
available legal or equitable remedy, will be entitled to
institute legal proceedings for the purpose of seeking
injunctive relief in situations involving actual or threatened
breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions
hereof.
(n) Representative. To the fullest extent permitted by law, each
Polish Partner hereby irrevocably constitutes and appoints
Elmedia as its attorney-in-fact and legal and judicial
representative (the "Representative"), with full power of
substitution, for the purposes of receiving all notices and
communications directed to any Polish Partner under this
Agreement.
(o) Polish Law. Each Party, to the fullest extent permitted by the
Laws of the Republic of Poland, waives any rights that it may
have under the Laws of the Republic of Poland that might be
inconsistent with the terms of this Agreement and, to the
extent such rights cannot be validly waived, each Party will
exercise such rights only to the extent consistent with this
Agreement. Nothing in this Agreement will be construed to
require any Party to violate any Polish Law.
(p) Notices. All notices, demands and other communications to be
given under or by reason of this Agreement will be in writing
in the English language and delivered by reputable
international courier service or sent by telefacsimile to the
relevant Parties at their
32
<PAGE> 36
Addresses for Notice specified below (or such other address or
telecopy number as a Party has by five days' prior written
notice specified to the other Parties). Any notice, demand or
other communication so addressed to the relevant Party will be
deemed to have been delivered (i) if given or made by
telefacsimile, when dispatched with a confirmed transmission
report; and (ii) if given or made by courier, when actually
delivered to the relevant address.
If to the Polish Partners or any of them, to the
Representative:
Elmedia Sp. z o.o.
Poland
00336 Warsaw
M. Kopernika 28/25
Attn.: Mr. Kazimierz Jan Dembski
Facsimile No.: +48 22 827-4893
If to Formus:
Formus International - Poland, Inc.
c/o Formus Communications, Inc.
7936 E. Arapahoe Ct., Suite 3100
Englewood, Colorado 80112 USA
Attn.: President
Facsimile: +1 (303) 721-1820
With copies to:
Formus International - Poland, Inc.
c/o Formus Communications, Inc.
7936 E. Arapahoe Ct., Suite 3100
Englewood, Colorado 80112 USA
Attn.: General Counsel
Facsimile: +1 (303) 721-1820; and
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203 USA
Attn.: Paul G. Thompson, Esq
Facsimile:+1 (303) 866 0200
(q) Further Assurances. Each Party, to the fullest extent
permitted by applicable Law, will take all action and execute
and delivery all documents as reasonably necessary to fulfill
and accomplish the purposes and intents of this Agreement.
(r) Indemnification by Polish Partners. In the event that any of
the Polish Partners breaches (or in the event any third party
alleges facts that, if true, would mean any of the Polish
Partners has breached) any of their representations,
warranties or covenants herein, the Polish Partners, jointly
and severally, hereby unconditionally, absolutely and
irrevocably agree to indemnify and hold harmless Formus from
and against any and all claims, demands, liabilities, losses,
damages, causes of action, judgments, penalties, fees, costs
33
<PAGE> 37
and expenses (including, without limitation, attorneys' fees,
court costs and legal expenses and consultants' and experts'
fees and expenses) or other liabilities ("Losses") that Formus
may suffer through and after the date of the claim for
indemnification on account of, in connection with, or
resulting from any of the events described in this Section
10(r). All payments to be made under this Section 10(r) shall
be made to Formus upon receipt of notice by Formus of the
incurrence of any Losses, in accordance with the payment
instructions set forth in such notice.
(s) Confidentiality. Subject to the requirements of applicable
Law, each Party will maintain in confidence this Agreement and
documents and agreements entered into among any of them in
connection herewith and will maintain in confidence all
information received from the Company or its Subsidiaries and
will use such information only for the benefit of the Company
and its Subsidiaries, and will not disclose any such
information to any third party (except to such employees or
agents of the receiving Party who have been informed of this
obligation of confidentiality and agree to be bound by this
Section 10(r)) or make any unauthorized use of such
information. Each Party will treat such information with the
same degree of care against disclosure or unauthorized use
that it affords to its own confidential information. This
obligation of confidentiality and non- use will not apply to
any information that (i) was not previously treated as
confidential by the Company, (ii) is or becomes generally
available to the public through no fault of the receiving
Party, (iii) is independently developed by the receiving
party, (iv) is received in good faith from a third party who
discloses such information to the receiving Party on a
non-confidential basis or (v) is required to be disclosed
pursuant to the order of any court or governmental agency. In
addition, this obligation of confidentiality and non-use will
not apply to the use of any such information by Formus or any
of its Affiliates outside the Republic of Poland, public
announcements or disclosures that any receiving Party or any
of its Affiliates considers necessary or appropriate under the
U.S. securities laws or other applicable Laws, the use of any
such information in annual or other periodic reports and
financial statements released by Elmedia or Formus or either
of their respective Affiliates in the ordinary course of
business, or disclosures by Formus or any of its Affiliates in
connection with due diligence investigations by potential
investors in or partners of Formus or any of its Affiliates.
IN WITNESS WHEREOF, the Parties have executed and delivered this
Shareholders' Agreement to be effective on the date first above
written.
Formus:
FORMUS INTERNATIONAL - POLAND, INC.
By:
-------------------------------
Its:
34
<PAGE> 38
Polish Partners:
Elmedia Sp. z o.o.
By:
-------------------------------
Its:
- ------------------------------
Kazimierz Jan DEMBSKI
- ------------------------------
Jan Jozef CHROSTOWSKI
- ------------------------------
Leszek Jan STRAWINSKI
35
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT SEPARATION AGREEMENT AND
GENERAL RELEASE OF LEGAL RIGHTS
This agreement and legal release ("Agreement") is entered into between
Formus Communications, Inc., (hereinafter the "Company") and Osmo Hautanen.
The purpose of this Agreement is to facilitate Mr. Hautanen's separation from
employment with the Company by providing him with severance pay and other
considerations in exchange for him giving up any legal rights he may have in
connection with his employment and separation from employment.
I. RECITALS
1. Mr. Hautanen is currently employed by the Company as its Chief Executive
Officer pursuant to a letter agreement dated July 1, 1998 (the "Letter
Agreement").
2. Mr. Hautanen and the Company also entered into a Stock Option Agreement
dated July 1, 1998 (the "Stock Option Agreement").
3. Mr. Hautanen and the Company now desire to terminate their
employer/employee relationship through this Agreement, to resolve completely
any and all issues related to that relationship, to incorporate certain terms
contained in the Letter Agreement, and to modify certain terms contained in the
Stock Option Agreement.
II. AGREEMENT
In consideration of the promises set forth below, Mr. Hautanen and the
Company agree as follows:
<PAGE> 2
1. Resignation. Mr. Hautanen will resign his employment with the Company, and
with any affiliate of the Company by which he may have been employed, including
all officer and Board of Directors positions, with the exception of his position
as a member of the Board of Directors of Formus Communications, Inc. Mr.
Hautanen shall remain a member of the Company's Board of Directors subject to
immediate removal at any time at the sole discretion of a majority of the other
members of that board effective December 31, 1999 (the "Separation Date"). Mr.
Hautanen's last day of work shall be December 1, 1999, and the time between this
date and the Separation Date shall be deemed to be vacation. Mr. Hautanen agrees
to execute and deliver any other documents and take any other actions reasonably
requested by the Company to further evidence the transaction contemplated by
this Agreement.
2. Severance Pay. The Company shall continue to pay Mr. Hautanen's salary in
the gross amount of $420,000 per annum, less customary and required withholding
in twenty-four equal payments on the Company's regularly scheduled pay dates,
commencing January 1, 2000 and ending December 31, 2000 (the "Salary
Continuation Period").
3. Benefits Continuation. In addition to the severance payments described
above, Mr. Hautanen may elect to continue to participate in the Company's
medical, dental and Long Term Disability plans for a maximum of eighteen months.
If Mr. Hautanen elects to participate in these plans, the Company will continue
to pay the same portion of the premium it pays on behalf of its regular
employees for a period of twelve months, provided Mr. Hautanen continues to pay
his share of these premiums. If Mr. Hautanen becomes eligible for medical,
dental or Long Term Disability benefits through another employer, Mr. Hautanen
will no longer be eligible to continue participating in the Company's plans, and
if this occurs during the twelve-month period in which the Company is paying a
portion of the premiums for Mr. Hautanen, the obligation of the Company to pay
these premiums will cease.
Page 2 of 10
<PAGE> 3
4. Post Employment Office Support and Executive Coaching. The Company shall pay
for administrative/secretarial office support and executive coaching assistance
in an amount not to exceed $25,000, provided the assistance is obtained within
twelve months following the Separation Date. Invoices for these services shall
be sent directly to the Company and the Company shall pay the service provider
directly as they are incurred.
5. Relocation Assistance. In the event Mr. Hautanen elects to relocate and sell
his home in the Denver metropolitan area, the Company will pay reasonable and
customary closing costs associated with the sale of that home, so long as the
sale occurs within twelve months following the Separation Date.
6. Modification of Stock Option Agreements. Subject to approval by the
Company's Board of Directors, the Company and Mr. Hautanen hereby modify
paragraphs 2, 3, 5(d) and 6(c) of the Stock Option Agreement as provided in
this paragraph. As of the Separation Date, Mr. Hautanen shall become vested in
an additional 250,000 shares, in addition to those in which he is vested
pursuant to paragraph 2 of the Stock Option Agreement. The parties agree that
as of the Separation Date, this acceleration of the vesting of the Option means
that Mr. Hautanen shall be vested in 625,000 shares as of the Separation Date.
As an Option Holder, as that term is defined in the Stock Option Agreement, Mr.
Hautanen shall have the right to exercise the Options in which he is vested as
of his Separation Date within five years following the date of his Separation
but not thereafter, provided there is no change in control (as defined in
paragraph 5 of the Stock Option Agreement) prior to the exercise of the Option.
If a change in control or an underwritten public offering of the Common Stock
of the Company that is registered under the Securities Act of 1933, as amended,
occurs before the end of the five-year period, the Option
Page 3 of 10
<PAGE> 4
shall terminate on the earlier of 90 days following the change in control or
underwritten public offering of the Common Stock, or the end of the five-year
period. If a change in control occurs within 365 days of the Separation Date,
then Mr. Hautanen shall become vested in an additional portion of the Options in
accordance with the schedule attached as Exhibit A. Paragraph 3 of the Stock
Option Agreement will be modified as follows: The outstanding loan shall be
repayable the earlier of (i) the date on which the Option Holder sells any of
the stock secured by the load in an amount proportionate to the amount of the
stock sold, and (ii) in its entirety, five years from the date of the loan, or
(iii) in its entirety within 90 days after Formus Communications stock becomes
publicly traded. The parties agree that the exercise and ownership of any shares
under the Stock Option Agreement shall be subject to all of the terms and
conditions of the Employee Stockholders Agreement Dated August 1, 1997, a copy
of which is attached as Exhibit C.
7. Confidential Information, Covenant Not to Compete, and Non-Solicitation. Mr.
Hautanen acknowledges that paragraph 6 of the Letter Agreement imposes certain
obligations on him regarding confidentiality, competition, discoveries and
non-solicitation. Mr. Hautanen and the Company incorporate paragraph 6 of the
Letter Agreement by reference, a copy of which is attached as Exhibit D, and
acknowledge and agree that the obligations contained therein survive the
termination of Mr. Hautanen's employment.
8. Approval of Press Release. Mr. Hautanen and the Company shall agree on the
contents of a press release to be issued by the Company regarding Mr. Hautanen's
separation from the Company.
Page 4 of 10
<PAGE> 5
9. Release of Legal Rights. (a) Mr. Hautanen, on behalf of himself, his heirs,
successors and assigns, does hereby fully and forever release, relieve and
discharge the Company, its affiliates, successors and assigns, and its former,
present and future officers, directors, shareholders, agents, employees,
insurors and representatives of and from any and all known claims,
controversies, liabilities, demands, debts, causes of action, promises, acts,
agreements, and damages of whatever kind or nature, whether negligent or
intentional, known or unknown, common law or statutory, suspected or
unsuspected, foreseen or unforeseen, now existing or hereafter arising,
including particularly but not by way of limitation, all matters arising out of
his employment with the Company or the termination thereof, EXCEPT for the
rights and obligations contained in this Agreement and EXCEPT for the rights
and obligations created by the Stock Option Agreements, as modified herein.
10. It is the intent of Mr. Hautanen to settle and compromise all possible
claims addressed in this Agreement, now pending or based in whole or in part on
acts or omissions whether or not expressly occurring prior to the effective
date of this Agreement, or future effects of such acts or omissions, including
but not limited to any civil rights claims arising under Title VII of the Civil
Rights Act of 1964, as amended, the Colorado Anti-Discrimination Act, the Equal
Pay Act, THE AGE DISCRIMINATION IN EMPLOYMENT ACT, and all other federal, state
and local discrimination laws; any tort and contract claims including, but not
limited to, claims for wrongful discharge, breach of implied contract,
promissory estoppel, fraud, negligent misrepresentation, defamation, and
negligent or intentional infliction of emotional distress; and all claims for
compensation and benefits, other than those created by this Agreement.
Page 5 of 10
<PAGE> 6
11. Right to Revoke. Mr. Hautanen may revoke this Agreement within seven days
following the Receipt Date by returning to the Company a copy of the first page
of the Agreement on which he has written "rescinded," the date of his rescission
and his signature.
12. References. Mr. Hautanen shall list only William Elsner, Bernard Dvorak and
Derek Van Keuren as references in connection with any efforts to find
alternative employment. In the event that Mr. Hautanen lists any other person as
a reference, he shall be deemed to have agreed that the person or person so
listed are personal references, and that neither the Company nor any of its
affiliates shall be liable to information provided by them concerning Mr.
Hautanen.
13. Confidentiality. Mr. Hautanen agrees that this Agreement is confidential and
that he shall not disclose or reveal to any person the existence of this
Agreement or its terms, other than to his tax consultant or legal advisor, who
shall have agreed for the benefit of the Company, in writing, prior to
disclosure to keep the information confidential. The Company likewise
acknowledges that the terms of this Agreement are confidential, although the
Company may disclose this Agreement to its auditors and shareholders and to
potential investors in connection with their due diligence investigations.
14. No Admission. This Agreement shall not, under any circumstances, be
construed as evidence of or an admission by either party as to the validity,
nature or extent of any claims or evidence as to either party's positions,
claims or defenses, it being the express intent of the parties to resolve all
past and present disputes between them.
Page 6 of 10
<PAGE> 7
15. Successors and Assigns. This Agreement shall inure to the benefit of and
shall be binding upon the successors, including any trustee in bankruptcy,
assigns, heirs, and personal representatives of the parties to this Agreement.
16. Integration. Other than as is specifically stated herein, this Agreement
expresses the entire agreement of the parties hereto relative to the subject
matter of this Agreement. All prior discussions and negotiations have been and
are merged and integrated into and are superseded by this Agreement.
17. Counterparts and Facsimiles. This Agreement may be executed and delivered in
counterparts, each of which, when so executed and delivered, shall be an
original, but such counterparts together shall constitute but one and the same
instrument. Signatures made via facsimile shall be binding.
18. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Colorado.
19. No Reliance. Mr. Hautanen acknowledges that he is not relying on any
information provided to him by the Company, or on any obligation of the Company
to provide information to him, in connection with his decision to execute this
Agreement. Mr. Hautanen assumes all risk that the facts and law may be different
than understood by him.
20. Severability. In the event that any material provision of this Agreement is
found to be invalid or unenforceable, the remainder of this Agreement shall be
fully enforceable.
Page 7 of 10
<PAGE> 8
21. Modifications. This Agreement shall not be modified except in a writing
signed by the parties or their authorized representatives.
22. Arbitration. Every dispute concerning, relating to or involving the
enforcement, interpretation or effect of this agreement shall be resolved
through binding arbitration to be conducted in the Denver, Colorado metropolitan
area, pursuant to the rules of the American Arbitration Association, before a
single arbitrator selected by agreement of the parties from a list provided by
the American Arbitration Association, or as otherwise agreed. In the event the
parties cannot agree on a single arbitrator, each party shall select one
arbitrator who shall then jointly select a third arbitrator. This three-person
panel shall then resolve the underlying dispute. Judgment on the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof.
Page 8 of 10
<PAGE> 9
23. Miscellaneous. The parties represent, warrant and agree with each other
that:
o this Agreement has been carefully read by the parties;
o the contents of this Agreement are known and understood by the
parties;
o this Agreement is signed freely and willingly by each person executing
this Agreement;
o no promise has been made except as expressly set forth in this
Agreement;
o Mr. Hautanen has been advised to consult with his attorney prior to
executing this Agreement; and
o the Company gave Mr. Hautanen 21 days within which to consider this
Agreement.
Nov. 30, 1999 /s/ OSMO HAUTANEN
- ----------------------- -----------------------------
Date OSMO HAUTANEN
FORMUS COMMUNICATIONS, INC.
11/30/99 By: /s/ BERNARD G. DVORAK
- ----------------------- -------------------------
Date
Page 9 of 10
<PAGE> 10
EXHIBIT A
<TABLE>
<S> <C>
If Change of Control occurs between: Total of 375,000 Unvested Options
eligible for acceleration:
January 1, 2000-January 31, 2000 12/12ths
February 1, 2000 and February 29, 2000 11/12ths
March 1, 2000 and March 31, 2000 10/12ths
April 1, 2000 and April 30, 2000 9/12ths
May 1, 2000 and May 31, 2000 8/12ths
June 1, 2000 and June 30, 2000 7/12ths
July 1, 2000 and July 31, 2000 6/12ths
August 1, 2000 and August 31, 2000 5/12ths
September 1, 2000 and September 30, 2000 4/12ths
October 1, 2000 and October 31, 2000 3/12ths
November 1, 2000 and November 30, 2000 2/12ths
December 1, 2000 and December 31, 2000 1/12th
After January 1, 2001 0
</TABLE>
Page 10 of 10
<PAGE> 1
Exhibit 10.12
LOAN AGREEMENT
dated as of
May 2, 2000
among
FORMUS COMMUNICATIONS, INC., as Borrower
THE GUARANTORS party hereto
THE LENDERS party hereto
and
DLJ BRIDGE FINANCE, INC.,
as Agent
DLJ BRIDGE FINANCE, INC. and
SALOMON SMITH BARNEY INC.,
as Joint Lead Advisors and Arrangers
and Book Running Managers
CREDIT SUISSE FIRST BOSTON,
as Co-Arranger and Co-Manager
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. DEFINITIONS................................................................... 1
1.1 Certain Defined Terms......................................................... 1
1.2 Accounting Terms.............................................................. 33
1.3 Other Definitional Provisions; Anniversaries.................................. 33
SECTION 2. AMOUNT AND TERMS OF COMMITMENT AND LOANS; NOTES............................... 33
2.1 Loans and Note................................................................ 33
2.2 Interest on the Loans......................................................... 34
2.3 Fees.......................................................................... 34
2.4 Prepayments and Payments...................................................... 37
2.5 Use of Proceeds............................................................... 40
SECTION 3. CONDITIONS.................................................................... 41
3.1 Conditions to Loans........................................................... 41
SECTION 4. REPRESENTATIONS AND WARRANTIES................................................ 48
4.1 Organization and Good Standing................................................ 48
4.2 Authorization and Power....................................................... 48
4.3 No Conflicts or Consents...................................................... 48
4.4 Enforceable Obligations....................................................... 49
4.5 Properties; Liens............................................................. 49
4.6 Financial Condition........................................................... 49
4.7 Full Disclosure............................................................... 48
4.8 No Default.................................................................... 48
4.9 Compliance with Contracts, Etc................................................ 48
4.10 No Litigation................................................................. 49
4.11 Use of Proceeds; Margin Stock, Etc............................................ 49
4.12 Taxes......................................................................... 49
4.13 ERISA......................................................................... 49
4.14 Government Regulation......................................................... 50
4.15 Capital Structure and Subsidiaries............................................ 50
4.16 Intellectual Property......................................................... 51
4.17 Environmental Matters......................................................... 51
4.18 Permits....................................................................... 58
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.19 Insurance..................................................................... 59
4.20 Labor Matters................................................................. 59
4.21 Guarantees.................................................................... 59
4.22 Broker's or Finder's Fees..................................................... 60
4.23 Operation of Business......................................................... 60
SECTION 4A. REPRESENTATIONS AND WARRANTIES OF THE LENDERS
4A.1 Accredited Investor........................................................... 61
4A.2 Knowledge and Experience...................................................... 61
4A.3 Source of Funds............................................................... 61
SECTION 5. AFFIRMATIVE COVENANTS......................................................... 62
5.1 Financial Statements and Other Reports........................................ 62
5.2 Corporate Existence, Etc...................................................... 65
5.3 Payment of Taxes and Claims; Tax Consolidation................................ 65
5.4 Maintenance of Properties; Insurance.......................................... 66
5.5 Inspection.................................................................... 66
5.6 Equal Security for Loans and Notes............................................ 66
5.7 Compliance with Laws, Etc..................................................... 67
5.8 Maintenance of Accurate Records, Etc.......................................... 67
5.9 Permits....................................................................... 67
5.10 Permanent Financing........................................................... 67
5.11 ERISA Compliance.............................................................. 68
5.12 Additional Guarantors ....................................................... 69
5.13 Execution of Collateral Documents After the Closing Date. .................... 69
5.14 Abrared S.A. ................................................................. 69
5.15 Delivery of Local Counsel Opinions After the Closing Date. ................... 69
SECTION 6. NEGATIVE COVENANTS............................................................ 70
6.1 Indebtedness.................................................................. 70
6.2 Liens......................................................................... 73
6.3 Restricted Payments........................................................... 74
6.4 Restriction on Fundamental Changes............................................ 75
6.5 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries.. 76
6.6 Transactions with Shareholders and Affiliates................................. 76
6.7 Business Activities........................................................... 78
6.8 Amendments to Charter Documents............................................... 78
6.9 Asset Sales................................................................... 78
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 7. EVENTS OF DEFAULT............................................................. 79
7.1 Failure To Make Payments When Due............................................. 79
7.2 Default in Other Agreements................................................... 72
7.3 Breach of Certain Covenants................................................... 79
7.4 Breach of Warranty............................................................ 80
7.5 Other Defaults Under This Agreement or Loan Documents......................... 80
7.6 Involuntary Bankruptcy; Appointment of Custodian, Etc......................... 80
7.7 Voluntary Bankruptcy; Appointment of Custodian, Etc........................... 81
7.8 Judgments and Attachments..................................................... 81
7.9 Dissolution................................................................... 81
7.10 Guarantee..................................................................... 81
7.11 Default Under Engagement Letter or in Payment of Fees......................... 82
7.12 Material Contracts and Permits................................................ 82
7.13 Liens......................................................................... 82
7.14 ERISA Event................................................................... 82
7.15 Change of Control............................................................. 82
SECTION 8. THE AGENT..................................................................... 84
8.1 Appointment................................................................... 84
8.2 Delegation of Duties.......................................................... 85
8.3 Exculpatory Provisions........................................................ 85
8.4 Reliance by Agent............................................................. 85
8.5 Notice of Default............................................................. 86
8.7 Indemnification............................................................... 86
8.8 Agent in Its Individual Capacity.............................................. 87
8.9 Resignation of the Agent; Successor Agent..................................... 87
SECTION 9. GUARANTEE..................................................................... 88
9.1 Unconditional Guarantee....................................................... 88
9.2 Severability.................................................................. 89
9.3 Release of a Guarantor........................................................ 89
9.4 Limitation of Guarantor's Liability........................................... 90
9.5 Contribution.................................................................. 90
9.6 Waiver of Subrogation......................................................... 90
9.7 Waiver of Stay, Extension or Usury Laws....................................... 91
SECTION 10. MISCELLANEOUS................................................................. 91
10.1 Representation of the Lenders................................................. 91
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
10.2 Participations in and Assignments of Loans and Note........................... 91
10.3 Expenses...................................................................... 94
10.4 Indemnity..................................................................... 94
10.5 Setoff........................................................................ 95
10.6 Amendments and Waivers........................................................ 96
10.7 Independence of Covenants..................................................... 97
10.8 Entirety...................................................................... 97
10.9 Notices....................................................................... 97
10.10 Survival of Warranties and Certain Agreements................................. 97
10.11 Failure or Indulgence Not Waiver; Remedies Cumulative......................... 98
10.12 Severability.................................................................. 98
10.13 Headings...................................................................... 98
10.14 Applicable Law................................................................ 98
10.15 Successors and Assigns; Subsequent Holders of Notes........................... 98
10.16 Counterparts; Effectiveness................................................... 99
10.17 Consent to Jurisdiction; Venue; Waiver of Jury Trial.......................... 99
10.18 Payments Pro Rata............................................................. 101
10.19 Taxes......................................................................... 102
10.20 Waiver of Stay, Extension or Usury Laws....................................... 103
10.21 Requirements of Law........................................................... 103
10.22 Confidentiality............................................................... 104
10.23 Register...................................................................... 104
</TABLE>
iv
<PAGE> 6
SCHEDULES:
- ----------
<TABLE>
<S> <C>
Schedule A Subsidiaries
Schedule B Existing Indebtedness
Schedule C Environmental Matters
Schedule D Existing Liens
Schedule E Litigation
Schedule F ERISA
Schedule G Existing Investments
Schedule H Intellectual Property
Schedule I Permits
Schedule J Broker's Fees
Schedule K Financial Matters
Schedule L Taxes
Schedule M Dividends
</TABLE>
EXHIBITS:
- ---------
<TABLE>
<S> <C>
Exhibit I Form of Note
Exhibit II Form of Pledge Agreement
Exhibit III Form of Compliance Certificate
Exhibit IV Form of Notice of Borrowing
Exhibit V Form of Opinion of Holme Roberts & Owen LLP - Counsel for the
Company and the Guarantors
Exhibit VI Form of Opinion of Local Counsel for the Company and the
Guarantors
Exhibit VII Form of Joinder to Guarantee
</TABLE>
v
<PAGE> 7
THIS LOAN AGREEMENT (this "Agreement") is dated as of May 2,
2000, and entered into by and among FORMUS COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), the Guarantors named on the signature pages hereto
and any Persons that become Guarantors in accordance with Section 5.12 (the
"Guarantors"), the Lenders named on the signature pages hereto and any Persons
that become Lenders in accordance with Section 10.2(a) (the "Lenders"), and DLJ
BRIDGE FINANCE, INC. ("DLJ Bridge"), as agent for the Lenders (together with its
successors in such capacity, the "Agent").
RECITALS
WHEREAS, the Company desires that the Lenders extend a senior
secured credit facility to the Company on the terms and conditions contained
herein;
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereby agree
as follows:
SECTION 1. DEFINITIONS
1.1 Certain Defined Terms. The following terms used in this
Agreement shall have the following meanings:
"Acquired Indebtedness" means Indebtedness of a Person or any
of its Subsidiaries (i) existing at the time such Person becomes a Subsidiary of
the Company or (ii) assumed in connection with the acquisition of assets from
such Person and in each case not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Subsidiary of the
Company or such acquisition.
"Additional Loans" has the meaning ascribed to such term in
Section 2.2(a)(ii).
"Adjusted Net Assets" has the meaning provided in Section 9.5.
"Affiliate" means, with respect to any Person, any other
Person that, directly or indirectly, controls, is controlled by or is under
common control with,
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<PAGE> 8
such Person. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have correlative meanings.
"Affiliate Transaction" has the meaning ascribed to such term
in Section 6.6.
"Agent" has the meaning ascribed to such term in the
introduction to this Agreement.
"Agent's Office" shall mean the office of the Agent set forth
below its signature hereto and, upon the appointment of a successor Agent
pursuant to Section 8.9 such address as shall be provided by such successor
Agent, or in either case such office as the Agent from time to time may
designate.
"Agreement" means this Loan Agreement dated as of May 2, 2000,
as it may be amended, supplemented, restated or otherwise modified from time to
time in accordance with the terms hereof.
"Amount of Unfunded Benefit Liabilities" means, with respect
to any Pension Plan, (a) if set forth on the most recent actuarial valuation
report with respect to such Pension Plan, the amount of unfunded benefit
liabilities (as defined in Section 4001(a)(18) of ERISA) and (b) otherwise, the
excess of (i) the greater of the current liability (as defined in Section
412(l)(7) of the Internal Revenue Code) or the actuarial present value of the
accrued benefits with respect to such Pension Plan over (ii) the market value of
the assets of such Pension Plan.
"Applicable Rate" means, for each Interest Period, (a) the
greater of: (i) the LIBOR Rate in effect on the Interest Rate Determination Date
for such Interest Period, plus 675 basis points; (ii) the U.S. Treasury Rate in
effect on the Interest Rate Determination Date for such Interest Period, plus
677 basis points; (iii) the DLJ High Yield Index Rate in effect on the Interest
Rate Determination Date for such Interest Period, plus 91 basis points; or (iv)
in the case of each Interest Period commencing subsequent to the expiration of
the Initial Interest Period, the Applicable Rate for the immediately prior
Interest Period; plus (b) in the case of the second Interest Period and each
Interest Period thereafter, an amount equal to the product of 50 basis points
times the number of Interest Periods elapsed since the expiration of the Initial
Interest Period.
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"Arrangers" means, collectively, the Co-Arranger and the
Bridge Arrangers.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Subsidiaries (including any Sale and Leaseback Transaction
and any merger or consolidation) to any Person other than the Company or a
Wholly Owned Subsidiary of (a) any Capital Stock of any Subsidiary; or (b) any
other property or assets of the Company or any Subsidiary other than in the
ordinary course of business; provided, however, that Asset Sales shall not
include (i) dispositions of used, surplus or worn out equipment in the ordinary
course of business, (ii) a transaction or series of related transactions for
which the Company or its Subsidiaries receive aggregate consideration of less
than $500,000 (or the equivalent amount in any other currency), or (iii) a
disposition consisting of a Restricted Payment permitted under Section 6.3
hereof.
"Auditors" means either (a) a "Big 5" accounting firm or (b)
an internationally recognized firm of independent public accountants selected by
the Company and reasonably satisfactory to the Required Lenders.
"Bankruptcy Law" means Title 11 of the United States Code
entitled "Bankruptcy", as now and hereafter in effect, or any successor statute
or any other United States federal, state or local law or the Law of any other
jurisdiction relating to bankruptcy, insolvency, winding up, liquidation,
reorganization or relief of debtors, whether in effect on the date hereof or
hereafter.
"Bankruptcy Order" means any court order made in a proceeding
pursuant to or within the meaning of any Bankruptcy Law, containing an
adjudication of bankruptcy or insolvency, or providing for liquidation, winding
up, dissolution or reorganization, or appointing a custodian of a debtor or of
all or any substantial part of a debtor's property, or providing for the
staying, arrangement, adjustment or composition of indebtedness or other relief
of a debtor.
"Board of Directors" means, as to any Person, the board of
directors of such Person or any duly authorized committee of that Board.
"Board Resolution" means, with respect to any Person, a copy
of a resolution certified by the Secretary or an Assistant Secretary of such
Person to have
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<PAGE> 10
been duly adopted by the Board of Directors of such Person and to be in full
force and effect on the date of such certification, and delivered to the Agent.
"Bridge Arrangers" means DLJ Bridge and SSB.
"Business Day" means (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of New York or is a day on which banking
institutions therein located are authorized or required by law or other
governmental action to close, and (ii) with respect to all notices and
determinations in connection with the LIBOR Rate, any day that is a Business Day
described in clause (i) above and that is also a day on which dealings in Dollar
deposits are carried on in the London interbank market.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and including any
warrants, options or rights to acquire any of the foregoing and instruments
convertible into any of the foregoing, and (ii) with respect to any Person that
is not a corporation, any and all partnership or other equity interests of such
Person.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations
issued by, or unconditionally guaranteed by, the United States Government or any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than 180 days from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's;
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<PAGE> 11
(iv) certificates of deposit or bankers' acceptances maturing within 180 days
from the date of acquisition thereof issued by any bank organized under the laws
of the United States of America or any state thereof or the District of Columbia
or any foreign bank having at the date of acquisition thereof combined capital
and surplus of not less than $250,000,000; (v) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; (vi) investments in money market
funds which invest substantially all their assets in securities of the types
described in clauses (i) through (v) above; and (vii) in the case of any Foreign
Subsidiary, investments of the type and maturity described in clauses (i)
through (vi) above of foreign obligors, which investments or obligors (or the
direct or indirect parents of such obligors) have ratings described in such
clauses or equivalent ratings from comparable foreign rating agencies.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group") or to any Affiliates thereof
(whether or not otherwise in compliance with the provisions of this Agreement);
(ii) the approval by the holders of Capital Stock of the Company of any plan or
proposal for the liquidation or dissolution of the Company (whether or not
otherwise in compliance with the provisions of this Agreement); (iii) any Person
or Group (other than the Permitted Holder(s)) shall become the owner, directly
or indirectly, beneficially or of record, of shares representing more than 35%
of the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; (iv) the replacement of a majority of the
directors on the Board of Directors of the Company over a two-year period from
the directors who constituted the Board of Directors of the Company at the
beginning of such period, and such replacement shall not have been approved by a
vote of at least a majority of the Board of Directors of the Company then still
in office who either were members of such Board of Directors at the beginning of
such period or whose election as a member of such Board of Directors was
previously so approved; (v) the Company shall cease to own 100% of the Capital
Stock of FII; or (vi) the Permitted Holders shall cease to beneficially own at
least 35% (on a fully diluted basis) of all outstanding Capital Stock having
ordinary voting power in the election of directors of the Company.
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<PAGE> 12
"Closing Date" means the date on or before June 30, 2000 on
which the Loans are made and the conditions set forth in Section 3.1 are
satisfied or waived in accordance with Section 10.6.
"Co-Arranger" means Credit Suisse First Boston.
"Commission" means the Securities and Exchange Commission or
any successor thereof.
"Commitment" means the commitment of the Lenders to make the
Loans as set forth in Section 2.1(a).
"Commitment Letter" means the letter agreement dated April 3,
2000 among the Company and the Lenders pursuant to which the Lenders committed
to provide the Loans to the Company, subject to the terms and conditions
thereof.
"Common Stock" of any Person means any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or non-voting) of, such Person's common stock, whether
outstanding on the Closing Date or issued after the Closing Date, and includes,
without limitation, all series and classes of such common stock.
"Company" has the meaning ascribed to such term in the
introduction to this Agreement.
"Compliance Certificate" means a certificate substantially in
the form of Exhibit III annexed hereto delivered to the Agent by the Company
pursuant to Section 5.1.
"Contested Claim" means any Tax, Indebtedness or other claim
or liability (i) the validity or amount of which is being contested in good
faith by appropriate proceedings, timely instituted and diligently pursued, (ii)
for which adequate reserve, or other appropriate provision, if any, as required
in conformity with GAAP shall have been made, and (iii) with respect to which
(x) no Lien has been imposed by any Tax authority and (y) any right to execute
upon or sell any assets of the Company or of any of its Subsidiaries has not
matured or has been and continues to be effectively enjoined, superseded or
stayed.
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<PAGE> 13
"Contingent Obligation" shall mean, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of any such primary obligation or
(y) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the holder of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Contractual Obligation" as applied to any Person, means any
provision of any Security issued by that Person or of any indenture, mortgage,
deed of trust, contract, undertaking, agreement or other instrument to which
that Person is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject.
"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 ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Controlled Group" means (i) a controlled group of
corporations as defined in Section 1563(a) of the Internal Revenue Code or (ii)
a group of trades or businesses under common control, as defined in Section
414(c) of the Internal Revenue Code, of which the Company or any of its
Subsidiaries is a part or becomes a part.
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<PAGE> 14
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any Subsidiary of the Company against fluctuations in
currency values.
"Custodian" means any receiver, interim receiver, receiver and
manager, trustee, assignee, liquidator, sequestrator or similar official charged
with maintaining possession or control over property for one or more creditors,
whether under any Bankruptcy Law or otherwise.
"Default" means an event or condition the occurrence of which
is, or with the lapse of time or the giving of notice or both would be, an Event
of Default.
"Demand Take-Out Securities" means the "Take-Out Securities"
(as defined in the Engagement Letter) of the Company issued pursuant to a
"Take-Out Securities Notice" (as defined in the Engagement Letter), the proceeds
of which shall be used to repay the Loans in whole or in part.
"Disqualified Capital Stock" means that portion of any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the first anniversary of the Maturity Date.
"DLJ Bridge" is defined in the preamble.
"DLJ High Yield Index Rate" means the rate for high yield
securities published weekly by DLJSC or one of its Affiliates.
"DLJSC" means Donaldson, Lufkin & Jenrette Securities
Corporation, a Delaware corporation, and its successors.
"Dollars" or the sign "$" means the lawful money of the United
States of America.
"Eligible Assignee" means (A) (i) a commercial bank organized
under the laws of the United States of America or any state thereof having a
combined capital and surplus of not less than $250,000,000; (ii) a savings and
loan association
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<PAGE> 15
or savings bank organized under the laws of the United States or any state
thereof having a combined capital and surplus of not less than $250,000,000;
(iii) a commercial bank organized under the laws of any other country or a
political subdivision thereof having a combined capital and surplus of not less
than $250,000,000; provided that (x) such bank is acting through a branch or
agency located in the United States or (y) such bank is organized under the laws
of a country that is a member of the Organization for Economic Cooperation and
Development or a political subdivision of such country; and (iv) any other
entity which is an "accredited investor" (as defined in Regulation D under the
Securities Act of 1933) which extends credit or buys loans as one of its
businesses including, but not limited to, insurance companies, mutual funds and
lease financing companies, in each case that is reasonably acceptable to the
Agent; provided, further, that with respect to this clause (iv) only, no direct
or indirect competitor of the Company or any of its Subsidiaries shall be an
Eligible Assignee; and (B) any Lender and any Affiliate of any Lender.
"Engagement Letter" means the letter agreement dated April 3,
2000 among the Company, DLJSC, Salomon Smith Barney Inc. and Credit Suisse First
Boston Corporation.
"Employee Benefit Plan" means any "employee benefit plan" as
defined in Section 3(3) of ERISA (i) which is, or, at any time within the five
calendar years immediately preceding the date hereof, was at any time,
maintained or contributed to by any of the Company or its Subsidiaries or any of
their respective ERISA Affiliates or (ii) with respect to which the Company or
any of its Subsidiaries retains any liability, including any potential joint and
several liability as a result of an affiliation with an ERISA Affiliate or a
party that would be an ERISA Affiliate except for the fact the affiliation
ceased more than five calendar years prior to the date hereof.
"Environmental Claim" means any notice, claim, demand, order,
direction (conditional or otherwise) or other communication by any governmental
authority or any Person alleging liability for any response or corrective
action, any damage, including, without limitation, personal injury (including
sickness, disease or death), tangible or intangible property damage,
contribution, indemnity, indirect or consequential damages, damage to the
environment, nuisance, pollution, contamination or other adverse effects on the
environment, or for fines or penalties, in each case arising under any
Environmental Law, including without limitation, relating to, resulting from or
in connection with Hazardous Materials and relating to the Com-
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<PAGE> 16
pany, any of its Subsidiaries or any of their respective properties or
predecessors in interest, or Facilities.
"Environmental Laws" means federal, state, local and foreign
laws, ordinances, orders, rules, regulations, judgments, writs, decrees or
injunctions relating to pollution or protection of human health, safety or the
environment including, without limitation, ambient air, indoor air, soil,
surface water, groundwater, wetlands and other natural resources, land or
subsurface strata, including, without limitation, those relating to the Release
or threatened Release of Hazardous Materials or otherwise relating to the
generation, manufacture, use, storage, transport, treatment, distribution, or
disposal of Hazardous Materials, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
Section 9601 et seq.) ("CERCLA"), the Hazardous Materials Transportation Act (49
U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C.
Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the
Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.), the
Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.) and the
Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et
seq.), each as amended or supplemented and each as in effect as of the date of
determination.
"Equipment Financing Obligations" means any Indebtedness of a
Subsidiary of FII (including any Capitalized Lease Obligations) borrowed from
commercial banks, equipment vendors or equipment suppliers for the principal
purpose of financing equipment purchases (including, without limitation, related
software and services, system design and construction) to be used in the
business of such Subsidiary of FII; provided that such Indebtedness is Incurred
within 180 days of such purchase, the principal amount of such Indebtedness does
not exceed 150% of the cost of the equipment, software and services, system
design and construction purchased, and such Indebtedness is secured by a Lien.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute.
"ERISA Affiliate", as applied to any Person, means (i) any
corporation which is, or was at any time within the five calendar years
immediately preceding the date hereof, a member of a controlled group of
corporations within the meaning of Section 414(b) of the Internal Revenue Code
of which that Person is, or
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was at any time within the five calendar years immediately preceding the date
hereof, a member; (ii) any trade or business (whether or not incorporated) which
is, or was at any time within the five calendar years immediately preceding the
date hereof, a member of a group of trades or businesses under common control
within the meaning of Section 414(c) of the Internal Revenue Code of which that
Person is, or was at any time within the five calendar years immediately
preceding the date hereof, a member; and (iii) any member of an affiliated
service group within the meaning of Section 414(m) or (o) of the Internal
Revenue Code of which that Person, any corporation described in clause (i) above
or any trade or business described in clause (ii) above is, or was at any time
within the five calendar years immediately preceding the date hereof, a member.
"ERISA Event" means (i) a "reportable event" within the
meaning of Section 4043 of ERISA and the regulations issued thereunder with
respect to any Pension Plan (excluding those for which the provision for 30-day
notice to the PBGC has been waived by regulation); (ii) the failure to meet the
minimum funding standard of Section 412 of the Internal Revenue Code with
respect to any Pension Plan (whether or not waived in accordance with Section
412(d) of the Internal Revenue Code) or the failure to make by its due date a
required installment under Section 412(m) of the Internal Revenue Code with
respect to any Pension Plan or the failure to make any required contribution to
a Multiemployer Plan; (iii) the provision by the administrator of any Pension
Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate
such plan in a distress termination described in Section 4041(c) of ERISA; (iv)
the withdrawal by any of the Company or its Subsidiaries or any of their
respective ERISA Affiliates from any Pension Plan with two or more contributing
sponsors or the termination of any such Pension Plan resulting in liability
pursuant to Sections 4063 or 4064 of ERISA; (v) the institution by the PBGC of
proceedings to terminate any Pension Plan, or the occurrence of any event or
condition which might reasonably be expected to constitute grounds under ERISA
for the termination of, or the appointment of a trustee to administer, any
Pension Plan; (vi) the imposition of liability on any of the Company or its
Subsidiaries or any of their respective ERISA Affiliates pursuant to Section
4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of
ERISA; (vii) the withdrawal by any of the Company or its Subsidiaries or any of
their respective ERISA Affiliates in a complete or partial withdrawal (within
the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if
there is any potential liability therefor, or the receipt by any of the Company
or its Subsidiaries or any of their respective ERISA Affiliates of notice from
any Multiemployer Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA, or that it intends to
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<PAGE> 18
terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the
occurrence of an act or omission which could reasonably be expected to give rise
to the imposition on any of the Company or its Subsidiaries or any of their
respective ERISA Affiliates of fines, penalties, taxes or related charges under
Chapter 43 of the Internal Revenue Code or under Section 409 or 502(c), (i) or
(l) or 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion
of a material claim (other than routine claims for benefits) against any
Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or
against any of the Company or its Subsidiaries or any of their respective ERISA
Affiliates in connection with any such Employee Benefit Plan; (x) receipt from
the Internal Revenue Service of notice of the failure of any Pension Plan (or
any other Employee Benefit Plan intended to be qualified under Section 401(a) of
the Internal Revenue Code) to qualify under Section 401(a) of the Internal
Revenue Code, or the failure of any trust forming part of any Pension Plan to
qualify for exemption from taxation under Section 501(a) of the Internal Revenue
Code; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n)
of the Internal Revenue Code or pursuant to ERISA with respect to any Pension
Plan.
"euros" or "i" means the single currency of participating
member states of the European Union.
"Event of Default" means any of the events set forth in
Section 7.
"Excess" has the meaning ascribed to such term in Section
2.1(f).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and any successor statute or statutes thereto.
"Facilities" means any and all real property (including,
without limitation, all buildings, fixtures or other improvements located
thereon) now, hereafter or heretofore owned, leased, operated or used by the
Company, its Subsidiaries or any of their respective predecessors in interest.
"fair market value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors of
the Company acting reasonably and in good
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<PAGE> 19
faith and shall be evidenced by a Board Resolution of the Board of Directors of
the Company delivered to the Agent.
"FCC" means the United States Federal Communications
Commission.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate 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 published for any day
which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal Funds brokers of
recognized standing selected by the Agent.
"Fee Letter" means the letter agreement dated April 3, 2000
among the Company and the Arrangers pursuant to which the Company committed to
pay the Arrangers certain fees.
"FII" means Formus International, Inc. and its successors.
"Financial Statements" means the consolidated and
consolidating balance sheets, statements of operations, statements of cash flows
and statements of changes in shareholder's equity of the Company and its
Subsidiaries for the period specified, prepared in accordance with GAAP and
consistent with prior periods.
"Fiscal Year" means the fiscal year of the Company and each
Guarantor for accounting and tax purposes, which for all years after the Closing
Date shall end on December 31.
"Foreign Plans" mean any plan, fund (including, without
limitation, any superannuation fund) or other similar program established or
maintained outside the United States of America by the Company or any one or
more of its Subsidiaries primarily for the benefit of employees of the Company
or such Subsidiaries residing outside the United States of America, which plan,
fund or other similar program provides, or results in, retirement income, a
deferral of income in contemplation of retirement or payments to be made upon
termination of employment, and which plan is not subject to ERISA, or any such
plan as to which the Company or any of its Subsidiaries may have any liability.
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<PAGE> 20
"Foreign Subsidiary" means any Subsidiary of the Company which (i)
is not organized under the laws of the United States, any state thereof or the
District of Columbia and (ii) conducts substantially all of its business
operations in a country other than the United States of America.
"Funding Guarantor" has the meaning provided in Section 9.5.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.
"German Operations" means the business, operations and activities
of Callino GmbH and any other Subsidiary of the Company having business,
operations or activities in Germany, taken as a whole.
"German Permits" means any and all Permits of Callino GmbH and any
other Subsidiary of the Company having business, operations or activities in
Germany applicable to or issued by any governmental authority or any government
or any instrumentality or agency thereof having jurisdiction over the conduct of
the business and the ownership of the properties of Callino GmbH and any such
other Subsidiary in Germany.
"Guarantees" means, collectively, the guarantees in favor of the
Lenders by the Guarantors set forth in Section 9.
"Guarantor" means (i) the Subsidiaries of the Company on the
Closing Date (other than (a) Foreign Subsidiaries, (b) Communications-Ecuador
Holdings, LLC, (c) Formus Communications-New Zealand, LLC, (d) Formus
Communications-China, LLC, (e) Formus Communications-Oceania, LLC and (f) Formus
Communications-Asia Pacific, LLC) and (ii) each of the Company's Subsidiaries
(other than Foreign Subsidiaries, but including Subsidiaries referenced in
clauses (b) through (f) above to the extent such Subsidiaries are required to
become Guarantors pursuant to Section 5.12 of this Agreement) that in the future
executes a Joinder to Guarantee in the form of Exhibit VII to this Agreement in
which such Subsidiary agrees to be bound by Section 9 and the other terms of the
Loan Documents as a Guarantor; provided that any Person constituting a Guarantor
as described above shall cease to constitute a Guarantor when its respective
Guarantee is released in accordance with the terms of the Loan Documents.
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"Hazardous Materials" shall mean any pollutant, contaminant,
toxic, hazardous or extremely hazardous substance, constituent or waste, or any
other constituent, waste, material, compound, chemical or substance including,
without limitation, petroleum (including crude oil or any fraction thereof) or
any petroleum product, subject to regulation under any Environmental Law.
"Incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall
have meanings correlative to the foregoing); provided, however, that any
amendment, modification or waiver of any document pursuant to which Indebtedness
was previously Incurred shall only be deemed to be an Incurrence of Indebtedness
if and to the extent such amendment, modification or waiver (i) increases the
principal thereof or interest rate or premium payable thereon or (ii) changes to
an earlier date the stated maturity thereof or the date of any scheduled or
required principal payment thereon or the time or circumstances under which such
Indebtedness is required to be redeemed; provided, further, that any
Indebtedness of a Person existing at the time such Person becomes (after the
Closing Date) a Subsidiary of the Company (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary of the Company.
"Indebtedness" means with respect to any Person, without
duplication, (i) all indebtedness, obligations and liabilities of such Person
for borrowed money, (ii) all indebtedness, obligations and liabilities of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all obligations and
liabilities of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all indebtedness, obligations and
liabilities under any title retention agreement (but excluding trade accounts
payable and other accrued liabilities arising in the ordinary course of business
that are not overdue by 90 days or more or are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted), (v) all
indebtedness, obligations and liabilities for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction, (vi)
all Contingent Obligations of such Person, (vii) all indebtedness, obligations
and liabilities under Currency Agreements and Interest Swap Obligations of such
Person, (viii) all Disqualified Capital Stock issued by such Person with the
amount of
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<PAGE> 22
Indebtedness represented by such Disqualified Capital Stock being equal to the
greater of its voluntary or involuntary liquidation preference and its maximum
fixed repurchase price, but excluding accrued dividends, if any, and (ix) all
indebtedness, obligations and liabilities of any other Person of the type
referred to in clauses (i) through (viii) which are secured by any Lien on any
property or asset of such Person, the amount of such Indebtedness being deemed
to be the lesser of the fair market value of such property or asset or the
amount of the Indebtedness so secured.
"indemnified liabilities" has the meaning ascribed to such term in
Section 10.4.
"Indemnitees" has the meaning ascribed to such term in Section
10.4.
"Independent Financial Advisor" means a firm (i) which does not,
and whose directors, officers and employees or Affiliates do not, have a direct
or indirect material financial interest in the Company and (ii) which, in the
judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"Initial Interest Period" means the period commencing on the
Lending Date and ending on the date which is the three-month anniversary of the
Lending Date.
"Initial Lenders" means DLJ Bridge, Salomon Brothers Holding
Company Inc. and Credit Suisse First Boston.
"Intellectual Property" means all patents, trademarks, tradenames,
copyrights, technology, know-how and processes used in or necessary for the
conduct of the business of the Company as currently conducted that are material
to the condition (financial or otherwise), business or operations of the Company
and its Subsidiaries, taken as a whole.
"Interest Period" means the Initial Interest Period and,
thereafter, each subsequent period commencing on the day immediately following
the last day of the immediately preceding Interest Period and ending on the
three-month anniversary of the last day of the immediately preceding Interest
Period; provided that (i) if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless such next succeeding Business Day would fall in the next
calendar month, in which case such Interest
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<PAGE> 23
Period shall end on the next preceding Business Day and (ii) any Interest Period
that commences on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the last calendar month of
such Interest Period) shall end on the last Business Day of the last calendar
month of such Interest Period.
"Interest Rate Determination Date" means, with respect to any
Interest Period, two Business Days prior to the first Business Day of such
Interest Period.
"Interest Swap Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended from time to time, and any successor code or statute.
"Investment" means, with respect to any Person, any direct or
indirect loan or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any other Person. For the purposes of Section 6.3 hereof, the amount
of any Investment shall be the original cost of such Investment plus the cost of
all additional Investments by the Company or any of its Subsidiaries, without
any adjustments for increases or decreases in value, or write-ups, write-downs
or write-offs with respect to such Investment, reduced by the payment of
dividends, distributions, interest payments or repayments of loans or advances
in connection with such Investment or any other amounts received in respect of
such Investment. If the Company or any Subsidiary sells or otherwise disposes of
any Common Stock of any direct or indirect Subsidiary such that, after giving
effect to any such sale or disposition, it ceases to be a Subsidiary of the
Company, the Company shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Common Stock
of such Subsidiary not sold or disposed of.
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"Joint Venture" means a joint venture, partnership or other
similar arrangement, whether in corporate, partnership or other legal form;
provided, however, that, as to any Person, such Person shall not be deemed to be
a Joint Venture with respect to any other Person if such Person is a Subsidiary
of such other Person.
"Judgment Currency" has the meaning ascribed to such term in
Section 10.17(f).
"Laws" means all applicable statutes, laws, ordinances,
regulations, rules, orders, judgments, writs, injunctions or decrees of any
state, commonwealth, nation, territory, possession, province, county, parish,
town, township, village, municipality or Tribunal, and "Law" means each of the
foregoing.
"Lenders" has the meaning ascribed to that term in the
introduction to this Agreement and shall include any assignee of any Loan, Note
or Commitment to the extent of such assignment.
"Lending Date" means the date on which the Loans are made by the
Lenders to the Company.
"Letter Agreements" means the following letter agreements relating
to the Put Shares, each as in effect on the Closing Date: (i) the letter
agreement, dated September 3, 1999, executed by the Company and addressed to Dr.
Michael Hoenig, (ii) the letter agreement, dated September 3, 1999, executed by
the Company and addressed to Dr. Axel Diekmann, (iii) the letter agreement,
dated September 3, 1999, executed by the Company and addressed to Angelika
Diekmann, (iv) the letter agreement, dated September 3, 1999, executed by the
Company and addressed to Simone Diekmann, (v) the letter agreement, dated
September 3, 1999, executed by the Company and addressed to Alexander Diekmann,
and (vi) the letter agreement, dated September 3, 1999, executed by the Company
and addressed to Matthias Weber.
"LIBOR Rate" means, with respect to each day during an Interest
Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/16th
of 1%) appearing on Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in U.S. Dollars at approximately 11:00 a.m.
(London time) on the Interest Rate Determination Date for such Interest Period.
If the Interest Period is of a duration falling between the Interest Periods for
which such rates
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<PAGE> 25
appear on Telerate Page 3750, the LIBOR Rate shall be the rate determined by
interpolation between the rates for the next shorter and the next longer
Interest Periods for which such rate appears on Telerate Page 3750, as
determined by DLJ Bridge, whose determination shall be conclusive in the absence
of manifest error. In the event that (i) more than one such LIBOR Rate is
provided, the average of such rates shall apply or (ii) no such LIBOR Rate is
published, then the LIBOR Rate shall be determined from such comparable
financial reporting company as DLJ Bridge, in the exercise of its reasonable
discretion, shall determine.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest).
"Litigation" means any action, suit, proceeding, claim, lawsuit,
arbitration and/or investigation conducted or threatened by or before any
Tribunal.
"Loan Documents" means this Agreement, the Notes, the Warrant
Agreement, the Guarantees and the Pledge Agreement.
"Loans" has the meaning ascribed to such term in Section 2.1(a).
"Majority Holders" means the holders of at least a majority in
interest of the "Registrable Securities" (as defined in the Fourth Amended and
Restated Investors' Rights Agreement dated as of September 3, 1999) of the
Company.
"Margin Stock" has the meaning assigned to that term in Regulation
U of the Board of Governors of the Federal Reserve System as in effect from time
to time.
"Material Adverse Effect" means (i) a material adverse effect upon
the business, operations, properties, assets, liabilities, condition (financial
or otherwise), prospects or projections of the Company and its Subsidiaries,
taken as a whole, (ii) a material adverse effect on the ability of any of the
Company or its Subsidiaries to execute, deliver and perform its obligations
under the Loan Documents or on the legality, validity or enforceability of this
Agreement or any other Loan Document or any Lien created thereunder, (iii) the
impairment of the ability of the Company and its Subsidiaries to perform, or the
impairment of the ability of the Agent or Lenders
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<PAGE> 26
to enforce, the Obligations, or (iv) a material adverse effect on the issuance
of high yield or equity securities by the Company.
"Material Contract" means any Contractual Obligation to which the
Company or any Guarantor is a party (other than the Loan Documents) for which
breach, nonperformance, cancellation or failure to renew could reasonably be
expected to have a Material Adverse Effect.
"Material Subsidiary" means a "significant subsidiary" as defined
in Rule 1-02(w) of Regulation S-X promulgated under the Securities Act.
"Maturity Date" means the earlier of (i) the first anniversary of
the Lending Date or (ii) the date, if any, on which the Company repurchases any
Put Shares in connection with a notice received by the Company from any Put
Shareholder subsequent to October 15, 2000.
"Memorandum of Understanding" means the Memorandum of
Understanding dated November 19, 1999 among FII, Merlin Servicios Portadores,
S.A., Caixa de Ahoros de Galicia, Caja de Ahorros de Valencia Castellon y
Alicante, Iberdrola Diversification, S.A. and Grupo Fuertes, S.A., together with
the Agreement dated November 19, 1999 between FII and Merlin Servicios
Portadores, S.A. and the Agreement dated November 19, 1999 among FII, Merlin
Servicios Portadores, S.A., Caixa de Ahoros de Galicia, Caja de Ahorros de
Valencia Castellon y Alicante, Iberdrola Diversification, S.A. and Grupo
Fuertes, S.A.
"Multiemployer Plan" means a Pension Plan which is a
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents (including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Subsidiaries from such Asset
Sale net of (i) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (ii) taxes paid or payable after taking
into account any reduction in tax liability (or any consolidated, combined or
unitary tax liability) due to available tax credits, deductions, carry forward
items and any tax sharing arrangements, and (iii) repayment of Indebtedness that
is required to be repaid in connection with such
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Asset Sale, and, (b) with respect to any issuance of Take-Out Securities or the
sale, issuance or transfer of Capital Stock (to the extent not constituting an
Asset Sale) or the receipt by the Company of a capital contribution, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents received by the Company or any of its Subsidiaries from such
issuance of Take-Out Securities or such sale, issuance or transfer or such
capital contribution, net of reasonable out-of-pocket expenses and fees relating
to such issuance of Take-Out Securities or such sale, issuance or transfer or
such capital contribution (including, without limitation, legal, accounting and
investment banking fees).
"Notes" has the meaning ascribed to such term in Section 2.1(d).
"Notice of Borrowing" means a notice substantially in the form of
Exhibit IV annexed hereto with respect to a proposed borrowing.
"Obligations" means all obligations of every nature of the Company
from time to time owed to the Lenders and the Agent under the Loan Documents,
whether for principal, reimbursements, interest, fees, expenses, indemnities or
otherwise, and whether primary, secondary, direct, indirect, contingent, fixed
or otherwise (including obligations of performance).
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Controller, the Treasurer, the Secretary or any Assistant
Secretary of such Person.
"Officers' Certificate" means, as applied to any corporation, a
certificate executed on behalf of such corporation by two Officers; provided,
however, that every Officers' Certificate with respect to the compliance with a
condition precedent to the making of the Loans hereunder shall include (i) a
statement that the officer or officers making or giving such Officers'
Certificate have read such condition and any definitions or other provisions
contained in this Agreement relating thereto, (ii) a statement that, in the
opinion of the signers, they have made or have caused to be made such
examination or investigation as is necessary to enable the corporation to
express an informed opinion as to whether or not such condition has been
complied with, and (iii) a statement as to whether, in the opinion of the
signers, such condition has been complied with; provided, however, such
Officer's Certificate shall not be construed to create any contractual liability
for any Officer signing such certificate.
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"Original Notes" has the meaning ascribed to such term in Section
2.1(d).
"Other Taxes" has the meaning ascribed to such term in Section
10.19.
"PBGC" means the Pension Benefit Guaranty Corporation, and any
successor to all or any of the Pension Benefit Guaranty Corporation's functions
under ERISA.
"Pension Plan" means an employee pension benefit plan as defined
in Section 3(2) of ERISA which is subject to the provisions of Title IV of ERISA
and which is maintained for employees of the Company, any Subsidiary or any
member of the Controlled Group.
"Permanent Financing" means any issuance of Securities occurring
prior to or after the Closing Date, or for the purpose of refinancing the Loans.
"Permits" means the certificates, permits, licenses, franchises,
consents, approvals, authorizations and clearances involved in, relating to or
required in connection with the business, operations, assets, property or
prospects of the Company and its Subsidiaries.
"Permitted Holders" means (i) Chase Capital Partners, (ii)
Centennial Funds V, L.P. and (iii) Telecom Partners II, L.P., and their
respective Affiliates.
"Permitted Indebtedness" has the meaning ascribed to such term in
Section 6.1.
"Permitted Investments" means:
(i) Investments by the Company or any Subsidiary (other than
Investments made by Formus Polska and Callino GmbH, except to the extent such
Investments are funded through Investments in Formus Polska or Callino GmbH, as
the case may be, subsequent to the Closing Date) in any Person that will become
immediately after such Investment a Subsidiary of the Company or that will merge
or consolidate into the Company or a Subsidiary of the Company (so long as the
surviving entity of such merger or consolidation is the Company or a
Subsidiary);
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(ii) Investments in the Company or any of its Subsidiaries (other
than Investments in the Company or any of its Subsidiaries made by Formus Polska
and Callino GmbH, except to the extent such Investments are funded through
Investments in Formus Polska or Callino GmbH, as the case may be, subsequent to
the Closing Date);
(iii) Investments by the Company or its Subsidiaries described on
Schedule G;
(iv) Investments in cash and Cash Equivalents;
(v) loans and advances to employees and officers of the Company
and its Subsidiaries in the ordinary course of business for bona fide business
purposes not in excess of $1,000,000 (or the equivalent amount in any other
currency) at any one time outstanding;
(vi) Currency Agreements and Interest Swap Obligations entered
into in the ordinary course of the Company's or its Subsidiaries' businesses and
otherwise in compliance with this Agreement;
(vii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(viii) Investments made by the Company or its Subsidiaries as a
result of consideration received in connection with an Asset Sale made in
compliance with Section 6.9 hereof;
(ix) Investments in Joint Ventures in businesses reasonably
related or complementary to the Company and its Subsidiaries in the ordinary
course of business which, together with the other Investments permitted under
clause (xiv) below and excluding Investments in Abrared S.A., do not exceed an
aggregate amount of $2,500,000 (or the equivalent amount in any other currency)
at any time outstanding;
(x) guarantees of Indebtedness permitted to be incurred under
Section 6.1 hereof, solely to the extent the Person guaranteeing such
Indebtedness is a Subsidiary of the primary obligor of such Indebtedness or the
primary obligor of
23
<PAGE> 30
such Indebtedness is a Subsidiary of the guarantor of such Indebtedness and any
transaction permitted under Section 6.1(n) of this Agreement;
(xi) Investments by the Company or its Subsidiaries not in excess
of $10,000,000 (or the equivalent amount in any other currency) in any Person
with whom the Company or any of its Subsidiaries has entered into definitive
agreements to acquire such Person;
(xii) Investments by the Company or its Subsidiaries not in excess
of $2,000,000 (or the equivalent amount in any other currency) in any Person
with whom the Company or any of its Subsidiaries has entered into a letter of
intent or memorandum of understanding with respect to the proposed acquisition
of such Person;
(xiii) Investments in Abrared S.A. which do not exceed an
aggregate amount of $23,678,329 (or the equivalent amount in any other
currency), together with the guarantee of Formus Iberica described in Schedule B
annexed hereto; and
(xiv) other Investments which, together with the Investments in
Joint Ventures (other than Investments in Abrared S.A.) permitted under clause
(ix) above, do not exceed an aggregate amount of $2,500,000 (or the equivalent
amount in any other currency) at any time outstanding.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
not delinquent;
(ii) statutory Liens of landlords or of mortgagees of landlords
and Liens of carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen and other Liens imposed by Law incurred in the ordinary
course of business for sums not yet delinquent or constituting
Contested Claims;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security, including any Lien
securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts,
24
<PAGE> 31
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so long
as such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment
shall not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other
similar charges or encumbrances in respect of real property not
interfering in any material respect with the ordinary conduct of the
business of the Company or any of its Subsidiaries;
(vi) Liens upon specific items of inventory, equipment or other
goods and proceeds of any Person securing such Person's obligations in
respect of bankers' acceptances issued or created for the account of
such Person to facilitate the purchase, shipment or storage of such
inventory, equipment or other goods;
(vii) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other
property relating to such letters of credit and products and proceeds
thereof;
(viii) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual, or warranty
requirements of the Company or any of its Subsidiaries, including
rights of offset and set-off;
(ix) Liens securing Interest Swap Obligations;
(x) Liens securing Indebtedness under Currency Agreements;
(xi) Liens securing Acquired Indebtedness incurred in accordance
with Section 6.1 hereof; provided that (a) such Liens secured such
Acquired Indebtedness at the time of and prior to the incurrence of
such Acquired Indebtedness by the Company or any Subsidiary and were
not granted in connection with, or in anticipation of, the incurrence
of such Acquired Indebtedness by the Company or any Subsidiary and (b)
such Liens do not extend to or cover any property or assets of the
Company or of any of its
25
<PAGE> 32
Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or any Subsidiary and are no more
favorable to the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired Indebtedness by
the Company or any Subsidiary;
(xii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Subsidiaries;
(xiii) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xiv) Liens securing Equipment Financing Obligations, including,
without limitation, obligations under the WBD Line of Credit, incurred
in accordance with the provisions of this Agreement and subject to the
limitations set forth in Section 6.2(v) of this Agreement;
(xv) Liens only on assets acquired in connection with transactions
described in Section 6.1(q) of this Agreement securing deferred
purchase price obligations permitted by Section 6.1(q) of this
Agreement; and
(xv) Liens in favor of customs and revenues authorities arising as
a matter of Law to secure payment of custom duties in connection with
the importation of goods.
"Person" means an individual, partnership, corporation, limited
liability company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"PIK Amount" has the meaning ascribed to such term in Section
2.2(a)(ii).
"Pledge Agreement" means that certain Pledge Agreement among the
Pledgors and the Agent, in form and substance satisfactory in all respects to
the Lenders and substantially in the form of Exhibit II annexed hereto, pursuant
to which the Company shall create in favor of the Agent, for the benefit of the
Lenders, a valid, perfected first priority Lien on 100% of Capital Stock now or
hereafter owned
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<PAGE> 33
by the Company (provided that if the issuer of any of such Capital Stock is
classified as a "controlled foreign corporation" (as such term is defined in
Section 957(a) or a successor provision of the Internal Revenue Code), the
Company shall not be required to pledge any shares of Capital Stock of such
issuer in excess of the number of shares of such issuer possessing up to but not
exceeding 65% of the voting power of all classes of Capital Stock entitled to
vote of such issuer), FII shall create in favor of the Agent, for the benefit of
the Lenders, a valid, perfected first priority Lien on 100% of Capital Stock of
Latin America Holdings LLC, and Latin America Holdings LLC shall create in favor
of the Agent, for the benefit of the Lenders, a valid, perfected first priority
Lien on all Capital Stock of VeloCom Inc. owned by it.
"Pledgors" means the Company, FII, Latin America Holdings LLC, and
each other party required to become a party to the Pledge Agreement.
"Polish Operations" means the business, operations and activities
of Formus Polska and any other Subsidiary of the Company having business,
operations or activities in the Republic of Poland, taken as a whole.
"Polish Permits" means any and all Permits of Formus Polska and
any other Subsidiary of the Company having business, operations or activities in
the Republic of Poland applicable to or issued by any governmental authority or
any government or any instrumentality or agency thereof having jurisdiction over
the conduct of the business and the ownership of the properties of Formus Polska
and any such other Subsidiary in the Republic of Poland.
"Preferred Stock" of any Person means any Capital Stock of such
Person that has preferential rights to any other Capital Stock of such Person
with respect to dividends or redemptions or upon liquidation.
"Prepayment Premium" means, in connection with any redemption or
prepayment of the Loans, three percent (3.00%) of the outstanding principal
amount of the Loan or Loans being prepaid or redeemed, if the prepayment or
redemption is made with funds raised by any means other than:
(i) an issuance of Indebtedness in which (x) the Bridge Arrangers
(or Affiliates of the Bridge Arrangers) have acted as sole joint lead
underwriters, sole joint lead initial purchasers or sole joint lead
book managers and the Co-Arranger has acted as sole co-manager and, in
any case, the Initial Lenders have underwritten debt Securities having
a principal value upon issuance
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<PAGE> 34
of at least $150,000,000 or (y) the Bridge Arrangers have acted as sole
joint lead agents and the Co-Arranger has acted as sole co-agent in the
case of loans having an aggregate principal amount of at least
$150,000,000 being borrowed in a bank facility, and, in each such case,
the fees payable in connection with such issuance are not less than
three percent (3.00%) of the principal amount of such Indebtedness;
(ii) an initial public offering prior to October 31, 2000 in which
at least two of the three Arrangers participate (in which (A) either or
both the Bridge Arrangers act as either sole or sole joint lead
underwriters and sole or sole joint book running managers and, to the
extent only one of the Bridge Arrangers participates, the Co-Arranger
acts as sole co-manager or (B) both the Bridge Arrangers act as sole
joint lead underwriters and sole joint book running managers and the
Co-Arranger acts as sole co-manager) and in which, in any case, the
Initial Lenders have underwritten equity Securities having an aggregate
offering price of at least $75,000,000 and received fees payable in
connection therewith of not less than seven percent (7.00%) of such
aggregate offering price; or
(iii) an initial public offering on or after October 31, 2000 in
which the Bridge Arrangers act as sole joint lead underwriters and sole
joint book running managers and the Co-Arranger acts as sole co-manager
and, in any case, the Initial Lenders have underwritten equity
Securities having an aggregate offering price of at least $75,000,000
and received fees payable in connection therewith of not less than
seven percent (7.00%) of such aggregate offering price;
provided, however, that if only one of the three Arrangers participates
in an initial public offering occurring prior to October 31, 2000 in the role
described for such Arranger in clause (ii) above, then the "Prepayment Premium"
means, in connection with any prepayment or redemption of the Loans made by that
Arranger, zero percent (0.00%), and the "Prepayment Premium" means, in
connection with any prepayment or redemption of the Loans made by the other
Lenders, three percent (3.00%) of the outstanding principal amount of such Loan
or Loans being prepaid or redeemed; and provided, further, that the Arrangers
shall have the right to participate in such public offerings, private placements
and other financings in at least the proportion that such Lender's Commitment as
of the date of the Commitment Letter bears to the aggregate amount of the
Commitments, with any fees paid in respect thereof being paid on a pro rata
basis.
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"Process Agent" has the meaning ascribed to such term in Section
10.17(d).
"Put Shareholders" means (i) Dr. Michael Hoenig, (ii) Dr. Axel
Diekmann, (iii) Angelika Diekmann, (iv) Simone Diekmann, (v) Alexander Diekmann,
and (vi) Matthias Weber.
"Put Shares" means the 3,646,286 aggregate shares of Series E
Preferred Stock of the Company acquired by the Put Shareholders and described in
the Letter Agreements.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock or that is not Indebtedness that is convertible or
exchangeable into Capital Stock.
"Reference Date" has the meaning ascribed to such term in Section
6.3.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing of Equipment
Financing Obligations or Acquired Indebtedness that does not (1) result in an
increase in the aggregate principal amount of Indebtedness of such Person as of
the date of such proposed Refinancing (plus the amount of any premium required
to be paid under the terms of the instrument governing such Indebtedness and
plus the amount of reasonable expenses incurred by the Company in connection
with such Refinancing) or (2) create Indebtedness with (A) a Weighted Average
Life to Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that (x) such
Refinancing Indebtedness shall not constitute Indebtedness of any Person that
was not a primary obligor or guarantor of the Indebtedness being Refinanced and
(y) if such Indebtedness being Refinanced is subordinate or junior to the Notes,
then such Refinancing Indebtedness shall be subordinate to the Notes at least to
the same extent and in the same manner as the Indebtedness being Refinanced.
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"Register" has the meaning ascribed to such term in Section 10.23.
"Release" means any spill, emission, leaking, pumping, pouring,
injection, escaping, deposit, disposal, discharge, dispersal, dumping, emitting,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, the abandonment or disposal of any
barrels, containers or other closed receptacles containing any Hazardous
Materials), or into or out of any Facility, including without limitation the
movement of any Hazardous Material through the air, soil, surface water,
groundwater or property.
"Replacement Assets" has the meaning ascribed to such term in
Section 6.9(b).
"Reportable Event" has the meaning set forth in Section 4043 of
ERISA, but excluding any event for which the 30-day notice requirement has been
waived by applicable regulations of the PBGC.
"Required Amount" means forty percent (40%) of the Excess.
"Required Lenders" means Lenders holding in the aggregate more
than 50% of the sum of (i) the outstanding principal amount of Loans and (ii)
prior to the termination of the Commitments, any unutilized Commitments.
"Restricted Payment" has the meaning ascribed to such term in
Section 6.3.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Subsidiary of any property, whether owned by
the Company or any Subsidiary at the Closing Date or later acquired, which has
been or is to be sold or transferred by the Company or such Subsidiary to such
Person or to any other Person from whom funds have been or are to be advanced by
such Person on the security of such Property.
"Securities" means any stock, shares, partnership interests,
voting trust certificates, certificates of interest or participation in any
profit sharing agreement or arrangement, bonds, debentures, options, warrants,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of
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<PAGE> 37
interest, shares or participations in temporary or interim certificates for the
purchase or acquisition of, or any right to subscribe to, purchase or acquire,
any of the foregoing.
"Securities Act" means the Securities Act of 1933, as amended, and
any successor statute or statutes thereto.
"Senior Officers" means each of the Chief Executive Officer,
President and Chief Financial Officer of the Company.
"SSB" means Salomon Smith Barney Inc. and its successors.
"Subordinated Indebtedness" means Indebtedness of the Company or
any Guarantor which is expressly subordinated in right of payment to the Loans
or the Guarantee of such Guarantor, as the case may be.
"Subsequent Note" has the meaning ascribed to such term in Section
2.1(d).
"Subsidiary," means, with respect to any Person, (i) any
corporation of which the outstanding Capital Stock having at least a majority of
the votes entitled to be cast in the election of directors under ordinary
circumstances shall at the time be owned, directly or indirectly, by such
Person, (ii) any other Person of which at least a majority of the voting
interest under ordinary circumstances is at the time, directly or indirectly,
owned by such Person, and (iii) any other Person of which a majority in equity
interests (in terms of economic ownership) are owned, directly or indirectly, by
such Person. Unless otherwise specified, all references to a "Subsidiary" shall
mean a Subsidiary of the Company.
"Take-Out Securities" means any Securities of the Company and/or
its Subsidiaries issued on or after the Closing Date, including, without
limitation, the Demand Take-Out Securities, but excluding (i) Securities of the
Company issued in a private placement to "accredited investors" (as defined in
Regulation D under the Securities Act of 1933) resulting in gross proceeds
(together with the gross proceeds of all such private placements on or
subsequent to April 25, 2000) not in excess of $200,000,000, (ii) Securities
issued to the Company or any Subsidiary, and (iii) Securities of Subsidiaries to
the extent issued, sold, transferred or conveyed in a transaction constituting
an Asset Sale.
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"Taxes" means all taxes, assessments, fees, levies, imposts,
duties, penalties, deductions, liabilities, withholdings or other charges of any
nature whatsoever, including interest penalties and additions to tax.
"Tribunal" means any government, any arbitration panel, any court
or any governmental department, commission, board, bureau, agency, authority or
instrumentality of the United States or any state, province, commonwealth,
nation, territory, possession, county, parish, town, township, village or
municipality, whether now or hereafter constituted and/or existing.
"U.S. Legal Tender" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
"U.S. Treasury Rate" means, as of any date, the yield to maturity
as of such date of United States Treasury securities having a maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15 (519) that has become publicly available at least two Business Days prior
to such date (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to (but not
less than) the seventh (7th) anniversary of the Closing Date.
"Voting Stock" means, with respect to any Person, securities of
any class or classes of Capital Stock in such Person entitling the holders
thereof (whether at all times or only so long as no senior class of stock has
voting power by reason of any contingency) to vote in the election of members of
the board of directors or other governing body of such Person.
"Warrant Agreement" means the Warrant Agreement dated as of the
Closing Date delivered to the Lenders by the Company, in form and substance
satisfactory in all respects to the Lenders.
"WBD Line of Credit" means that line of credit of up to
i120,000,000 granted to Formus Polska pursuant to the Multi-Tranche Secured
Senior Facility Agreement dated September 15, 1999 among Formus Polska, as
borrower, Westdeutsche Landesbank (France) S.A., as facility agent, Westdeutsche
Landesbank Polska S.A., as security trustee, and each financial institution
party thereto.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of
such Person of which all the outstanding voting securities (other than, in the
case of a Foreign Subsidiary, directors' qualifying shares or an immaterial
amount of shares required to be owned by other Persons pursuant to applicable
Law) are owned by such Person or any Wholly Owned Subsidiary of such Person.
Unless otherwise specified, all references to a "Wholly Owned Subsidiary" shall
mean a Wholly Owned Subsidiary of the Company.
1.2 Accounting Terms. For the purposes of this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP.
1.3 Other Definitional Provisions; Anniversaries. Any of the terms
defined in Section 1.1 may, unless the context otherwise requires, be used in
the singular or the plural depending on the reference. For purposes of this
Agreement, a monthly anniversary of the Lending Date and the last day of any
Interest Period shall occur on the same day of the applicable month as the day
of the month on which the Lending Date occurred or the last day of such Interest
Period occurred; provided, however, that if the applicable month has no such day
(i.e., 29, 30 or 31), the monthly anniversary shall be deemed to occur on the
last day of the applicable month. Except as otherwise provided herein, where any
provision in this Agreement refers to a specific agreement, contract or
document, such provision shall be construed to refer to such agreement, contract
or document as it may be amended, restated, supplemented or otherwise modified
from time to time. The use in any of the Loan Documents of the word "include" or
"including", when following any general statement, term or matter, shall not be
construed to limit such statement, term or matter to the specific items or
matters set forth immediately following such word or to similar items or
matters, whether or not nonlimiting language (such as "without limitation" or
"but not limited to" or words of similar import) is used with reference thereto,
but rather shall be deemed to refer to all other items or matters that fall
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<PAGE> 40
within the broadest possible scope of such general statements, term or matter.
Except as otherwise specified, all references herein to Sections, Exhibits and
Schedules shall refer to Sections, Exhibits and Schedules of this Agreement.
SECTION 2. AMOUNT AND TERMS OF COMMITMENT AND LOANS; NOTES
2.1 Loans and Notes.
(1) Commitment. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of the Company
herein set forth, the Lenders hereby agree to lend to the Company on the Lending
Date an aggregate amount of up to $75,000,000 (the "Loans"), each such Lender
committing to lend the amount set forth next to such Lender's name on the
signature pages hereto; provided that the Lending Date must occur no later than
June 30, 2000, and the Loans shall be in an aggregate amount of not less than
the lesser of (i) $37,500,000 or (ii) the amount of available Commitments (as
defined below) on the Lending Date. The Lenders' commitments to make the Loans
to the Company pursuant to this Section 2.1(a) are herein called individually,
the "Commitment" and collectively, the "Commitments."
(2) Notice of Borrowing. When the Company desires to borrow under
this Section 2.1, it shall deliver to the Agent a Notice of Borrowing no later
than 11:00 A.M. (New York time), at least five (5) Business Days in advance of
the date of the proposed Lending Date or such later date as shall be agreed to
by the Agent. The Notice of Borrowing shall specify the proposed Lending Date
(which shall be a Business Day). Upon receipt of such Notice of Borrowing, the
Agent shall promptly notify each Lender of its share of the Loan and the other
matters covered by the Notice of Borrowing. Such Lender's share of the Loan
shall be determined by reference to the quotient of such Lender's unfunded
Commitment, divided by the aggregate amount of all unfunded Commitments. All
Loans shall be funded on a pro rata basis by the Lenders as aforesaid.
(3) Disbursement of Funds. No later than 12:00 Noon (New York
time) on the Lending Date, each Lender will make available its pro rata share of
the Loan requested to be made on such date in the manner provided below. All
amounts shall be made available to the Agent in U.S. dollars and immediately
available funds at the Agent's Office and the Agent promptly will deliver by
wire transfer, to the account designated by the Company, the aggregate of the
amounts so made available in the type of funds received. Unless the Agent shall
have been notified by any Lender prior to the Lending Date that such Lender does
not intend to make available to the Agent its portion of the Loan to be made on
such date, the Agent may assume
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<PAGE> 41
that such Lender has made such amount available to the Agent on such date, and
the Agent, in reliance upon such assumption, may (in its sole discretion and
without any obligation to do so) make available to the Company a corresponding
amount. If such corresponding amount is not in fact made available to the Agent
by such Lender and the Agent has made available same to the Company, the Agent
shall be entitled to recover such corresponding amount from such Lender. If such
Lender does not pay such corresponding amount forthwith upon the Agent's demand
therefor, the Agent shall promptly notify the Company, and the Company shall
immediately pay such corresponding amount to the Agent; provided, that the
notice to the Company shall have been received not more than ten (10) Business
Days after the applicable Lending Date. The Agent shall also be entitled to
recover from the Lender or the Company, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Agent to the Company to the date such
corresponding amount is recovered by the Agent, at a rate per annum equal to (x)
if paid by such Lender, the overnight Federal Funds Rate or (y) if paid by the
Company, the then applicable rate of interest on the Loans.
Nothing herein shall be deemed to relieve any Lender from its
obligation to fulfill its Commitment hereunder or to prejudice any rights which
the Company may have against any Lender as a result of any default by such
Lender hereunder.
(4) Notes. The Company shall execute and deliver to each Lender on
the Closing Date a Note dated the Closing Date and having a principal amount
equal to such Lender's Commitment, substantially in the form of Exhibit I
annexed hereto (the "Original Notes"). On each interest payment date on which
the Company elects to pay a PIK Amount pursuant to Section 2.2(b), the Company
shall execute and deliver to each Lender on such interest payment date a Note
dated such interest payment date substantially in the form of Exhibit I annexed
hereto in a principal amount equal to such Lender's pro rata portion of such PIK
Amount and with other appropriate insertions (each, a "Subsequent Note" and,
together with the Original Bridge Notes, the "Notes"). A Subsequent Note shall
bear interest from the date of its issuance at the same rate borne by all Notes.
(5) Scheduled Payment of Loan. The Company shall pay in full the
outstanding amount of the Loans and all other Obligations owing hereunder,
including, without limitation, the Prepayment Premium, if any, no later than the
Maturity Date.
(6) Termination of Commitment. The Commitment hereunder shall
terminate on the earlier of (i) the commencement by the Company or any of its
Subsidiaries of the marketing of, or the issuance by the Company or any of its
Subsidiaries of, any Securities or the arrangement of any other financing for
the
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Company or any of its Subsidiaries of which each of the Bridge Arrangers (or one
of their Affiliates) is not the sole joint lead underwriter, sole joint lead
initial purchaser or sole joint book running manager and, in the case of the
Co-Arranger, a co-manager, or, in the case of any bank financing, in which each
of the Bridge Arrangers is not sole joint syndication agent or arranger, and, in
the case of the Co-Arranger, sole co-arranger, as the case may be, (ii) upon the
Company or any of its Subsidiaries issuing Securities for gross proceeds of at
least $75,000,000, or (iii) June 30, 2000, if the Loans are not made on or
before such date (except for, in each case (A) any Incurrence of Equipment
Financing Obligations permitted under this Agreement, (B) Permitted Investments
and Asset Sales permitted under this Agreement, (C) as required pursuant to
shareholders agreements and joint venture agreements relating to Subsidiaries of
the Company entered into in the ordinary course of the business of the Company
and its Subsidiaries, and (D) any issuance of Securities of the Company in a
private placement to "accredited investors" (as defined in Regulation D under
the Securities Act of 1933) resulting in gross proceeds (together with the gross
proceeds of all such private placements on or subsequent to April 25, 2000) not
in excess of $200,000,000; provided that with respect to this clause (D), any
gross proceeds of all such private placements on or subsequent to April 25, 2000
in excess of $100,000,000 in the aggregate (the "Excess") shall be subject to
the mandatory reduction in Commitment and prepayment requirements set forth in
Section 2.4(d). The Company shall have the right, without premium or penalty, to
reduce or terminate the Commitment of the Lenders hereunder at any time upon at
least three (3) Business Days' notice to the Lenders. All Commitments not
utilized on the Lending Date shall immediately terminate.
(7) Pro Rata Borrowings. The Loans made under this Agreement shall
be made by the Lenders pro rata on the basis of their respective Commitments. It
is understood that no Lender shall be responsible for any default by any other
Lender of its obligation to make its portion of the Loans hereunder and that
each Lender shall be obligated to make its portion of the Loans hereunder,
regardless of the failure of any other Lender to fulfill its commitments
hereunder.
2.2 Interest on the Loans.
(1) Rate of Interest. The Loans shall bear interest on the unpaid principal
amount thereof from the date made through maturity (whether by prepayment,
acceleration or otherwise) at a rate determined as set forth below.
(1) Loans. The Loans shall bear interest for each Interest
Period at a rate per annum equal to the Applicable Rate for each relevant
Interest Period; provided that if Additional Loans are advanced, all Loans shall
at all times bear interest at the same rate as the Loans issued on the Lending
Date.
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(2) Additional Loans. Notwithstanding the foregoing or any
other provision herein, in no event will the combined sum of interest (cash or
otherwise) on the Loans exceed seventeen percent (17.00%) per annum or be less
than thirteen percent (13.00%) per annum (in each case exclusive of the default
rate of interest payable pursuant to Section 2.2(c)). In addition, if and to the
extent that the amount of interest (exclusive of the default rate of interest
payable pursuant to Section 2.2(c)) payable on any Interest Payment Date is
greater than the amount of interest on the Loans which would have been payable
on such Interest Payment Date if the interest rate in effect at all times during
the three-month period then ended had been 15.00% per annum (the amount of such
excess being hereinafter referred to as the "PIK Amount" for such period), then
the Company may, at its option, in lieu of payment of the PIK Amount of interest
in cash, pay such PIK Amount by increasing the principal of the applicable Loans
by an amount equal to the PIK Amount (the "Additional Loans") and by issuance of
Subsequent Notes in an aggregate principal amount equal to the PIK Amount.
Notwithstanding anything to the contrary expressed or implied herein, such
Additional Loans made on any Interest Payment Date shall, subject to the
remaining provisions of this paragraph, bear interest at the same interest rate
as the Loans in respect of which such Additional Loans are being issued, shall
mature on the Maturity Date and be subject to prepayment and acceleration of
maturity in the same manner as the Loans, shall otherwise be identical to the
outstanding Loans and shall be deemed made by the applicable Lenders in
proportions such that each Lender shall receive the same ratio of cash interest
to Additional Loans on such Interest Payment Date.
(2) Interest Payments. Interest shall be payable in arrears on the
last day of each Interest Period and upon any prepayment of the Loans (to the
extent accrued on the amount being prepaid) and at maturity of the Loans in
respect of any amounts paid on such date.
(3) Default Rate. At any time that a Default or Event of Default
has occurred and is continuing, all Loans and other Obligations shall bear
interest payable upon demand at a rate which is 2.00% per annum in excess of the
rate of interest otherwise payable under this Agreement for the Loans.
(4) Computation of Interest. Interest on the Loans shall be
computed on the basis of a 360-day year and the actual number of days elapsed in
the period during which it accrues. In computing interest on the Loans, the date
of the making of the Loans shall be included and the date of payment shall be
excluded; provided, however, that if a Loan is repaid on the same day on which
it is made, one day's interest shall be paid on that Loan.
2.3 Fees. The Company agrees to pay to the Lenders all fees and
other obligations in accordance with, and at the times specified by, the Fee
Letter.
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2.4 Prepayments and Reductions in the Commitment.
(1) Voluntary Prepayments. The Company at its option may, upon at
least ten (10) days' written notice to the Lenders, prepay all or any part of
the principal amount of outstanding Loans at a redemption price equal to 100% of
the principal amount of the Loans so prepaid plus the Prepayment Premium, if
applicable, together with accrued interest through the date of prepayment. Loans
so prepaid may not be reborrowed.
(2) Mandatory Prepayments.
(1) Prepayments from Asset Sales. Except with respect to any
Asset Sale the Net Cash Proceeds of which are permitted to be reinvested in
Replacement Assets pursuant to Section 6.9(b) and which, at the time of such
Asset Sale, the Company intends to reinvest in Replacement Assets within ninety
(90) days as set forth in Section 6.9(b), the Company shall prepay Loans having
an aggregate principal amount equal to the Net Cash Proceeds of any Asset Sale
occurring after the Closing Date on a date not later than the fifth (5th)
Business Day next succeeding the date of consummation of such Asset Sale or, in
the case of that portion of the purchase price which is deferred, the date of
receipt of such Net Cash Proceeds, whichever is later. The Company shall also be
required to prepay Loans in the manner set forth above with any Net Cash
Proceeds of any Asset Sale which, at the time of the Asset Sale, the Company
intended to reinvest in Replacement Assets as permitted under Section 6.9(b) but
which were not reinvested in Replacement Assets as permitted under Section
6.9(b), and any such prepayment shall be made on or before the 90th day after
the applicable Asset Sale. At any time prior to the Lending Date, such Net Cash
Proceeds shall be applied to permanently reduce each Lender's Commitment on a
pro rata basis. Concurrently with the consummation of an Asset Sale, the Company
shall deliver to the Agent an Officer's Certificate demonstrating the derivation
of Net Cash Proceeds from the gross sales price of such Asset Sale.
(2) Prepayments from Issuances of Take-Out Securities.
Concurrently with the receipt by the Company or any Subsidiary of proceeds from
the issuance of Take-Out Securities or the sale, issuance or transfer of Capital
Stock (to the extent not constituting an Asset Sale) or the receipt by the
Company of proceeds from a capital contribution, the Company shall prepay the
Loans in a principal amount equal to the Net Cash Proceeds thereof. At any time
prior to the Lending Date, such Net Cash Proceeds shall be applied to
permanently reduce each Lender's Commitment on a pro rata basis.
(3) Prepayments from Incurrence of Indebtedness. Concurrently
with the Incurrence by the Company or any of its Subsidiaries of any
Indebtedness not permitted under Section 6.1, the Company shall prepay the Loans
in a principal amount equal to the principal amount of such Indebtedness so
Incurred.
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At any time prior to the Lending Date, such Indebtedness Incurred shall be
applied to permanently reduce each Lender's Commitment on a pro rata basis.
(4) Notice. The Company shall notify the Agent of any
prepayment to be made pursuant to Section 2.4(b) at least two Business Days
prior to such prepayment date (unless shorter notice is satisfactory to the
Required Lenders).
(3) Company's Mandatory Prepayment Obligation; Application of
Prepayments. All prepayments shall include: (i) payment of accrued interest on
the principal amount so prepaid (which shall be applied to payment of interest
before application to principal) and (ii) the Prepayment Premium, if applicable.
Loans so prepaid may not be reborrowed.
(4) Mandatory Reduction in Commitments. In the event that
issuances of Securities of the Company in one or more private placements to
"accredited investors" (as defined in Regulation D under the Securities Act of
1933) on or subsequent to April 25, 2000 result in gross proceeds which exceed
$100,000,000 in the aggregate, concurrently with receipt by the Company or any
of its Subsidiaries of the Excess, the Required Amount shall be applied (i) at
any time prior to the Lending Date, first to permanently reduce the Commitments
in an amount equal to the Required Amount to the full extent thereof, and second
to prepay the Loans in a principal amount equal to any remaining portion of the
Required Amount, and (ii) on or after the Lending Date, to prepay the Loans in a
principal amount equal to the Required Amount.
All prepayments of Loans shall include payment of accrued interest
on the principal amount so prepaid (which shall be applied to payment of
interest before application to principal) and the Prepayment Premium, if
applicable. Loans so prepaid may not be reborrowed. Notwithstanding anything to
the contrary contained herein, the Company shall not be required to pay any
Prepayment Premium in connection with any reduction in Commitments under this
Section 2.4(d). Loans prepaid hereunder may not be reborrowed. All reductions in
the Commitments shall apply to each Lender's Commitment on a pro rata basis.
(5) Manner and Time of Payment. All payments of principal and
interest hereunder and under the Notes by the Company shall be made without
defense, set-off or counterclaim and in same-day funds and delivered to the
Agent, unless otherwise specified, not later than 12:00 Noon (New York time) on
the date due at the Agent's Office to such account as the Agent shall have
notified the Company for the account of the Lenders; funds received by the Agent
after that time shall be deemed to have been paid by the Company on the next
succeeding Business Day. Other than with respect to PIK Amounts, all payments of
any Obligations to be made hereunder or under the Notes by the Company or any
other obligor with respect thereto shall be made solely in U.S. Legal Tender or
such other currency as is
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then legal tender for public and private debts in the United States of America.
The Company hereby authorizes the Agent to charge its account with the Agent in
order to cause timely payment to be made of all principal, interest and fees due
hereunder (subject to sufficient funds being available in its account for that
purpose).
(6) Payments on Non-Business Days. Whenever any payment to be made
hereunder or under the Notes shall be stated to be due on a day which is not a
Business Day, the payment shall be made on the next succeeding Business Day and
such extension of time shall be included in the computation of the payment of
interest hereunder or under the Notes or of the commitment and other fees
hereunder, as the case may be. (1)
(7) Notation of Payment. Each Lender agrees that before disposing
of any Note held by it, or any part thereof (other than by granting
participations therein), such Lender will make a notation thereon of all
principal payments previously made thereon and of the date to which interest
thereon has been paid and will notify the Company of the name and address of the
transferee of that Note; provided, however, that the failure to make (or any
error in the making of) such a notation or to notify the Company of the name and
address of such transferee shall not limit or otherwise affect the obligation of
the Company hereunder or under such Notes with respect to the Loans and payments
of principal or interest on any such Note.
2.5 Use of Proceeds.
(1) Loans. The proceeds of the Loans shall be used by the Company
for business development purposes, including the acquisition of wireless
spectrum licenses, as well as for general corporate purposes.
(2) Margin Regulations. No portion of the proceeds of any
borrowing under this Agreement shall be used by the Company in any manner which
might cause the borrowing or the application of such proceeds to violate the
applicable requirements of Regulation T, Regulation U or Regulation X of the
Board of Governors of the Federal Reserve System or any other regulation of the
Board of Governors or to violate the Exchange Act, in each case as in effect on
the date or dates of such borrowing and such use of proceeds.
SECTION 3. CONDITIONS
3.1 Conditions to Loans. The obligation of the Lenders to make the
Loans is subject to the prior or concurrent satisfaction of each of the
following conditions:
(1) On or before the Closing Date, all corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by the Lenders shall be reasonably satisfactory in form and substance
to the Lenders, and the Agent or its counsel shall have received on behalf of
the Lenders the following
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items, each of which shall be in form and substance satisfactory to the Lenders
and, unless otherwise noted, dated the Closing Date:
(1) a certified copy of the Company's, each Guarantor's,
Formus Polska's and Callino GmbH's charter, together with a certificate of
status, compliance, good standing or like certificate with respect to the
Company, each Guarantor and each other Subsidiary issued by the appropriate
government officials of the jurisdiction of its incorporation and of each
jurisdiction in which it owns any material assets or carries on any material
business, each to be dated a recent date prior to the Closing Date;
(2) a copy of the Company's, each Guarantor's, Formus
Polska's and Callino GmbH's by-laws, certified as of the Closing Date by its
Secretary or one of its Assistant Secretaries;
(3) resolutions of the Company's and each Guarantor's Board
of Directors approving and authorizing the execution, delivery and performance
of this Agreement, each of the other Loan Documents and any other documents,
instruments and certificates required to be executed by the Company or such
Guarantor in connection herewith and therewith and approving and authorizing the
execution, delivery and payment of the Notes, each certified as of the Closing
Date by one of its Officers as being in full force and effect without
modification or amendment;
(4) signature and incumbency certificates of the Company's
and each Guarantor's officers executing this Agreement, the Notes and the other
Loan Documents;
(5) executed copies of this Agreement and the Notes
substantially in the form of Exhibit I annexed hereto executed in accordance
with Section 2.1(d) drawn to the order of the Lenders and with appropriate
insertions;
(6) an originally executed Notice of Borrowing substantially
in the form of Exhibit IV annexed hereto, signed by the President or a Vice
President of the Company on behalf of the Company and delivered to the Agent;
(7) originally executed copies of one or more favorable
written opinions of (I) Holme Roberts & Owen LLP, counsel for the Company and
the Guarantors, substantially in the form of Exhibit V annexed hereto (or
otherwise in form and substance satisfactory to the Lenders) and addressed to
the Lenders, (II) local counsel for the Company and the Guarantors in Germany,
Poland and Spain, each substantially in the form of Exhibit VI annexed hereto
(or otherwise in form and substance satisfactory to the Lenders) and addressed
to the Lenders, addressing such items as the Lenders may request, including the
validity of the licenses used by the Company and its Subsidiaries in such
jurisdiction, and (III) such other opinions of
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counsel and such certificates or opinions of accountants, appraisers or other
professionals as the Arrangers shall have reasonably requested;
(8) a certificate of the chief financial officer of the
Company addressed to the Agent and the Lenders and in form and substance
satisfactory to the Agent and the Lenders, attesting that, on a pro forma basis,
the Company and its Subsidiaries shall not be insolvent or rendered insolvent,
be left with an unreasonably small capital with which to engage in their
business or have incurred debts beyond their ability to pay as such debts
mature;
(9) originally executed copies of the Pledge Agreement,
executed and delivered by the Pledgors, dated as of the Closing Date,
substantially in the form of Exhibit II annexed hereto;
(10) certificates representing the Capital Stock of FII,
VeloCom Inc. and each other entity pledged pursuant to the Pledge Agreement
(which certificates shall be accompanied by irrevocable, undated stock powers,
duly endorsed in blank and otherwise satisfactory in all respects to the
Arrangers);
(11) originally executed copies of the Warrant Agreement and
the warrants issued thereunder, each in form and substance satisfactory in all
respects to the Lenders, each executed and delivered by the Company and each
dated as of the Closing Date;
(12) a true, correct and complete copy of each Permit which
is either a license to provide telecommunications services or use frequencies;
(13) executed copies of a waiver, in form and substance
satisfactory in all respects to the Lenders, executed by the Majority Holders,
pursuant to which such Majority Holders waive all rights with respect to the
issuance of common stock purchase warrants to the Lenders under the Warrant
Agreement (and the issuance of common stock of the Company upon the exercise
thereof); and
(14) all such counterpart originals or certified copies of
such other documents, instruments, certificates and opinions as the Arrangers
may reasonably request.
(2) The Engagement Letter shall be in full force and effect, and
the Company shall be in compliance with all terms and provisions of the
Engagement Letter and the Fee Letter.
(3) The Company shall be in compliance with all terms and
provisions of the Warrant Agreement, all representations and warranties made by
the Company under the Warrant Agreement shall be true and correct in all
respects (with respect to representations and warranties qualified by
materiality or Material Adverse Effect) and in all material respects (with
respect to all other representations and warranties), and all conditions
precedent set forth in the Warrant Agreement shall have been satisfied to the
satisfaction of the Arrangers.
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(4) The Arrangers shall have completed, and be satisfied with the
results of, accounting, tax, legal and environmental due diligence
investigations of the Company and its Subsidiaries.
(5) The corporate, tax, capital and ownership
structure (including articles of incorporation and by-laws), shareholders
agreements and management of the Company and its Subsidiaries, shall be
satisfactory to the Arrangers in all material respects.
(6) The Agent, for the benefit of the Lenders, shall have been
granted first priority perfected liens and guarantees to the extent required and
described in this Agreement and shall have received such other reports,
documents and agreements as are customarily delivered in connection with similar
secured transactions or as the Agent shall have deemed appropriate.
(7) The Company shall have received all governmental (including
FCC and foreign approvals as necessary), shareholder and third party consents
and approvals necessary or desirable in connection with the financings and other
transactions contemplated hereby and expiration of all applicable waiting
periods without any action being taken by any competent authority that could
restrain, prevent or impose any materially adverse conditions on the financings
and other transactions contemplated hereby, and no such Law or regulation shall
be applicable which in the reasonable judgment of any Arranger could have any
such effect.
(8) The Agent shall have received (i) consolidated and
consolidating pro forma balance sheet of the Company and its Subsidiaries as of
December 31, 1999, (ii) consolidated and consolidating income statements of the
Company and its Subsidiaries as of December 31, 1999, and (iii) projected
financial statements (including balance sheets and statements of operations,
stockholders' equity and cash flows of the Company and its Subsidiaries) for the
five-year period after the Closing Date, and such balance sheets, income
statements and projections shall be satisfactory in all respects to the
Arrangers.
(9) The Agent shall have received consolidated financial
statements of the Company, including (i) balance sheets and income and cash flow
statements as of the end of and for each of the last two fiscal years audited by
the Auditors and prepared in conformity with GAAP, together with the Auditor's
report thereon satisfactory in all respects to the Arrangers and without a
"going concern" or like qualification or exception and without any qualification
or exception as to the scope of such audit; and (ii) unaudited selected
financial information of the Company meeting the requirements of Item 301(a) of
Regulation S-K for the three fiscal years immediately preceding the last two
fiscal years or since inception, whichever is less, and all such financial
statements shall be satisfactory in all respects to the Arrangers.
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(10) No event or occurrence shall have occurred which has resulted
or could reasonably be expected to result in a Material Adverse Effect since the
end of the most recently ended fiscal year for which audited financial
statements of the Company have been provided to the Arrangers or in the facts
and information as represented to date.
(11) There shall be no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that purports to affect the Loans or the Notes or
the other Loan Documents or the issuance of high yield or equity Securities by
the Company or that has had or could reasonably be expected to have or result in
a Material Adverse Effect.
(12) There shall be no disruption or adverse change in the
financial or capital markets generally, or in the market for new issuances of
high yield or equity Securities as a whole, or in the broadband communications
sector in particular, which could, in the judgment of any of the Arrangers, be
expected to materially impair the satisfactory syndication of the Loans (or the
refinancing thereof), or the placement of high yield or equity Securities issued
by the Company.
(13) The Agent shall have received reports and other information
in form, scope and substance satisfactory to the Agent concerning environmental
liabilities of the Company and its Subsidiaries.
(14) As of the Closing Date, the Company and its Subsidiaries
shall have no outstanding Indebtedness (except for Indebtedness of the Company
and its Subsidiaries for borrowed money in an aggregate amount not to exceed
$20,000,000, plus the Contingent Obligations of the Company and its Subsidiaries
described on Schedule B annexed hereto). Any and all security interests in the
assets of the Company and its Subsidiaries granted in favor of holders of
Indebtedness (other than Permitted Liens) shall have been terminated.
(15) On or before the Lending Date, the Company shall have paid to
the Lenders (i) all fees payable under the Fee Letter and (ii) the fees and
expenses incurred by the Lenders in connection with the negotiation,
preparation, execution and delivery of the Loan Documents and the transactions
related thereto (including the reasonable legal fees and out-of-pocket expenses
of counsel to the Lenders (including internal legal expenses)).
(16) On or before the Closing Date, the Company shall have
performed in all material respects all agreements which this Agreement provides
shall be performed on or before the Closing Date.
(17) Simultaneously with the making of the Loans by the Lenders,
the Company shall have delivered to the Agent an Officers' Certificate from the
Company in form and substance satisfactory to the Agent, certifying as to the
matters
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specified in Sections 3.1(p), 3.1(r) and 3.1(t) and that the other conditions
set forth in this Section 3.1 are satisfied on and as of the Closing Date.
(18) The representations and warranties in Section 4 are true,
correct and complete in all respects (with respect to representations and
warranties qualified by materiality or Material Adverse Effect) and in all
material respects (with respect to all other representations and warranties) on
and as of the Closing Date to the same extent as though made on and as of that
date.
(19) Neither the Company nor any of its Subsidiaries shall have
sustained any loss or interference with respect to its businesses or properties
from fire, flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or governmental proceeding,
which loss or interference, in the sole judgment of the Arrangers, has had or
could reasonably be expected to have a Material Adverse Effect.
(20) No event shall have occurred and be continuing or would
result from the consummation of the borrowing contemplated by the Notice of
Borrowing which would constitute a Default or Event of Default.
(21) The making of the Loans in the manner contemplated in this
Agreement shall not violate the applicable provisions of Regulation T, U or X of
the Board of Governors of the Federal Reserve Board or any other regulation of
the Board.
(22) The Agent shall have received evidence reasonably
satisfactory to the Agent that Formus Polska and each other Subsidiary of the
Company having business, operations or activities in the Republic of Poland have
received all Permits necessary to operate each base station located in the
Republic of Poland and operated by Formus Polska or such other Subsidiary.
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement
and to make the Loans, the Company represents and warrants to the Lenders that,
at the time of execution hereof and on the Lending Date, the following
statements are true, correct and complete:
4.1 Organization and Good Standing. Each of the Company and its
Subsidiaries is duly organized and existing and in good standing under the Laws
of its jurisdiction of organization. Each of the Company and its Subsidiaries
has the requisite power and authority to own and operate its properties and to
carry on its business as now conducted and as proposed to be conducted and is
duly qualified as a foreign organization and in good standing in all
jurisdictions in which it is doing business, except where failure to be so
qualified or in good standing, singly or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect.
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4.2 Authorization and Power. Each of the Company and its
Subsidiaries, to the extent a party thereto, has the requisite power and
authority, and has taken all action necessary, to execute, deliver and perform
its obligations under the Loan Documents and to issue the Notes.
4.3 No Conflicts or Consents.
(1) The execution and delivery of the Loan Documents, the
consummation of each of the transactions herein contemplated, the compliance
with each of the terms and provisions hereof or thereof, and the issuance,
delivery and performance of the Notes, do not and will not (i) violate any
material provision of any Law or any governmental rule or regulation applicable
to any of the Company and its Subsidiaries, the Certificate or Articles of
Incorporation or By-laws or other organizational documents of any of them or any
order, judgment or decree of any court or other agency of government binding on
any of them, (ii) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any Permit or any Contractual
Obligation of any of the Company or its Subsidiaries, except for those
conflicts, breaches or defaults which would not result in a Material Adverse
Effect, (iii) result in or require the creation or imposition of any Lien upon
any of the properties or assets of any of the Company or its Subsidiaries except
for Liens created pursuant to this Agreement, (iv) require any approval of
stockholders or any approval or consent of any Person under any Permit or any
Contractual Obligation of any of the Company or its Subsidiaries except for such
approvals or consents which will be obtained on or before the Closing Date and
disclosed in writing to Lenders.
(2) No consent, approval, authorization or order of any
Tribunal or other Person is required in connection with the execution and
delivery by the Company or any of its Subsidiaries, to the extent a party
thereto, of the Loan Documents or the consummation of the transactions
contemplated hereby or thereby, other than any such consent, approval,
authorization or order which has been obtained and remains in full force and
effect.
4.4 Enforceable Obligations. Each of the Loan Documents and
each other document or instrument to be delivered in connection therewith has
been duly authorized; each of the Loan Documents and each other document or
instrument to be delivered in connection therewith to be executed and delivered
on or prior to the Closing Date has been duly executed and delivered by the
Company and each of its Subsidiaries that are a party thereto; and each of the
Loan Documents and each other document or instrument to be delivered in
connection therewith to be executed and delivered on or prior to the Closing
Date is, and each of the Loan Documents to be executed and delivered after the
Closing Date will be, upon such execution and delivery, the legal, valid and
binding obligations of the Company and each such
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Subsidiary (to the extent a party thereto), enforceable in accordance with their
respective terms, except to the extent that the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization or similar Laws
affecting the enforcement of creditors' rights generally or by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4.5 Properties; Liens. Each of the Company and its
Subsidiaries has good, sufficient and legal title to all their respective
properties and assets, and all properties held under lease by any of them are
held under valid, subsisting and enforceable leases, and none of the Company or
its Subsidiaries is in default under any lease, except in each case for such
defects or defaults that, singly or in the aggregate, would not have a Material
Adverse Effect. Except for Permitted Liens, as reflected on Schedule D annexed
hereto, or as permitted by this Agreement, all such properties and assets owned
or leased are so owned or leased free and clear of Liens.
4.6 Financial Condition.
(1) The audited Financial Statements of the Company and its
Subsidiaries for the two-year period ended December 31, 1999, certified by the
Company's Auditors, copies of which have been delivered to the Agent, have been
prepared from, and are consistent with, the books and records of the Company and
its Subsidiaries and fairly present the consolidated financial position of the
Company and its Subsidiaries as at the respective dates thereof and the
consolidated results of operations and cash flows of the Company and its
Subsidiaries for the periods then ended, except as otherwise disclosed on
Schedule K. Except as disclosed on Schedule K, neither the Company nor any of
its Subsidiaries had at December 31, 1999, any material contingent liabilities,
liabilities for Taxes or long-term leases, unusual forward or long-term
commitments or unrealized or unanticipated losses from any unfavorable
commitments which are not reflected or reserved against in the foregoing
Financial Statements or in the notes thereto. No events or developments which
have had or could reasonably be expected to have a Material Adverse Effect have
occurred since December 31, 1999.
(2) The unaudited selected financial information of the
Company and its Subsidiaries meeting the requirements of Item 301(a) of
Regulation S-K for the three fiscal years immediately preceding the two fiscal
year period ended December 31, 1999 or since inception, whichever is less, a
copy of which has been delivered to the Agent, have been prepared from, and are
consistent with, the books and records of the Company and its Subsidiaries and
fairly present the consolidated financial position of the Company and its
Subsidiaries as of such date and the consolidated results of operations and cash
flows of the Company and its Subsidiaries for the period covered thereby,
subject to normal year-end audit adjustments, consistent with past practices.
Except as disclosed on Schedule K, neither the
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Company nor any of its Subsidiaries had on such date any material contingent
liabilities, liabilities for Taxes or long-term leases, unusual forward or
long-term commitment or unrealized or unanticipated losses from any unfavorable
commitment which are not reflected or reserved against in the foregoing
statements or in the notes thereto.
(3) The pro forma balance sheet of the Company and its
Subsidiaries as of December 31, 1999, a copy of which has heretofore been
furnished to the Agent, fairly presents the estimated consolidated opening
balance sheet of the Company and its Subsidiaries assuming the Loans had been
made as of December 31, 1999, and the financial condition of the Company on the
Closing Date does not differ in any material respect from the information
therein set forth.
(4) Upon giving effect to the Loans:
(1) The fair saleable value of the assets of the Company and
each of its Subsidiaries, on a stand-alone basis, exceeds the amount that will
be required to be paid on or in respect of the existing debts and other
liabilities (including contingent liabilities) of such Person as they mature.
(2) The assets of each of the Company and its Subsidiaries,
on a stand-alone basis, do not constitute unreasonably small capital for any
such Person to carry out its business as now conducted and as proposed to be
conducted including the capital needs of any such Person, taking into account
the particular capital requirements of the business conducted by such Person,
and projected capital requirements and capital availability thereof in
accordance with the business plan of the Company and its Subsidiaries.
(3) The Company does not intend to, and does not intend to
permit any of its Subsidiaries to, incur debts beyond its ability to pay such
debts as they mature (taking into account the timing and amounts of cash to be
payable on or in respect of Indebtedness of each such Person). The cash flow of
the Company and each of its Subsidiaries, after taking into account all
anticipated uses of the cash of each such Person, will at all times be
sufficient to pay all amounts on or in respect of debt of each such company when
such amounts are required to be paid.
(4) The Company does not intend, and does not believe, that
final judgments against any of the Company or its Subsidiaries in actions for
money damages will be rendered at a time when, or in an amount such that, any
such Person will be unable to satisfy any such judgments promptly in accordance
with their terms (taking into account the maximum reasonable amount of such
judgments in any such actions and the earliest reasonable time at which such
judgments might be rendered). The cash flow of the Company and each of its
Subsidiaries, on a stand-alone basis, after taking into account all other
anticipated uses of the cash of each such Person (including the payments on or
in respect of Indebtedness referred to in
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paragraph (iii) of this Section 4.6(d)), will at all times be sufficient to pay
all such judgments promptly in accordance with their terms.
4.7 Full Disclosure. The financial projections (including,
without limitation, the pro forma financial statements included therewith)
heretofore furnished to the Agent by the Company are complete, were prepared by
or under the direction of an officer of the Company and were prepared in good
faith on the basis of information and assumptions that the Company believed to
be fair, complete and reasonable as of the date of such information, and which
assumptions are believed to be fair, complete and reasonable as of the date
hereof. All other factual information heretofore or contemporaneously furnished
in writing by or on behalf of the Company or any of its Subsidiaries to the
Agent or Lenders for purposes of or in connection with this Agreement does not
contain any untrue statement of a material fact or omit to state any material
fact necessary to keep the statements contained herein or therein, in light of
circumstances under which they were made, from being misleading. No fact is
known, no condition exists nor has any event occurred which has not been
disclosed herein or in any other document, certificate or statement furnished to
the Agent or the Lenders for use in the transactions contemplated hereby which,
singly or in the aggregate, has had or could reasonably be expected to have a
Material Adverse Effect.
4.8 No Default. No event has occurred and is continuing which
constitutes a Default or an Event of Default.
4.9 Compliance with Contracts, Etc. None of the Company or any
of its Subsidiaries is in violation of (i) its certificate of incorporation,
by-laws or other organizational documents or (ii) any material provision of any
applicable Law, ordinance, administrative or governmental rule or regulation, or
(iii) any order, decree or judgment of any Tribunal having jurisdiction over any
of them; no event of default or event that but for the giving of notice or the
lapse of time, or both, would constitute an event of default exists under any
material Contractual Obligation of the Company or any of its Subsidiaries,
except for those which would not result in a Material Adverse Effect.
4.10 No Litigation. Except as described in Schedule E attached
hereto, there is no Litigation pending or, to the best knowledge of the Company
after due investigation, threatened, by, against, or which may relate to or
affect (a) any benefit plan of the Company or any of its Subsidiaries or any
fiduciary or administrator thereof, or (b) the Company or any of its
Subsidiaries which, singly or in the aggregate, would reasonably be expected to
have a Material Adverse Effect. There are no outstanding injunctions or
restraining orders prohibiting consummation of any of the transactions
contemplated by the Loan Documents. There are no unsatisfied judgments against
the Company or any of its Subsidiaries or any of their respective
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businesses or activities in excess of $100,000. Except as specifically noted on
Schedule E, neither the Company nor any of its Subsidiaries has been advised
that there is a reasonable likelihood of an adverse determination of any
Litigation which adverse determination, should it occur, would have a Material
Adverse Effect.
4.11 Use of Proceeds; Margin Stock, Etc. The proceeds of the
Loans will be used solely for the purposes specified herein. None of such
proceeds will be used for the purpose of purchasing or carrying any Margin Stock
within the meaning of the applicable provisions of Regulation T, U or X, or for
the purpose of reducing or retiring any Indebtedness which was originally
incurred to purchase or carry a Margin Stock or for any other purpose which
might constitute this transaction a "purpose credit" within the meaning of the
applicable provisions of Regulation T, U or X. Neither the Company nor any of
its Subsidiaries has taken or will take any action which might cause any of the
Loan Documents to violate the applicable provisions of Regulation T, U or X, or
any other regulation of the Board of Governors of the Federal Reserve System.
4.12 Taxes. Except as set forth on Schedule L hereto, all Tax
returns required to be filed by the Company and each of its Subsidiaries have
been filed and all such re- turns are true, complete, and correct in all
material respects. All Taxes that are due or claimed to be due from the Company
and each of its Subsidiaries have been paid other than those (i) currently
payable without penalty or interest or (ii) being contested in good faith and by
appropriate proceedings and for which, in the case of both clauses (i) and (ii),
adequate reserves have been established on the books and records of the Company
and its Subsidiaries in accordance with GAAP. There are no proposed Tax
assessments against the Company or any of its Subsidiaries. To the best
knowledge and belief of the Company, the accruals and reserves on the books and
records of the Company and its Subsidiaries in respect of any Tax liability for
any Taxable period not finally determined are adequate to meet any assessments
of Tax for any such period.
4.13 ERISA.
(1) The Company, each Subsidiary and each of their respective
ERISA Affiliates are in compliance in all material respects with all applicable
provisions and requirements of the Internal Revenue Code and ERISA and the
regulations and published interpretations thereunder with respect to each
Employee Benefit Plan, and have performed all their obligations under each
Employee Benefit Plan.
(2) No ERISA Events have occurred or are reasonably expected
to occur which individually or in the aggregate resulted in or might reasonably
be expected to result in a liability of the Company or any Subsidiary of the
Company or
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any of their respective ERISA Affiliates in excess of $500,000 during the term
of this Agreement.
(3) Except as disclosed on Schedule F annexed hereto and
except to the extent required under Section 4980B of the Internal Revenue Code,
no Employee Benefit Plan provides health or welfare benefits (through the
purchase of insurance or otherwise) for any retired or former employees of the
Company or any Subsidiary or any of their respective ERISA Affiliates.
(4) In accordance with the most recent actuarial valuations,
the Amount of Unfunded Benefit Liabilities individually or in the aggregate for
all Pension Plans (excluding for purposes of such computation any Pension Plans
which have a negative Amount of Unfunded Benefit Liabilities), does not exceed
$500,000.
(5) The Company and each of its Subsidiaries and each of the
Foreign Plans are in compliance in all material respects with all applicable
Laws and regulations with respect to the Foreign Plans and the terms of the
Foreign Plans, and all required contributions have been made to the Foreign
Plans.
4.14 Government Regulation. Neither the Company nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Investment Company Act of 1940 (as any
of the preceding acts have been amended) or other Law which regulates the
Incurrence by the Company or any of its Subsidiaries of Indebtedness, including,
but not limited to, Laws relating to common carriers or the sale of electricity,
gas, steam, water or other public utility services.
4.15 Capital Structure and Subsidiaries. The Company has no
interest in any Person other than the Subsidiaries of the Company set forth on
Schedule A and other Investments of the Company as set forth on Schedule G
attached hereto (as such schedules may be updated from time to time to give
effect to transactions permitted under the Loan Documents), and the Company will
own, free and clear of all Liens, claims or restrictions on voting or transfer
(other than Permitted Liens, interests described on Schedule D attached hereto
or as otherwise permitted by this Agreement), 100% of all classes of outstanding
Capital Stock of each of the entities set forth on such Schedule A, except as
specified on Schedule A. All of the issued and outstanding shares of Capital
Stock of the Company and of each of its Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable and none of such Capital Stock constitutes
Margin Stock. Except as set forth on Schedule A, neither the Company nor any of
its Subsidiaries has granted or issued, or has agreed to grant or issue, any
puts, calls or other similar rights to any Person obligating the Company or any
of its Subsidiaries to purchase or redeem any Capital Stock or any options,
warrants or similar rights to any Person to acquire any shares of, or other
Securities convertible into, the Company's or any of its Subsidiaries' Capital
Stock
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other than stock options or phantom equity rights granted to directors, officers
and employees in the ordinary course of business.
4.16 Intellectual Property.
(1) Schedule H annexed hereto sets forth a complete and
correct list, as of the Closing Date, of: (i) all patented or registered
Intellectual Property and pending patent applications or applications for
registration of Intellectual Property owned or filed by or on behalf of the
Company or any of its Subsidiaries; (ii) all trade names and unregistered
trademarks or service marks owned by or used by the Company or any of its
Subsidiaries; and (iii) all licenses of Intellectual Property to which the
Company or any of its Subsidiaries is a party, either as licensee or licensor
other than "off the shelf" licenses. Except as set forth on Schedule H, the
Company and its Subsidiaries own or are licensed to use all Intellectual
Property necessary to permit the operation of their businesses as currently
conducted.
(2) Except as disclosed in Schedule H, no claim has been
asserted by any Person with respect to the use of any such Intellectual
Property, or challenging or questioning the validity or effectiveness of any
such Intellectual Property. Except as disclosed in Schedule H, to the knowledge
of the Company, the use of such Intellectual Property by the Company or any of
its Subsidiaries does not infringe on the rights of any Person, subject to
such claims and infringements as do not, in the aggregate, give rise to any
liabilities on the part of the Company or any of its Subsidiaries that would
have a Material Adverse Effect.
4.17 Environmental Matters. Except as set forth in Schedule C
annexed hereto:
(1) the operations of each of the Company and its Subsidiaries
(including, without limitation, all operations and conditions at or in the
Facilities) comply with all Environmental Laws except for any such noncompliance
which would not reasonably be expected to have a Material Adverse Effect;
(2) to the Company's knowledge, there are no Environmental
Laws, including such Laws which have been formally proposed for public comment,
which would reasonably be expected to result in material expenditures by the
Company or any of its Subsidiaries, and no such Environmental Laws would
reasonably be expected to interfere in any way with current or projected
operations of the Company or any of its Subsidiaries, in each case except for
such of the foregoing which would not reasonably be expected to have a Material
Adverse Effect;
(3) each of the Company and its Subsidiaries has obtained all
Permits under Environmental Laws necessary to their respective operations, and
all such Permits are in full force and effect, and each of the Company and its
Subsidiaries is in compliance with the terms and conditions of such Permits
except for any
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such failure to obtain, maintain or comply which would not reasonably be
expected to have a Material Adverse Effect;
(4) none of the Company or its Subsidiaries has received (a) a
written Environmental Claim except for an Environmental Claim which would not
reasonably be expected to have a Material Adverse Effect or (b) any request for
information under Section 104 of CERCLA or comparable foreign or state laws
regarding any matter which could reasonably be expected to result in a Material
Adverse Effect;
(5) none of the Company or its Subsidiaries is involved in any
investigation, response or corrective action relating to or in connection with
any Hazardous Materials at any Facility or at any other location except for such
of the foregoing which would not reasonably be expected to have a Material
Adverse Effect;
(6) none of the Company or its Subsidiaries or any Facilities
are subject to any judicial or administrative proceeding alleging the violation
of or liability under any Environmental Laws which if adversely determined could
reasonably be expected to have a Material Adverse Effect;
(7) none of the Company or its Subsidiaries or any of their
respective operations or any Facilities are subject to any outstanding written
order, decree or agreement with any governmental authority or private party
relating to (a) any actual or potential violation of or liability under
Environmental Laws or (b) any Environmental Claims except for such of the
foregoing which would not reasonably be expected to have a Material Adverse
Effect;
(8) none of the Company or its Subsidiaries has assumed by
contract, law or otherwise any obligation or liability under any Environmental
Law except for such of the foregoing which would not reasonably be expected to
have a Material Adverse Effect;
(9) none of the Company or its Subsidiaries or, to the best of
the Company's knowledge, any predecessor of any of the Company or its
Subsidiaries has filed any notice under any Environmental Law indicating past or
present treatment, storage or disposal of hazardous waste, as defined under 40
C.F.R. Parts 260-270 or any state equivalent except for such notices which would
not reasonably be expected to have a Material Adverse Effect;
(10) no Facilities are listed or proposed for listing on the
National Priorities List under CERCLA or listed on the Comprehensive
Environmental Response, Compensation and Liability Information System List
promulgated pursuant to CERCLA, or included on any similar list maintained by
any governmental authority except in each case for such of the foregoing which
would not reasonably be expected to have a Material Adverse Effect;
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(11) no Hazardous Materials exist on, under or about any
Facility in a manner that would reasonably be expected to give rise to an
Environmental Claim having a Material Adverse Effect, and none of the Company or
its Subsidiaries has filed any notice or report of a Release of any Hazardous
Materials that would reasonably be expected to give rise to an Environmental
Claim having a Material Adverse Effect;
(12) none of the Company or its Subsidiaries or, to the best
of the Company's knowledge, any of their respective predecessors has disposed
of, or arranged for the disposal or treatment of, any Hazardous Materials in a
manner or at any Facility or other location that would reasonably be expected to
give rise to an Environmental Claim having a Material Adverse Effect;
(13) no underground storage tanks, landfills or surface
impoundments are on, at or under any Facility except in each case for such of
the foregoing which would not reasonably be expected to have a Material Adverse
Effect; and
(14) no Lien in favor of any Person relating to or in
connection with any Environmental Claim has been filed or has been attached to
any Facility or other assets of the Company or any of its Subsidiaries except
for any such Lien which would not reasonably be expected to have a Material
Adverse Effect.
Notwithstanding anything in this Section 4.17 to the contrary,
there are no past or present events, conditions, circumstances or activities,
including, without limitation, any matter disclosed on Schedule C annexed
hereto, which may interfere with compliance by the Company or its Subsidiaries
with any Environmental Law, or which may give rise to any liability under any
Environmental Law which, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect.
4.18 Permits. Except as disclosed on Schedule I, the Company
and its Subsidiaries have, and immediately after the Loans will have all Permits
that are material to the condition (financial or otherwise), business,
operations, assets, property or prospects of the Company and its Subsidiaries,
taken as a whole. Except as disclosed on Schedule I, the Company and its
Subsidiaries have, and immediately after the Loans will have all German Permits
and all Polish Permits that are material to the German Operations or the Polish
Operations, as the case may be. The Company and its Subsidiaries are (and will
be immediately after the Loans) in compliance with all applicable Laws of all
Tribunals having jurisdiction over the conduct of their businesses, except (a)
other than with respect to the German Operations and the Polish Operations,
where failure to so comply would not adversely effect the conduct of business of
the Company and its Subsidiaries in the manner presently conducted and as
contemplated to be conducted, and (b) with respect to the German Operations and
the Polish Operations, where failure to do so would have an immaterial effect on
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the German Operations and the Polish Operations, as the case may be. All Permits
(other than the German Permits and the Polish Permits) are valid and in full
force and effect and will be valid and in full force and effect following the
making of the Loans, except to the extent lack thereof would not adversely
effect in any material respect the conduct of the business of the Company and
its Subsidiaries in the manner presently conducted and as contemplated to be
conducted. All German Permits and all Polish Permits are valid and in full force
and effect and will be valid and in full force and effect following the making
of the Loans, except to the extent lack thereof would have an immaterial effect
on the German Operations or the Polish Operations, as the case may be. Schedule
I annexed hereto sets forth a complete and correct list, as of the Closing Date,
of each Permit which is either a license to provide telecommunications services
or use frequencies and which is held by or granted to the Company and its
Subsidiaries, together with the expiration date thereof. The Company and its
Subsidiaries are, and immediately after the Loans will be, in compliance with
their respective obligations under the Permits, and no event has occurred that
allows, or after notice or lapse of time would allow, cancellation, revocation
or termination of such Permits, except for any such cancellation, revocation or
termination as would not (x) except with respect to the German Permits and the
Polish Permits, adversely effect in any material respect the business of the
Company and its Subsidiaries in the manner as presently conducted and as
contemplated to be conducted or (y) with respect to the German Permits and the
Polish Permits, have a material effect on the German Operations or the Polish
Operations, as the case may be. Except as otherwise set forth therein, all
Permits listed on Schedule I are final, and all appeal periods with respect
thereto have expired or terminated. The information set forth in each
application and any amendment or supplement thereto submitted in connection with
each Permit was accurate and complete in all material respects at the time of
submission. All amendments and supplements required to be filed by applicable
Law or by the terms of any Permit obtained by or on behalf of the Company or any
of its Subsidiaries have been filed by the time required. Except as described on
Schedule I hereto, to the best of the Company's and each of its Subsidiary's
knowledge, none of the Company or any of its Subsidiaries is party to any
investigation, notice of violation, order or complaint before any court or
regulatory body or of any other proceedings which could in any manner threaten
or adversely affect the validity or continued effectiveness of the Permits
listed on Schedule I. Except as described on Schedule I hereto, neither Company
nor any of its Subsidiaries has any reason to believe (other than in connection
with there being no legal assurance thereof) that the Permits listed on Schedule
I will not be renewed in the ordinary course.
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4.19 Insurance. The Company and its Subsidiaries carry or are
entitled to the benefits of insurance (including self-insurance) in such amounts
and covering such risks as is generally maintained by companies of established
repute engaged in the same or similar businesses, and all such insurance is (and
will be immediately after the Loans) in full force and effect.
4.20 Labor Matters. No labor disturbance by the employees of
the Company and its Subsidiaries exists or, to the best knowledge of the
Company, is threatened, and the Company is not aware of any existing or imminent
labor disturbance by the employees of the Company's or its Subsidiaries'
principal suppliers, manufacturers or customers that could, singly or in the
aggregate, have a Material Adverse Effect.
4.21 Guarantees. Each Guarantor has the full corporate or
other power, authority and capacity to execute and deliver its Guarantee and to
perform all of its obligations to be performed thereunder; all corporate and
other acts, conditions and things required to be done and performed or to have
occurred prior to such execution and delivery to constitute such Guarantee as a
valid and legally binding obligation of such Guarantor enforceable in accordance
with its terms shall have been done and performed and shall have occurred in due
compliance with all applicable Laws; the execution, delivery and performance of
such Guarantee by such Guarantor will not (i) violate any material provision of
Law or any provision of the charter or by-laws or other organizational documents
of such Guarantor, or (ii) result in a breach of, a default under (including,
without limitation, any event which with notice or lapse of time, or both, would
constitute a breach of or a default under), or the creation of any Lien on the
properties or assets of such Guarantor, the Company or any other Subsidiary of
the Company under any Contract or agreement to which such Guarantor or the
Company or such other Subsidiary is a party or by which the properties or assets
of such Guarantor, the Company or such other Subsidiary may be bound or
affected, except for those which would not have a Material Adverse Effect; each
Guarantee executed and delivered by a Guarantor shall constitute the legal,
valid, binding and unconditional obligations of such Guarantor executing and
delivering it to the Lenders hereunder, enforceable in accordance with its
terms, except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization or similar Laws affecting the
enforcement of creditors' rights generally or by general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law); and the foregoing representations and warranties of the Company
shall be deemed for all purposes to have been made on each date when a Guarantee
is delivered hereunder with respect solely to that Guarantee and the Guarantor
so issuing such Guarantee.
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4.22 Broker's or Finder's Fees. Except as disclosed on
Schedule J, no broker's or finder's fees or commissions will be payable by the
Company or any of its Subsidiaries with respect to any transaction contemplated
hereby and no similar fees or commissions will be payable by the Company or any
of its Subsidiaries for any other services rendered to the Company or any of its
Subsidiaries in connection with the transactions contemplated hereby and
thereby. The Company represents, warrants, covenants and agrees that the Company
will indemnify the Lenders and the Agent against, and hold each of them
completely harmless from and against, any and all claims, demands or liabilities
for broker's or finder's fees or similar fees or commissions asserted to have
been incurred in connection with any of the transactions contemplated hereby.
4.23 Operation of Business. From the end of the most recently
ended fiscal year for which audited financial statements of the Company have
been provided to the Arrangers, each of the Company and its Subsidiaries shall
have operated its business in the ordinary course.
SECTION 4A. REPRESENTATIONS AND WARRANTIES OF THE LENDERS
Each of the Lenders represents and warrants to the Company
that, at the time of execution hereof and on the Closing Date, the following
statements are true, correct and complete:
4A.1 Accredited Investor. Such Lender is an institutional
Accredited investor@ within the meaning of Regulation D of the Securities Act
and the Notes to be acquired by it pursuant to this Agreement are being acquired
for its own account and without a view to, or for resale in connection with, any
distribution thereof or any interest therein; provided that the provisions of
this Section shall not prejudice such Lender=s right at all times to sell or
otherwise dispose of all or any part of the Notes so acquired pursuant to the
terms of this Agreement, a registration under the Securities Act or an exemption
from such registration available under the Securities Act.
4A.2 Knowledge and Experience. Such Lender has such knowledge
and experience in financial and business matters so as to be capable of
evaluating the merits and risks of its investment in the Notes, such Lender is
capable of bearing the economic risks of such investment and such Lender has had
the opportunity to conduct its own due diligence investigation in relation to
its making of the Loans and the acquisition of the Notes hereunder.
4A.3 Source of Funds. No part of the funds used by such Lender
to make the Loans hereunder constitutes assets of any Aplan@ (as defined in
Section 4975 of the Internal Revenue Code).
SECTION 5. AFFIRMATIVE COVENANTS
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The Company covenants and agrees that, until the Loans and the
Notes and all other amounts due under this Agreement have been indefeasibly paid
in full in cash and all Commitments have terminated, it shall fully and timely
perform all covenants in this Section 5 required to be performed by it.
5.1 Financial Statements and Other Reports. The Company will
maintain, and cause each of its Subsidiaries to maintain, a system of accounting
established and administered in accordance with sound business practices to
permit preparation of consolidated financial statements in conformity with GAAP.
The Company shall timely deliver to the Agent the information listed below in
paragraphs (a) through (d) and shall timely give the Agent the notices listed
below in paragraphs (e) through (i):
(1) Annual Financial Statements. As soon as available, but not
later than 90 days after each Fiscal Year end: (i) the annual audited Financial
Statements of the Company and its Subsidiaries; (ii) a comparison in reasonable
detail to the prior year audited Financial Statements; (iii) the Auditors'
unqualified opinion and "Management Letter" subject to customary restrictions;
(iv) a narrative discussion of the consolidated financial condition and results
of operations and the consolidated liquidity and capital resources of the
Company and its Subsidiaries for such Fiscal Year, prepared by the chief
financial officer of the Company; and (v) a Compliance Certificate signed by the
chief financial officer and another Officer of the Company. All such Financial
Statements shall be prepared from and on a basis consistent with the books and
records of the Company and its Subsidiaries. All such Financial Statements shall
fairly represent the consolidated position of the Company and its Subsidiaries
as at the respective dates thereof and the consolidated results of operations
and cash flows of the Company and its Subsidiaries for the periods then ended.
(2) Quarterly Financial Statements. As soon as available, but
not later than 45 days after the end of each of the first three fiscal quarters:
(i) Financial Statements of the Company and its Subsidiaries as of the fiscal
quarter then ended, and for the Fiscal Year to date; (ii) a comparison in
reasonable detail to the Financial Statements for the corresponding periods of
the prior Fiscal Year; (iii) the certification of the chief executive officer or
chief financial officer of the Company that such Financial Statements have been
prepared in accordance with GAAP (subject to year-end audit adjustments); (iv) a
narrative discussion of the consolidated financial condition and results of
operations and the consolidated liquidity and capital resources of the Company
and its Subsidiaries for such fiscal quarter and Fiscal Year to date, prepared
by the chief financial officer of the Company; and (v) a Compliance Certificate
signed by the chief financial officer and another Officer of the Company. All
such Financial Statements shall fairly represent the consolidated position of
the
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Company and its Subsidiaries as at the respective dates thereof and the
consolidated results of operations and cash flows of the Company and its
Subsidiaries for the periods then ended (subject to year-end adjustments).
(3) Monthly Financial Statements. As soon as available, but
not later than 45 days after the end of each month: (i) a consolidated and
consolidating balance sheet for the Company and its Subsidiaries as at the end
of such month and for the Fiscal Year to date and consolidated and consolidating
statements of operations and cash flows for such month and for the Fiscal Year
to date; (ii) a comparison to the balance sheet, statement of operations and
statement of cash flows for the same year to date period in the prior year; and
(iii) a certification by the chief financial officer of the Company that such
balance sheet, statement of operations and statement of cash flows fairly
represent the consolidated position of the Company and its Subsidiaries as at
the respective dates thereof and the consolidated results of operations and cash
flows of the Company and its Subsidiaries for the periods then ended (subject to
year-end adjustments). All Financial Statements shall be in the form in which
they are prepared internally by the Company and its Subsidiaries.
(4) Further Assurances. When reasonably requested by the Agent
or any Lender, any further information regarding the business affairs and
financial condition of the Company or any of its Subsidiaries.
(5) Notice of Defaults. Promptly, and in any event within two
(2) Business Days after becoming aware of the occurrence of a Default or Event
of Default, a certificate of the chief executive officer or chief financial
officer of the Company specifying the nature thereof and the Company's proposed
response thereto, each in reasonable detail.
(6) Proceedings or Adverse Changes. Promptly, and in any event
within five (5) Business Days after the Company becomes aware of (i) any
proceeding being instituted by or against the Company or any Subsidiary in any
federal, state, local or foreign court or before any commission or other
regulatory body (federal, state, local or foreign) seeking an injunction or any
such proceeding being instituted or threatened which, if adversely determined,
could have a Material Adverse Effect, (ii) any order, judgment or decree in
excess of $1,000,000 being entered against the Company or any Subsidiary or any
of their respective properties or assets or (iii) any actual or prospective
change, development or event which has had or could reasonably be expected to
have a Material Adverse Effect, a written statement describing such proceeding,
order, judgment, decree, change, development or event and any action being taken
with respect thereto by the Company or any Subsidiary.
(7) ERISA Notices. (i) Promptly, and in any event within ten
(10) Business Days after the Company, any of its Subsidiaries or any ERISA
Affiliate
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knows that an ERISA Event has occurred, a written statement of the chief
financial officer of the Company describing such ERISA Event and any action that
is being taken with respect thereto by the Company, any such Subsidiary or ERISA
Affiliate, and any action taken or threatened by the Internal Revenue Service,
Department of Labor or the PBGC. The Company, such Subsidiary and the ERISA
Affiliate shall be deemed to know all facts known by the administrator of any
Employee Benefit Plan of which it is the plan sponsor; (ii) promptly, and in any
event within three (3) Business Days after the filing thereof with the Internal
Revenue Service, a copy of each funding waiver request filed with respect to any
Employee Benefit Plan and all communications received by the Company, any of its
Subsidiaries or any ERISA Affiliate with respect to such request; and (iii)
promptly, and in any event within three (3) Business Days after receipt by the
Company, any of its Subsidiaries or any ERISA Affiliate, of the PBGC's intention
to terminate an Employee Benefit Plan or to have a trustee appointed to
administer an Employee Benefit Plan, copies of each such notice.
(8) Environmental and Health and Safety Notices. Promptly, and
in any event within ten (10) Business Days after receipt by the Company or any
Guarantor of any notice, complaint or order alleging actual or prospective
violation in any material respect of any Environmental Law or health or safety
Law or alleging responsibility for costs of a cleanup, together with a copy of
such notice, complaint, or order and a written statement describing any action
being taken with respect thereto by the Company or any Subsidiary.
(9) Material Contracts and Permits. Promptly, and in any event
within ten (10) Business Days after any Material Contract or Permit is
terminated or amended or any new Material Contract or new Permit is entered into
or issued by or to the Company or any of its Subsidiaries, a written statement
describing such event, with copies of amendments or new contracts or Permits,
and an explanation of any actions being taken with respect thereto.
5.2 Corporate Existence, Etc. The Company will at all times
preserve and keep in full force and effect and cause each of its Subsidiaries to
preserve and keep in full force and effect its corporate (or other) existence
and rights and franchises to its business, except where the failure to so
preserve or keep such rights and franchises will not, singly or in the
aggregate, have a Material Adverse Effect.
5.3 Payment of Taxes and Claims; Tax Consolidation.
(1) The Company will, and will cause each of its Subsidiaries
to, pay all Taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or in respect of any of its franchises,
business, income or property before any penalty accrues thereon, and all claims
(including, without
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limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by Law have or may become a Lien upon any
of its properties or assets prior to the time when any material penalty or fine
shall be incurred with respect thereto; provided, however, that no such charge
or claim need be paid if it is a Contested Claim.
(2) The Company will not, nor will it permit any of its
Subsidiaries to, file or consent to the filing of any consolidated, combined or
unitary income or franchise tax return with any Person (other than with the
Company or any of its Subsidiaries so long as the filing of such tax return is
permitted by applicable Law).
5.4 Maintenance of Properties; Insurance. The Company will
maintain or cause to be maintained in good repair, working order and condition,
ordinary wear and tear excepted, all properties used or useful in the business
of the Company and its Subsidiaries and from time to time promptly will make or
cause to be made all necessary repairs, renewals and replacements thereof;
provided, however, that nothing in this Section 5.4 shall prevent the Company or
any of its Subsidiaries from discontinuing the use, operation or maintenance of
any such properties, or disposing of any of them, if such action is in the
ordinary course of business or, in the reasonable good faith judgment of the
Company, necessary or desirable in the conduct of its business or otherwise
permitted by this Agreement. The Company will maintain or cause to be
maintained, with financially sound and reputable insurers or with self insurance
programs, in each case to the extent consistent with prudent business practices
and customary in its industries, insurance with respect to its properties and
business and the properties and businesses of its Subsidiaries against loss or
damage of the kinds (including, in any event, business interruption insurance)
and in the amounts customarily carried or maintained under similar circumstances
by corporations of established reputation engaged in similar businesses and
owning similar properties in the same general respective areas in which the
Company and its Subsidiaries operate.
5.5 Inspection. The Company shall permit any authorized
representatives designated by the Lenders to visit and inspect any of the
properties of the Company or its Subsidiaries, including, without limitation,
its and their financial and accounting records, and to make copies and take
extracts therefrom, and to discuss its and their affairs, finances and accounts
with its and their officers and independent public accountants, all upon
reasonable notice and at such reasonable times during normal business hours and
as often as may be reasonably requested.
5.6 Equal Security for Loans and Notes. If the Company or any
of its Subsidiaries shall create, assume or suffer to exist any Lien upon any of
their respective property or assets, whether now owned or hereafter acquired,
other than Liens permitted by the provisions of Section 6.2, the Company shall,
concurrently
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with the effectiveness of such Lien, make or cause to be made effective
provision whereby the Obligations under this Agreement will be secured by such
Lien equally and ratably with any and all other Indebtedness thereby secured as
long as any such Indebtedness shall be secured; provided, however, that this
covenant shall not be construed as or deemed to be a consent by the Lenders to
any violation of the provisions of Section 6.2.
5.7 Compliance with Laws, Etc. The Company shall and shall
cause each of its Subsidiaries to comply in all material respects with the
requirements of all applicable Laws of any Tribunal.
5.8 Maintenance of Accurate Records, Etc. The Company shall
keep, and will cause each of its Subsidiaries to keep, true books and records
and accounts in which full and correct entries will be made of all its
respective business transactions, and will reflect, and cause each of its
Subsidiaries to reflect, in its respective financial statements adequate
accruals and appropriations to reserves all in accordance with GAAP and
consistent with prior business practices.
5.9 Permits. The Company shall, and shall cause each of its
Subsidiaries to, at all times promptly obtain as required, preserve, maintain,
protect, keep in full force and effect and comply with all terms, conditions and
requirements of its respective Permits and other licenses, authorizations,
approvals and consents necessary or material in the conduct of its operations
and all rights and interests therein or thereunder, except (i) other than with
respect to the German Permits and the Polish Permits, where the failure do so
would not have a Material Adverse Effect, and (ii) with respect to the German
Permits and the Polish Permits, where the failure do so would have an immaterial
effect on the German Operations or the Polish Operations, as the case may be.
The Company shall, and shall cause each of its Subsidiaries to, at all times, as
promptly as practicable, obtain as required all Permits necessary to operate
each base station operated by the Company or such Subsidiary.
5.10 Permanent Financing.
(1) The Company shall, and shall cause each of its
Subsidiaries to, take all actions reasonably necessary or advisable to cause the
Take-Out Securities to be issued as promptly as practicable following the
Closing Date, the proceeds of which shall be used to repay the Loans in whole on
or before the Maturity Date.
(2) The Company agrees to provide to the Arrangers as soon as
reasonably practicable, but in no event later than sixty (60) days after the
Closing Date a complete draft of a registration statement or a Rule 144A
offering memorandum or other private placement memorandum relating to the
Permanent Financing, which contains all financial statements and other data to
be included therein (including all audited financial statements, all unaudited
financial statements (which shall have been reviewed by the independent
accountants for the Company as provided in
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Statement on Auditing Standards No. 71) and all appropriate pro forma financial
statements) prepared in accordance with, or reconciled to, GAAP and prepared in
accordance with Regulation S-X under the Securities Act.
(3) The Company further agrees to provide to DLJSC as soon as
reasonably practicable a complete printed preliminary prospectus or preliminary
offering memorandum or preliminary private placement memorandum suitable for use
in a customary road show relating to the issuance of debt or equity Securities
(including all audited financial statements, all unaudited financial statements
(which shall have been reviewed by the independent accountants for the Company
as provided in Statement on Auditing Standards No. 71) and all appropriate pro
forma financial statements) prepared in accordance with, or reconciled to, GAAP
and prepared in accordance with Regulation S-X under the Securities Act. The
Company shall, as soon as reasonably practicable, commence the preparation of
materials for a presentation to Standard & Poor's Rating Group and Moody's
Investors Service, Inc. for a rating on the new Securities, to the extent
constituting debt Securities.
(4) The Company covenants that it will, and will cause each of
its Wholly Owned Subsidiaries and each of its other Subsidiaries that is not a
Wholly Owned Subsidiary (other than Foreign Subsidiaries that are not Wholly
Owned Subsidiaries) to, enter into such agreements as in the reasonable judgment
of DLJSC are customary in connection with the Permanent Financing, make such
filings under the Securities Act, the Exchange Act, the Trust Indenture Act of
1939, as amended, and State or foreign securities laws as in the reasonable
judgment of DLJSC shall be required to permit consummation of the Permanent
Financing, and take such steps as in the reasonable judgment of DLJSC are
necessary to cause such filings to become effective or in the reasonable
judgment of DLJSC are otherwise required to consummate the Permanent Financing.
5.11 ERISA Compliance. Each of the Company and its
Subsidiaries will (a) make prompt payment of all contributions which it is
obligated to make under all Pension Plans and which are required to meet the
minimum funding standard set forth in ERISA with respect to each of the Pension
Plans, (b) within 30 days after the filing thereof, furnish to the Lenders each
Schedule B to the annual return/report (Form 5500 Series), required to be filed
with the Department of Labor and/or the Internal Revenue Service pursuant to
ERISA, with respect to each of the Pension Plans that is not a Multiemployer
Plan for each Plan year, and (c) notify the Lenders promptly upon becoming aware
of any fact, including but not limited to, any Reportable Event arising in
connection with any of the Pension Plans that is not a Multiemployer Plan, which
could be reasonably expected to constitute grounds for termination thereof by
the PBGC or for the appointment by the appropriate United
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States District Court of a trustee to administer such Pension Plan, together
with a statement as to the action, if any, proposed to be taken with respect
thereto.
5.12 Additional Guarantors. The Company will cause any Person
which becomes a Subsidiary of the Company, other than a Foreign Subsidiary,
(whether by creation, acquisition or otherwise) having total assets with a book
value in excess of $500,000 or earns, in any fiscal year, revenues in excess of
$500,000, and in the case of any such Subsidiary which does not have a book
value in excess of $500,000 or does not earn, in any fiscal year, revenues in
excess of $500,000, when such Subsidiary obtains assets with a book value in
excess of $500,000 or earns, in any fiscal year, revenues in excess of $500,000,
to execute and deliver a Joinder to Guarantee, in the form of Exhibit VII
annexed hereto, and otherwise in form and substance satisfactory to the Agent
(and with such documentation relating thereto as the Agent shall require,
including, without limitation, a supplement or amendment to this Agreement and
opinions of counsel as to the enforceability of such guarantee (subject to
customary exceptions)) pursuant to which such Subsidiary shall become a
Guarantor of the Loans and this Agreement in accordance with Section 9 with the
same effect and to the same extent as if such Person had been named herein as a
Guarantor.
5.13 Execution of Collateral Documents After the Closing Date.
In the event that the Company acquires Capital Stock of any Person after the
Closing Date, the Company will promptly notify the Agent of that fact and
execute and deliver to the Agent a counterpart of the Pledge Agreement, in all
respects satisfactory to the Lenders, and take all such further actions and
execute all such further documents and instruments (including, without
limitation, actions, documents and instruments comparable to those described in
Section 3.1(a)(x)) as may be necessary or, in the opinion of the Lenders,
desirable to create in favor of the Agent, for the benefit of the Lenders, a
valid and perfected first priority Lien on 100% of such Capital Stock owned by
the Company (except with respect to Capital Stock in a Person which (i) is not
organized under the laws of the United States, any state thereof or the District
of Columbia and (ii) conducts substantially all of its business operations in a
country other than the United States of America, in which case the Company shall
be required to pledge, in accordance with the foregoing provisions, the lesser
of (A) 65% of the outstanding Capital Stock of such Person or (B) 100% of the
Capital Stock of such Person owned by the Company).
5.14 Abrared S.A.
(1) The Company shall, and shall cause its Subsidiaries to,
cause the organizational and other agreements adopted and executed pursuant to
the Memorandum of Understanding to (i) provide FII with the voting rights as
substantially set forth in the Memorandum of Understanding and (ii) effectuate
the
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supermajority provisions as substantially set forth in the Memorandum of
Understanding.
(2) The Company shall, and shall cause its Subsidiaries to,
cause FII at all times to exercise its voting and other rights under the
agreements referred to in clause (a) above to prevent any action of Abrared S.A.
which would result in a default in the performance of or compliance with any
covenant, term or condition contained in this Agreement or the other Loan
Documents assuming, for the purposes of application of this clause (b) only,
that each reference to "Subsidiary" of the Company in this Agreement and the
other Loan Documents included Abrared S.A., except where compliance with this
clause (b) would cause FII or any of its Subsidiaries or any directors of
Abrared S.A. nominated or appointed by FII or any of its Subsidiaries to breach
its fiduciary duty to Abrared S.A. or to the other shareholders of Abrared S.A.
5.15 Delivery of Local Counsel Opinions After the Closing
Date. No later than ten (10) Business Days after the finalization and issuance
of Auctioned License Number 10 in Switzerland, the Company shall deliver to the
Agent originally executed copies of a favorable written opinion of local counsel
for the Company and the Guarantors in Switzerland, substantially in the form of
Exhibit VI annexed hereto (or otherwise in form and substance reasonably
satisfactory to the Lenders), addressed to the Lenders, addressing such items as
the Lenders may request, including the validity of the licenses used by the
Company and its Subsidiaries in Switzerland.
SECTION 6. NEGATIVE COVENANTS
The Company covenants and agrees that, until the Loans and the
Notes and all other amounts due under this Agreement have been indefeasibly paid
in full in cash and all Commitments have terminated, it shall fully and timely
perform all covenants in this Section 6.
6.1 Indebtedness. The Company shall not, nor shall it cause or
permit any of its Subsidiaries, directly or indirectly, to Incur any
Indebtedness, except for the following ("Permitted Indebtedness"):
(1) Obligations under the Loan Documents, including the Notes
and the Take-Out Securities;
(2) Indebtedness of the Company and its Subsidiaries
outstanding on the Closing Date and described on Schedule B reduced by the
amount of any scheduled amortization payments or mandatory prepayments when
actually paid or permanent reductions thereon;
(3) Interest Swap Obligations of the Company or any of its
Subsidiaries covering Indebtedness of the Company or any of its Subsidiaries and
Interest Swap Obligations of any Subsidiary of the Company covering Indebtedness
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of such Subsidiary; provided, however, that such Interest Swap Obligations are
entered into to protect the Company and its Subsidiaries from fluctuations in
interest rates on Indebtedness incurred in accordance with this Agreement to the
extent the notional principal amount of such Interest Swap Obligation does not
exceed the principal amount of the Indebtedness to which such Interest Swap
Obligation relates;
(4) Indebtedness under Currency Agreements; provided that in
the case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its Subsidiaries
outstanding other than as a result of fluctuations in foreign currency exchange
rates or by reason of fees, indemnities and compensation payable thereunder;
(5) Indebtedness of a Subsidiary to the Company or to another
Subsidiary (other than Indebtedness owing to Formus Polska and Callino GmbH,
except to the extent such Indebtedness is funded through Investments in Formus
Polska or Callino GmbH, as the case may be, subsequent to the Closing Date) for
so long as such Indebtedness is held by the Company or a Subsidiary in each case
subject to no Lien held by a Person other than the Company or a Subsidiary
(except as set forth in Schedule D attached hereto); provided that if as of any
date any Person other than the Company or a Subsidiary owns or holds any such
Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be
deemed the Incurrence of Indebtedness not constituting Permitted Indebtedness by
the issuer of such Indebtedness;
(6) Indebtedness of the Company to a Subsidiary for so long as
such Indebtedness is held by a Subsidiary, in each case subject to no Lien;
provided that (i) any Indebtedness of the Company to any Subsidiary is unsecured
and subordinated in right of payment, pursuant to a written agreement
satisfactory to the Required Lenders, to the Company's Obligations under the
Loan Documents and (ii) if as of any date any Person other than a Subsidiary
owns or holds any such Indebtedness or any Person holds a Lien in respect of
such Indebtedness, such date shall be deemed the Incurrence of Indebtedness not
constituting Permitted Indebtedness by the Company;
(7) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business; provided,
however, that such Indebtedness is extinguished within five (5) Business Days of
Incurrence;
(8) Indebtedness of the Company or any of its Subsidiaries in
order to finance insurance premiums and other Indebtedness represented by
letters of credit for the account of the Company or such Subsidiary, as the case
may be, in order to provide security for workers' compensation claims, payment
obligations in
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connection with self-insurance or similar requirements, all in the ordinary
course of business;
(9) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Subsidiary in the ordinary
course of business in accordance with customary industry practice, in amounts
and for purposes customary in the Company's industry;
(10) Indebtedness arising from agreements of the Company or a
Subsidiary providing for adjustment of purchase price, earn out or other similar
obligations, in each case, Incurred in connection with the disposition of any
business, assets, or a Subsidiary of the Company or any of its Subsidiaries,
other than guarantees of Indebtedness Incurred by any Person acquiring all or
any portion of such business, assets or Subsidiary for the purpose of financing
such acquisition, provided that the maximum assumable liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds actually
received by the Company and its Subsidiaries in connection with such
disposition;
(11) Equipment Financing Obligations;
(12) Refinancing Indebtedness;
(13) Contingent Obligations of the Company, FII and Formus
International- Poland, Inc. under the WBD Line of Credit in an aggregate amount
not to exceed i50,000,000;
(14) Contingent Obligations of the Company or any of its
Subsidiaries to or supporting guarantees or deposits for the benefit of
governmental and regulatory agencies arising in connection with applications or
auctions for and issuances of and requirements under Permits in an aggregate
amount not to exceed $50,000,000 (or the equivalent amount in any other
currency); provided that the aggregate outstanding amount of such Contingent
Obligations not arising in connection with auctions for Permits shall not at any
time exceed $25,000,000 (or the equivalent amount in any other currency);
(15) Indebtedness of any Subsidiary of the Company
constituting loans made by the shareholders of such Subsidiary in connection
with shareholders and joint venture agreements;
(16) Acquired Indebtedness;
(17) Indebtedness in an aggregate amount not to exceed
$10,000,000 (or the equivalent amount in any other currency) in respect of
deferred purchase price with respect to acquisitions of Persons that will become
immediately after such transaction a Subsidiary of the Company or that will
merge or consolidate into the Company or a Subsidiary of the Company (so long as
the surviving entity of such merger or consolidation is the Company or a
Subsidiary);
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(18) pledges of equity interests of the borrower under
Equipment Financing Obligations and/or the immediate parent of such borrower in
connection with Equipment Financing Obligations;
(19) commitments to contribute capital (whether debt or
equity) to Subsidiaries in connection with Equipment Financing Obligations in an
aggregate amount not to exceed $50,000,000 (or the equivalent amount in any
other currency); and
(20) commitments to make Investments in Abrared S.A. which are
described in clause (xiii) of the definition in this Agreement of "Permitted
Investments".
6.2 Liens. The Company will not, and will not cause or permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any of its Subsidiaries whether owned on the Closing
Date or acquired after the Closing Date, or any proceeds therefrom, or assign or
otherwise convey any right to receive income or profits therefrom, except for:
(i) Liens existing as of the Closing Date and described on
Schedule D to the extent and in the manner such Liens are in effect on the
Closing Date and described on Schedule D;
(ii) Liens securing the Notes and the Guarantees;
(iii) Liens of the Company or a Wholly Owned Subsidiary on
assets of any Subsidiary of the Company;
(iv) Liens securing Refinancing Indebtedness which is Incurred
to Refinance any Indebtedness which has been secured by a Lien permitted under
this Agreement and which has been Incurred in accordance with the provisions of
this Agreement; provided, however, that such Liens (y) are no less favorable to
the Lenders and are not more favorable to the lienholders with respect to such
Liens than the Liens in respect of the Indebtedness being Refinanced and (z) do
not extend to or cover any property or assets of the Company or any of its
Subsidiaries not securing the Indebtedness so Refinanced;
(v) Liens securing Equipment Financing Obligations Incurred in
accordance with the provisions of this Agreement; provided, however, that (a)
the Lien relates to assets of the Person Incurring such Indebtedness,
Subsidiaries of such Person and that such Person is a Subsidiary of and (b) the
Lien securing such Equipment Financing Obligations shall be created within 180
days of the acquisition of equipment financed with the proceeds of such
Equipment Financing Obligations;
(vi) Liens on cash accounts securing Indebtedness permitted
under Section 6.1(n) in an aggregate amount not to exceed $50,000,000 (or the
equivalent amount in any other currency) outstanding at any time; provided that
the aggregate
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outstanding amount of such Liens securing Indebtedness permitted under Section
6.1(n) not arising in connection with auctions for Permits shall not at any time
exceed $25,000,000 (or the equivalent amount in any other currency)
(vii) Liens securing Indebtedness permitted under Section
6.1(o); and
(viii) Permitted Liens.
6.3 Restricted Payments.
(1) The Company will not and will not cause or permit any of
its Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or
make any distribution (other than dividends or distributions payable in
Qualified Capital Stock of the Company) on or in respect of shares of the
Company's or its Subsidiary's Capital Stock to holders of such Capital Stock,
(ii) purchase, redeem or otherwise acquire or retire for value any Capital Stock
of the Company or any warrants, rights or options to purchase or acquire shares
of any class of such Capital Stock, (iii) make any principal payment on,
purchase, defease, redeem, prepay or otherwise acquire or retire for value,
prior to any scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Indebtedness or (iv) make any Investment (other
than Permitted Investments) (each of the foregoing actions set forth in clauses
(i), (ii), (iii) and (iv) being referred to as a "Restricted Payment").
(2) Notwithstanding the foregoing, the provisions set forth in
the immediately preceding paragraph do not prohibit: (i) dividends or
distributions payable to the Company or its Wholly Owned Subsidiaries; (ii)
dividends or distributions payable to the holders of minority interests of
Subsidiaries, to the extent pro rata dividends or distributions are concurrently
made to the Company and its Wholly Owned Subsidiaries; (iii) if no Default or
Event of Default shall have occurred and be continuing, the acquisition of any
shares of Capital Stock of the Company solely in exchange for shares of
Qualified Capital Stock of the Company but not the proceeds thereof; (iv) if no
Default or Event of Default shall have occurred and be continuing, the
acquisition of any Subordinated Indebtedness, either (1) solely in exchange for
shares of Qualified Capital Stock of the Company or (2) through the application
of net proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the
Company; or (B) Refinancing Indebtedness; (v) so long as no Default or Event of
Default shall have occurred and be continuing, repurchases by the Company of
Common Stock of the Company from employees of the Company or any of its
Subsidiaries or their authorized representatives upon the death, disability or
termination of employment of such employees, in an amount not to exceed $500,000
in any calendar year and $1,000,000 in the aggregate, plus the aggregate cash
proceeds from any reissuance during such calendar year of Common Stock by the
Company to employ-
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ees, officers or directors of the Company and its Subsidiaries plus the
aggregate cash proceeds from any payments on life insurance policies in which
the Company or any of its Subsidiaries is the beneficiary with respect to any
employees, officers or directors of the Company and its Subsidiaries which
proceeds are used to purchase the Common Stock of the Company held by any such
employees, officers or directors; (vi) repurchases of Capital Stock deemed to
occur upon the exercise of stock options if such Capital Stock represents a
portion of the exercise price thereof; and (vii) repurchases of any Put Shares
in connection with notices received by the Company during the period of
September 30, 2000 through October 15, 2000 from Put Shareholders in accordance
with the terms of the Letter Agreements, for an aggregate purchase price equal
to the lesser of (a) sixty percent (60%) of the Excess and (b) $36,500,000.
Not later than the date of making any Restricted Payment, the
Company shall deliver to the Agent an Officers' Certificate stating that such
Restricted Payment complies with this Agreement and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available internal quarterly
financial statements.
6.4 Restriction on Fundamental Changes. Except as otherwise
permitted in this Agreement, the Company will not and will not cause or permit
any of its Subsidiaries to, directly or indirectly, in a single transaction or
series of related transactions, consolidate or merge with or into any Person, or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets, whether as an entirety or substantially as an
entirety to any Person.
For purposes of the foregoing, the transfer (by lease,
assignment, sale, merger, consolidation or otherwise, in a single transaction or
series of transactions) of all or substantially all of the properties or assets
of one or more Subsidiaries of the Company, the Capital Stock of which
constitutes all or substantially all of the properties and assets of the Company
or such Subsidiary, as the case may be, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company or such
Subsidiary, as the case may be.
6.5 Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries . Except as set forth in Schedule M, the Company will
not, and will not cause or permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or permit to exist or become effective any
encumbrance or restriction on the ability of any Subsidiary of the Company to
(a) pay dividends or make any other distributions on or in respect of its
Capital Stock owned by the Company or any of its Subsidiaries; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Subsidiary of the Company; or
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(c) transfer any of its property or assets to the Company or any other
Subsidiary, except, with respect to (a), (b) and (c) above, for such
encumbrances or restrictions existing under or by reason of: (i) applicable Law;
(ii) the Loan Documents or the Take-Out Securities to the extent Incurred in
accordance with this Agreement; (iii) customary non-assignment provisions of any
contract or any lease governing a leasehold interest of any Subsidiary; (iv) any
instrument governing Acquired Indebtedness, which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person or the properties or assets of the Person so acquired; (v)
agreements existing on the Closing Date to the extent and in the manner such
agreements are in effect on the Closing Date; (vi) any restriction or
encumbrance contained in contracts for sale of assets permitted by this
Agreement in respect of the assets being sold pursuant to such contracts pending
the close of such sale, which encumbrance or restriction is not applicable to
any asset other than the asset being sold pursuant to such contract; (vii)
Equipment Financing Obligations; (viii) an agreement governing Indebtedness
Incurred to Refinance the Indebtedness Incurred pursuant to an agreement
referred to in clause (iv) or (v) above; provided, however, that the provisions
relating to such encumbrance or restriction contained in any such Indebtedness
are no less favorable to the Company in any material respect as determined by
the Board of Directors of the Company in their reasonable and good faith
judgment than the provisions relating to such encumbrance or restriction
contained in agreements governing the Indebtedness being Refinanced; (ix)
customary restrictions in joint venture arrangements or shareholder agreements;
or (x) Permits that impose restrictions of the nature described in clause (c)
above.
6.6 Transactions with Shareholders and Affiliates.
(1) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (each an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that are no less favorable to
the Company or the applicable Subsidiary than those that might reasonably have
been obtained in a comparable transaction at such time on an arm's-length basis
from a Person that is not an Affiliate of the Company or such Subsidiary. All
Affiliate Transactions (and each series of related Affiliate Transactions which
are similar or part of a common plan) involving aggregate payments or other
property with a fair market value in excess of $5,000,000 (or the equivalent
amount in any other currency) shall be approved by the Board of Directors of the
Company or such Subsidiary, as the case may be, such approval to be
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evidenced by a Board Resolution stating that such Board of Directors has
determined that such transaction complies with the foregoing provisions. If the
Company or any Subsidiary enters into an Affiliate Transaction (or a series of
related Affiliate Transactions related to a common plan) that involves an
aggregate fair market value of more than $10,000,000 (or the equivalent amount
in any other currency), the Company or such Subsidiary, as the case may be,
shall, prior to the consummation thereof, obtain a favorable opinion as to the
fairness of such transaction or series of related transactions to the Company or
the relevant Subsidiary, as the case may be, from a financial point of view,
from an Independent Financial Advisor and provide the same to the Agent;
provided, however, that a fairness opinion shall not be required with respect to
an Affiliate Transaction unless an executive officer, director or shareholder of
the Company (or an Affiliate of any of them) has an equity or debt interest in
the Affiliate party to the Affiliate Transaction (other than an indirect
interest held by virtue of an ownership interest in the Company).
(2) The restrictions set forth in clause (a) shall not apply
to (i) reasonable fees and compensation paid to and indemnity provided on behalf
of, officers, directors and employees of the Company or any of its Subsidiaries
as determined in good faith by the Company's Board of Directors or Senior
Officers in connection with compensation and retention of such Persons; (ii)
transactions exclusively between or among the Company and any of its
Subsidiaries or exclusively between or among any of the Subsidiaries of the
Company; provided such transactions are not otherwise prohibited by this
Agreement; (iii) Restricted Payments permitted by this Agreement; (iv) any
issuance of Securities or other payments, awards or grants in cash, Securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans of the Company entered into in the ordinary
course of business in connection with director, officer and employee
compensation and approved by the Board of Directors; and (v) loans and advances
to employees and officers of the Company and its Subsidiaries in the ordinary
course of business for bona fide business purposes not in excess of $2,000,000
(or the equivalent amount in any other currency) at any time outstanding.
6.7 Business Activities. The Company shall not, nor shall the
Company cause or permit any of its Subsidiaries to, directly or indirectly,
materially alter the nature of the consolidated business of the Company and its
Subsidiaries from that in existence as of the Closing Date or similar or related
businesses.
6.8 Amendments to Charter Documents. The Company shall not,
nor shall it cause or permit any of its Subsidiaries to, amend its certificate
of incorporation or by-laws or any other organizational document in any respect
which could be materially adverse to the interests of the Lenders.
6.9 Asset Sales.
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(1) The Company shall not, nor shall it cause or permit any of
its Subsidiaries to, directly or indirectly, consummate any Asset Sale unless
(i) the aggregate of all Asset Sales does not exceed $5,000,000 (or the
equivalent amount in any other currency), (ii) the Company or such Subsidiary,
as the case may be, receives consideration therefor at the time thereof at least
equal to the fair market value at the time of such Asset Sale of the property,
assets or stock that is the subject of such Asset Sale, (iii) at least 85% of
the consideration received therefor by the Company or such Subsidiary is in the
form of cash or Cash Equivalents, and (iv) all of the Net Cash Proceeds in
respect thereof are applied by the Company or a Subsidiary in accordance with
Section 2.4(b)(i).
(2) The restrictions set forth in clauses (a)(i), (iii) and
(iv) above shall not apply to any Capital Stock owned by FII or any Subsidiary
of FII or any Capital Stock issued by any Subsidiary of FII, so long as, (i) to
the extent such transfer is for cash consideration, the proceeds of such
transfer are used, within ninety (90) days following such transfer or issuance
by FII or Subsidiaries of FII or its Subsidiaries own equity, for the purpose of
developing the broadband telecommunications business of FII and its Subsidiaries
and (ii) to the extent such transfer is not for cash consideration, it consists
of assets that are acquired within ninety (90) days of such equity issuance or
transfer and are appropriate, in the judgment of the Board of Directors of the
Company, for the purpose of developing the broadband telecommunication business
of FII and its Subsidiaries ("Replacement Assets"); provided that (1) the
aggregate amount of cash consideration and the aggregate fair market value of
Replacement Assets received in connection with all such transactions (a) shall
not exceed $20,000,000 (or the equivalent amount in any other currency), except
as permitted pursuant to clause (2) below and (b) not invested in the broadband
telecommunications business of Formus Polska and Callino GmbH shall not exceed
$10,000,000 (or the equivalent amount in any other currency), (2) Capital Stock
of Formus Polska and Callino GmbH may be so transferred or issued so long as,
after giving effect to such transfer or issuance, the Company will continue to,
directly or through Wholly Owned Subsidiaries, beneficially own and control an
amount of common equity of such Subsidiary and an amount of votes ordinarily
entitled, in the absence of contingencies, to vote in the election of directors
of such Subsidiary and on the approval of other matters subject to stockholder
vote equal, in each case, to 51% of the amount of such equity and votes held by
the Company and its Subsidiaries as of the Closing Date hereof, and (3) the cash
or other proceeds of any transfer or issuance of Capital Stock in Formus Polska
and Callino GmbH shall be required to be invested in the broadband
telecommunications business of Formus Polska and Callino GmbH.
SECTION 7. EVENTS OF DEFAULT
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If any of the following conditions or events ("Events of
Default") shall occur and be continuing:
7.1 Failure To Make Payments When Due. Failure to pay any
installment of principal of the Loans when due, whether at stated maturity, by
acceleration, by notice of prepayment or otherwise; or failure to pay any
Prepayment Premium or any interest on the Loans or any other amount due under
this Agreement within five (5) days or more after the date due; or
7.2 Default in Other Agreements. Failure of the Company or any
of its Subsidiaries to pay any principal or other amounts due on one or more
issues of Indebtedness of the Company or of any of its Subsidiaries (other than
Indebtedness referred to in Section 7.1) having an outstanding principal amount
of $5,000,000 or greater or breach or default by the Company or any of its
Subsidiaries with respect to any other term of any one or more issues of
Indebtedness of the Company or of any of its Subsidiaries having an outstanding
principal amount of $5,000,000 or greater or any agreement or instrument
evidencing or securing such Indebtedness and such default or breach results or,
with notice or the passage of time, would result in the acceleration of that
Indebtedness prior to its stated maturity (or permit the holders of such
Indebtedness to accelerate such maturity); or
7.3 Breach of Certain Covenants. Failure of the Company to
perform or comply with any covenant, term or condition contained in Section
2.4(b), Section 5.1(e), Section 5.2 or Section 6; or
7.4 Breach of Warranty. Any representation, warranty or
certification made or delivered by the Company or any of its Subsidiaries in any
Loan Document or in any statement or certificate at any time given by the
Company or any of its Subsidiaries in writing pursuant hereto or thereto or in
connection herewith or therewith shall be false or incorrect in any respect in
all respects (with respect to representations, warranties and certifications
qualified by materiality or Material Adverse Effect) and in all material
respects (with respect to all other representations, warranties and
certifications) on the date as of which made or deemed made; or
7.5 Other Defaults Under This Agreement or Loan Documents. The
Company or any of its Subsidiaries shall default in the performance of or
compliance with any covenant, term or condition contained in this Agreement or
the other Loan Documents (other than those covered by Sections 7.1, 7.3, 7.4, or
7.10) and such default shall not have been remedied or waived in accordance with
this Agreement within thirty (30) days after the date of written notice of such
default from the holder or holders of not less than 25% in aggregate principal
amount of the Loans then outstanding of such default; or
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7.6 Involuntary Bankruptcy; Appointment of Custodian, Etc. A
court of competent jurisdiction enters a Bankruptcy Order under any Bankruptcy
Law that:
(1) is for relief against the Company or any Subsidiary in an
involuntary case or proceeding, or
(2) appoints a Custodian of the Company or any Subsidiary for
all or substantially all of its properties, or
(3) orders the liquidation of the Company or any Subsidiary;
and in each case the order or decree remains unstayed and in effect for sixty
(60) days; or
7.7 Voluntary Bankruptcy; Appointment of Custodian, Etc. The
Company or any Subsidiary pursuant to or within the meaning of any Bankruptcy
Law:
(1) commences a voluntary case or proceeding, or
(2) consents to the entry of a Bankruptcy Order for relief
against it in an involuntary case or proceeding, or
(3) consents to the appointment of a Custodian of it or for
all or substantially all of its property, or
(4) makes a general assignment for the benefit of its
creditors or files a proposal or scheme of arrangement involving the
rescheduling or composition of its indebtedness, or
(5) consents to the filing of a petition in bankruptcy against
it, or
(6) shall generally not pay its debts when such debts become
due or shall admit in writing its inability to pay its debts generally; or
7.8 Judgments and Attachments. Any money judgment, writ of
attachment or warrant of attachment, or similar process involving in any
individual case or in the aggregate at any time an amount in excess of
$5,000,000 (to the extent not covered by third-party insurance as to which the
insurance company has acknowledged coverage) shall be entered or filed against
the Company or any of its Subsidiaries or any of their respective properties or
assets and shall remain undischarged, unvacated, unbonded or unstayed for a
period of thirty (30) days or in any event later than five days prior to the
date of any proposed sale thereunder; or
7.9 Dissolution. Any order, judgment or decree shall be
entered against the Company or any Material Subsidiary decreeing the dissolution
or split-up of the Company or that Subsidiary and such order shall remain
undischarged or unstayed for a period in excess of 30 days; or
7.10 Guarantee. (a) Any Guarantee or any provision thereof
shall cease to be in full force or effect (other than in accordance with its
express terms), or (b) any Guarantor or any Person acting by or on behalf of
such Guarantor shall deny
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or disaffirm such Guarantor's obligations under its Guarantee, or (c) any
Guarantor shall default in the due performance or observance of any term,
covenant or agreement on its part to be performed or observed, after giving
effect to any applicable grace periods, pursuant to its Guarantee; or
7.11 Default Under Engagement Letter or in Payment of Fees.
The Company shall default in the performance of or compliance with any covenant,
term or condition contained in the Engagement Letter or the Fee Letter or
default in payment of fees to the Lenders or the Arrangers; or
7.12 Material Contracts and Permits. (a) The Company shall
breach or default under any Material Contract and such default or breach, if
capable of remedy, is not remedied in any applicable grace period, (b)(i) any
Permit shall expire, and on or prior to such expiration, the same shall not have
been renewed or replaced by another Permit authorizing substantially the same
operations, (ii) any Permit shall be cancelled, revoked, terminated, suspended
or modified or shall no longer be in full force and effect and shall not have
been renewed or replaced by another Permit authorizing substantially the same
operations, or (iii) the grant or the effectiveness of any such Permit shall
have been stayed, vacated, reversed or set aside, and, in each case, such action
shall no longer be subject to further administrative or judicial review, in each
case unless (x) except with respect to the German Permits and the Polish
Permits, it would not materially adversely effect the conduct of the business of
the Company and its Subsidiaries in the manner presently conducted and as
contemplated to be conducted, and (y) with respect to the German Permits and the
Polish Permits, it would have an immaterial effect on the German Operations or
the Polish Operations, as the case may be; or
7.13 Liens. Any of the Loan Documents to which the Company or
any Guarantor is a party shall for any reason fail to result in the Agent, for
the benefit of the Lenders, having a valid, first priority perfected Lien on the
collateral pledged under the Pledge Agreement; or
7.14 ERISA Event. An ERISA Event shall have occurred that, in
the opinion of the Required Lenders, when taken together with all other ERISA
Events that have occurred, has had or could reasonably be expected to result in
a Material Adverse Effect; or
7.15 Change of Control. A Change of Control shall occur; THEN
(i) upon the occurrence of any Event of Default described in the foregoing
Sections 7.6 or 7.7, all of the unpaid principal amount of and accrued interest
on the Loans and an amount as liquidated damages for the loss of the bargain
evidenced hereby (and not as a penalty) equal to the amount that would be
payable as a Prepayment Premium by the Company determined as of the date of the
occurrence of any Event of Default, and all other outstanding Obligations shall
automatically become
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immediately due and payable, without presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by the
Company, and the Commitments of the Lenders hereunder shall thereupon terminate,
and (ii) upon the occurrence of any other Event of Default, the Agent shall,
upon written notice by Lenders holding in the aggregate more than 25% of the
outstanding principal amount of Loans, by written notice to the Company, declare
all of the unpaid principal amount of and accrued interest on the Loans and an
amount as liquidated damages for the loss of the bargain evidenced hereby (and
not as a penalty) equal to the amount that would be payable as a Prepayment
Premium by the Company determined as of the date of the occurrence of any Event
of Default, and all other outstanding Obligations to be, and the same shall
forthwith become, due and payable, and the Commitments of the Lenders hereunder
shall thereupon terminate. The provisions of clause (ii) above are subject to
the condition that if the principal of and accrued interest on all or any
outstanding Loans and the Prepayment Premiums and all other outstanding
Obligations have been declared immediately due and payable by reason of the
occurrence of any Event of Default other than an Event of Default described in
Sections 7.6 or 7.7, the Lenders holding in the aggregate more than 50% of the
outstanding principal amount of Loans may, by written instrument filed with the
Company, rescind and annul such declaration and the consequences thereof,
provided that at the time such declaration is annulled and rescinded:
(i) no judgment or decree has been entered for the payment of
any monies due pursuant to the Loans or this Agreement;
(ii) all arrears of interest upon all the Loans and all other
sums payable under the Loans and under this Agreement (except any
principal, interest or Prepayment Premium on the Loans which has become
due and payable solely by reason of such declaration under clause (ii)
above) shall have been duly paid; and
(iii) each and every other Default and Event of Default shall
have been made good, cured or waived pursuant to the terms of this
Agreement;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereto. If an Event of Default shall occur and for as long as such Event of
Default shall be continuing, DLJ Bridge shall have the right (in consultation
with the other Arrangers) to designate one (1) representative to serve on the
Company's Board of Directors; provided, however, that such right shall terminate
if the Arrangers no longer retain at least 50% of the aggregate principal amount
of outstanding Loans. If DLJ Bridge (in consultation with the other Arrangers)
elects to make such designation, DLJ Bridge shall provide written notice to the
Company of the designated representative. No later than five (5) Business Days
after DLJ Bridge provides such notice to
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the Company, the Company shall provide written confirmation to DLJ Bridge that
such designated representative is a member of the Company's Board of Directors
and shall thereafter receive all notices and other benefits and rights of a
member of the Company's Board of Directors. The designated representative may be
replaced at any time at the sole election of DLJ Bridge by another
representative designated by DLJ Bridge.
SECTION 8. THE AGENT
8.1 Appointment. Each Lender hereby irrevocably designates and
appoints DLJ Bridge as Agent of such Lender to act as specified herein and in
the other Loan Documents, and each Lender hereby irrevocably authorizes DLJ
Bridge as the Agent to take such action on its behalf under the provisions of
this Agreement and the other Loan Documents and to exercise such powers and
perform such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. The Agent agrees to act as such upon the express
conditions contained in this Section 8. Notwithstanding any provision to the
contrary elsewhere in this Agreement or in any other Loan Document, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein or in the other Loan Documents, or any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or otherwise exist
against the Agent. The provisions of this Section 8 are solely for the benefit
of the Agent and the Lenders, and neither the Company nor any of its
Subsidiaries shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement,
the Agent shall act solely as agent of the Lenders and the Agent does not assume
and shall not be deemed to have assumed any obligation or relationship of agent
or trust with or for the Company or any of its Subsidiaries.
8.2 Delegation of Duties. The Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties (including counsel to the Company). The Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care except to the extent
otherwise required by Section 8.3.
8.3 Exculpatory Provisions. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(a) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or the other Loan Documents
(except for its or such Person's own gross negligence or willful misconduct as
finally and unappealably
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determined by a court of competent jurisdiction) or (b) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by the Company or any of its Subsidiaries or any of their
respective officers contained in this Agreement, any other Loan Documents, or in
any certificate, report, statement or other document referred to or provided for
in, or received by the Agent under or in connection with, this Agreement or any
other Loan Document or for any failure of the Company or any of its Subsidiaries
or any of their respective officers to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or the other Loan
Documents, or to inspect the properties, books or records of the Company or any
of its Subsidiaries. The Agent shall not be responsible to any Lender for the
effectiveness, genuineness, validity, enforceability, collectability or
sufficiency of this Agreement or any other Loan Document or for any
representations, warranties, recitals or statements made herein or therein or
made in any written or oral statement or in any financial or other statements,
instruments, reports, certificates or any other documents in connection herewith
or therewith furnished or made by the Agent to the Lenders or by or on behalf of
the Company or any of its Subsidiaries to the Agent or any Lender or be required
to ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or of the existence or possible
existence of any Default or Event of Default.
8.4 Reliance by Agent. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, facsimile,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons, and upon advice and statements of legal counsel
(including, without limitation, counsel to the Company or any of its
Subsidiaries), independent accountants and other experts selected by the Agent.
The Agent shall be fully justified in failing or refusing to take any action
under this Agreement or any other Loan Document unless it shall first receive
such advice or concurrence of the Required Lenders as it deems appropriate or it
shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. As between the Agent and the Lenders, the
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Loan Documents in accordance with a
request of the Required Lenders, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders.
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8.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has actually received notice from a Lender or the
Company referring to this Agreement, describing such Default or Event of Default
and stating that such notice is a "notice of default." In the event that the
Agent receives such a notice, the Agent shall give prompt notice thereof to the
Lenders. The Agent shall take such action with respect to such Default or Event
of Default as shall be reasonably directed by the Required Lenders; provided,
that, as between the Agent and the Lenders unless and until the Agent shall have
received such directions, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Lenders.
8.6 Non-Reliance on Agent and Other Lenders. Each Lender
expressly acknowledges that neither the Agent nor any of its respective
officers, directors, employees, agents, attorneys-in-fact or affiliates have
made any representations or warranties to it and that no act by the Agent
hereinafter taken, including any review of the affairs of the Company or any of
its Subsidiaries shall be deemed to constitute any representation or warranty by
the Agent to any Lender. Each Lender represents to the Agent that it has,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, assets, operations, property,
financial and other condition, prospects and creditworthiness of the Company or
its Subsidiaries and made its own decision to make its Loans hereunder and enter
into this Agreement. Each Lender also represents that it will, independently and
without reliance upon the 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 analysis, appraisals and decisions in taking or not taking action
under this Agreement, and to make such investigation as it deems necessary to
inform itself as to the business, assets, operations, property, financial and
other condition, prospects and creditworthiness of the Company and its
Subsidiaries. The Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
assets, liabilities, property, financial and other condition or creditworthiness
of the Company or any of its Subsidiaries which may come into the possession of
the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
8.7 Indemnification. The Lenders agree to indemnify the Agent
in its capacity as such ratably according to their respective "percentages" as
used in determining the Required Lenders at such time, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, ex-
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penses or disbursements of any kind whatsoever which may at any time (including,
without limitation, at any time following the payment of the Obligations) be
imposed on, incurred by or asserted against the Agent in its capacity as such in
any way relating to or arising out of this Agreement or any other Loan Document,
or any documents contemplated by or referred to herein or the transactions
contemplated hereby of any action taken or omitted to be taken by the Agent
under or in connection with any of the foregoing, but only to the extent that
any of the foregoing is not paid by the Company or any of its Subsidiaries;
provided, that no Lender shall be liable to the Agent for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
gross negligence or willful misconduct of the Agent as finally and unappealably
determined by a court of competent jurisdiction. If any indemnity furnished to
the Agent for any purpose shall, in the opinion of the Agent be insufficient or
become impaired, the Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished. The agreements in this Section 8.7 shall survive the payment of all
Obligations.
8.8 Agent in Its Individual Capacity. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Company and its Subsidiaries as though the Agent were
not the Agent hereunder. With respect to the Loans made by it and all
Obligations owing to it, the Agent shall have the same rights and powers under
this Agreement as any Lender and may exercise the same as though it were not the
Agent and the terms "Lender" and "Lenders" shall include the Agent in its
individual capacity.
8.9 Resignation of the Agent; Successor Agent. The Agent may
resign as the Agent upon ten (10) days' notice to the Lenders and the Company.
Upon the resignation of the Agent, the Required Lenders shall appoint from among
the Lenders a successor Agent for the Lenders, whereupon such successor agent
shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall include such successor Agent effective upon its appointment, and
the resigning Agent's rights, powers and duties as the Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement. If no successor shall have been
so appointed by the Required Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Agent gives notice of its
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent or delegate its duties to the Lenders, whereupon such successor
agent or the Lenders, as the case may be, shall succeed to the rights, powers
and duties of the Agent, and the term "Agent" shall include such successor Agent
or the Lenders, as the case may be, effective upon its or their appointment, and
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the resigning Agent's rights, powers and duties as the Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement. After the resignation of the
Agent hereunder, the provisions of this Section 8 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Agent under this
Agreement.
SECTION 9. GUARANTEE
9.1 Unconditional Guarantee. Each Guarantor hereby
unconditionally, jointly and severally, guarantees (such guarantee to be
referred to herein as the "Guarantee") to each of the Lenders and to the Agent
and their respective successors and assigns, that the principal of and interest
and Prepayment Premium on the Loans will be promptly paid in full when due,
whether at maturity, by acceleration or otherwise and interest on the overdue
principal, if any, and interest on any interest, to the extent lawful, of the
Loans and all other obligations of the Company to the Lenders or the Agent
hereunder or thereunder (including the Obligations) will be promptly paid in
full or performed, all in accordance with the terms hereof and thereof; subject,
however, to the limitations set forth in Section 9.4. Each Guarantor hereby
agrees that its obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Loans or this Agreement or any
other Loan Document, the absence of any action to enforce the same, any waiver
or consent by any of the Lenders with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action to enforce
the same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a Guarantor. Each Guarantor hereby waives
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that this Guarantee will not be discharged except by complete
performance of the obligations (including, without limitation, payment of all
Obligations) contained in the Loans, this Agreement, the other Loan Documents
and in this Guarantee. If any Lender or the Agent is required by any court or
otherwise to return to the Company, any Guarantor, or any custodian, trustee,
liquidator or other similar official acting in relation to the Company or any
Guarantor, any amount paid by the Company or any Guarantor to the Agent or such
Lender, this Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Guarantor further agrees that, as
between each Guarantor, on the one hand, and the Lenders and the Agent, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Section 7 for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such
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obligations as provided in Section 7, such obligations (whether or not due and
payable) shall forthwith become due and payable by each Guarantor for the
purpose of this Guarantee.
9.2 Severability. In case any provision of this Guarantee
shall be invalid, illegal or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
9.3 Release of a Guarantor. Upon the sale or disposition
(whether by merger, stock purchase, asset sale or otherwise) of a Guarantor (or
all or substantially all its assets) to an entity which is not a Subsidiary of
the Company and which sale or disposition is otherwise in compliance with the
terms of this Agreement, such Guarantor shall be deemed released from all
obligations under this Section 9 without any further action required on the part
of the Agent or any Lender.
The Agent shall deliver an appropriate instrument evidencing
such release upon receipt of a request by the Company accompanied by an
Officers' Certificate certifying as to the compliance with this Section 9.3. Any
Guarantor not so released remains liable in all respects with respect to its
Guarantee as provided in this Section 9.
9.4 Limitation of Guarantor's Liability. Each Guarantor and,
by its acceptance hereof each of the Lenders, hereby confirms that it is the
intention of all such parties that the guarantee by such Guarantor pursuant to
its Guarantee not constitute a fraudulent transfer or conveyance for purposes of
any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any similar Federal or state Law. To effect the
foregoing intention, the Lenders and such Guarantor hereby irrevocably agree
that the obligations of such Guarantor under the Guarantee shall be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor and after giving effect to any collections
from or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to Section
9.5, result in the obligations of such Guarantor under the Guarantee not
constituting such fraudulent transfer or conveyance.
9.5 Contribution. In order to provide for just and equitable
contribution among the Guarantors, the Guarantors agree, inter se, that in the
event any payment or distribution is made by any Guarantor (a "Funding
Guarantor") under its Guarantee, such Funding Guarantor shall be entitled to a
contribution from all other Guarantors in a pro rata amount based on the
Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all
payments, damages and expenses incurred by that Funding Guarantor in discharging
the Company's obligations with respect to the Obligations. "Adjusted Net Assets"
of such Guarantor at any date shall mean the lesser of (x) the amount by which
the fair value of the property of
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such Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities Incurred on such date (other than liabilities of such
Guarantor under Subordinated Indebtedness)), but excluding liabilities under the
Guarantee, of such Guarantor at such date and (y) the amount by which the
present fair salable value of the assets of such Guarantor at such date exceeds
the amount that will be required to pay the probable liabilities of such
Guarantor on its debts, excluding debt in respect of the Guarantee of such
Guarantor, as they become absolute and matured.
9.6 Waiver of Subrogation. Until such time as all Obligations
on the Loans are paid in full, each Guarantor hereby irrevocably waives any
claim or other rights which it may now or hereafter acquire against the Company
that arise from the existence, payment, performance or enforcement of such
Guarantor's obligations under its Guarantee and this Agreement, including,
without limitation, any right of subrogation, reimbursement, exoneration,
indemnification, and any right to participate in any claim or remedy of any
Lender against the Company, whether or not such claim, remedy or right arises in
equity, or under contract, statute or common law, including, without limitation,
the right to take or receive from the Company, directly or indirectly, in cash
or other property or by set-off or in any other manner, payment or security on
account of such claim or other rights. If any amount shall be paid to any
Guarantor in violation of the preceding sentence and the Loans shall not have
been paid in full, such amount shall be deemed to have been paid to such
Guarantor for the benefit of, and held in trust for the benefit of, the Lenders,
and shall forthwith be paid to the Agent for the benefit of such Lenders to be
credited and applied upon the Loans, whether matured or unmatured, in accordance
with the terms of this Agreement. Each Guarantor acknowledges that it will
receive direct and indirect benefits from the financing arrangements
contemplated by this Agreement and that the waiver set forth in this Section 9.6
is knowingly made in contemplation of such benefits.
9.7 Waiver of Stay, Extension or Usury Laws. Each Guarantor
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay or extension law or any usury law or other Law that
would prohibit or forgive such Guarantor from performing its Guarantee as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Agreement; and (to the
extent that it may lawfully do so) each Guarantor hereby expressly waives all
benefit or advantage of any such Law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Agent, but will
suffer and permit the execution of every such power as though no such Law had
been enacted.
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SECTION 10. MISCELLANEOUS
10.1 Representation of the Lenders. Each Lender hereby
represents that it is a commercial lender which makes loans in the ordinary
course of its business and that it will make the Loans hereunder for its own
account or the account of its affiliates in the ordinary course of such
business.
10.2 Participations in and Assignments of Loans and Notes.
(1) Each Lender shall have the right at any time to sell,
assign, transfer or negotiate all or any portion of its Loans or Commitment in
an aggregate amount of not less than $2,500,000 to any Eligible Assignee. In the
case of any sale, transfer or negotiation of all or part of the Loans or any
Commitment authorized under this Section 10.2(a), the assignee, transferee or
recipient shall become a party to this Agreement as a Lender by execution of an
assignment and assumption agreement; provided that (i) at such time Section
2.1(a) shall be deemed modified to reflect the Commitment of such new Lender and
of the existing Lenders, (ii) upon surrender of the Notes, new Notes will be
issued, at the Company's expense, to such new Lender and to the assigning
Lender, such new Notes to be in conformity with the requirements of Section
2.1(d) (with appropriate modifications) to the extent needed to reflect the
revised Commitment, and (iii) the Agent shall receive at the time of each such
assignment, from the assigning or assignee Lender, the payment of a
non-refundable assignment fee of $3,500; and provided, further, that such
transfer or assignment will not be effective until recorded by the Agent on the
Register pursuant to Section 10.23. To the extent of any assignment pursuant to
this Section 10.2(a), the assigning Lender shall be relieved of its obligations
hereunder with respect to its assigned Commitment, and the assignee, transferee
or recipient shall have, to the extent of such sale, assignment, transfer or
negotiation, the same rights, benefits and obligations as it would if it were a
Lender with respect to such Loans or Commitment, including, without limitation,
the right to approve or disapprove actions which, in accordance with the terms
hereof, require the approval of a Lender. At the time of each assignment
pursuant to this Section 10.2(a) to an Eligible Assignee which is not already a
Lender hereunder and which is not a United States Person (as such term is
defined in Section 7701(a)(30) of the Internal Revenue Code) for Federal income
tax purposes, the respective Eligible Assignee shall provide to the Company and
the Agent the appropriate Internal Revenue Service Forms (and, if applicable, a
Section 10.2(e)(ii) Certificate) described in Section 10.2(e).
(2) Each Lender may grant participations in all or any part of
its Loans or its Commitment to any Person (a "participant"); provided, however,
that (i) such Lender's obligations under this Agreement shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations and (iii) the Company, the Agent and the
other Lenders shall
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continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under the Agreement and such Lender shall retain
the sole right to enforce the obligations of the Company relating to the Loans
and to approve any amendment, modification or waiver of any provision of this
Agreement (other than amendments, modifications or waivers with respect to any
fees payable hereunder or the amount of principal of or the rate at which
interest is payable on the Loans, or the dates fixed for payments of fees or
principal of or interest on the Loans or termination of the Commitment). The
Company agrees that each participant shall be entitled to the benefits of
Section 10.19 to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to Section 10.2(a); provided, however, that a
participant shall not be entitled to receive any greater payment under Section
10.19 than the applicable Lender would have been entitled to receive with
respect to the participation sold to such participant, unless the sale of the
participation to such participant is made with the Company's prior written
consent. To the extent permitted by law, each participant also shall be entitled
to the benefits of Section 10.5 as though it were a Lender, provided such
participant agrees to be subject to Section 10.18(b) as though it were a Lender.
(3) The Company shall, at its own cost and expense, provide
such certificates, acknowledgments and further assurances in respect of this
Agreement and the Loans as any Lender may reasonably require in connection with
any participation, transfer or assignment pursuant to this Section 10.2.
(4) Nothing in this Agreement shall prevent or prohibit any
Lender from pledging its Loan and Notes hereunder to a Federal Reserve Bank in
support of borrowings made by such Lender from such Federal Reserve Bank.
(5) Each Lender that is an assignee or transferee of an
interest under this Agreement pursuant to Section 10.2(a) (unless the respective
Lender was already a Lender hereunder immediately prior to such assignment or
transfer) and that is not a United States Person (as such term is defined in
Section 7701(a)(30) of the Internal Revenue Code) agrees to deliver to the
Company and the Agent, on the date of such assignment or transfer to such
Lender, (i) two accurate and complete original signed copies of Internal Revenue
Service Form 4224 (or W-8ECI) or 1001 (or W-8BEN) (or successor forms)
certifying to such Lender's entitlement to a complete exemption from United
States withholding tax with respect to payments to be made under this Agreement
and under any Note, or (ii) if the Lender is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Internal Revenue Code and cannot deliver either
Internal Revenue Service Form 1001 (or W-8BEN) or 4224 (or W-8ECI) pursuant to
clause (i) above, two accurate and complete original signed copies of Internal
Revenue Service Form W-8 (or successor form) certifying to such Lender's
entitlement to a complete exemption from United States withholding tax
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with respect to payments of interest to be made under this Agreement and under
any Note. In addition, each Lender agrees that, when a lapse in time or change
in circumstances renders the previous certification obsolete or inaccurate in
any material respect, it will deliver to the Company and the Agent two new
accurate and complete original signed copies of Internal Revenue Service Form
4224 (or W-8ECI) or 1001 (or W-8BEN), or Form W-8, as the case may be, and such
other forms as may be required in order to confirm or establish the entitlement
of such Lender to a continued exemption from or reduction in United States
withholding tax with respect to payments under this Agreement and any Note, or
it shall notify the Company and the Agent of its inability to deliver any such
Form or Certificate.
(6) In order to facilitate the sale or syndication of the
Loans, any of the Lenders may restructure the Loans made by such Lender into
different tranches, with different interest rates, rights to warrants and other
terms and conditions (which may include issuances of one or more tranches of
Notes or preferred equity securities) so long as the overall interest cost and
dilutive effect in respect of the Loans is not thereby increased.
10.3 Expenses. Whether or not the transactions contemplated
hereby shall be consummated, the Company agrees to promptly pay (a) all the
costs and expenses incurred by the Lenders in connection with the transactions
contemplated by the Loan Documents, including, without limitation, the
reasonable fees, expenses and disbursements of counsel to the Lenders (including
allocated costs of internal counsel) in connection with the negotiation,
preparation, execution and administration of the Loan Documents and the Loans
hereunder, and any amendments, modifications and waivers hereto or thereto and
consents to departures from the terms hereof and thereof; and (b) after the
occurrence of an Event of Default, all costs and expenses (including attorneys'
fees and costs of settlement) incurred by the Lenders or the Agent in enforcing
any Obligations of or in collecting any payments due from the Company or any
Guarantor hereunder or under the Notes or any other Loan Document by reason of
such Event of Default or in connection with any refinancing or restructuring of
the credit arrangements provided under this Agreement in the nature of a
"work-out" or in connection with any insolvency or bankruptcy proceedings.
10.4 Indemnity. In addition to the payment of expenses
pursuant to Section 10.3, whether or not the transactions contemplated hereby
shall be consummated, the Company agrees to indemnify, pay and hold each of the
Lenders, the Agent and any holder of any of the Notes, and each of their
respective officers, directors, employees, agents, representatives and
affiliates (collectively called the "Indemnitees"), harmless from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disburse-
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ments of any kind or nature whatsoever (including, without limitation, the
reasonable fees and disbursements of counsel for such Indemnitees in connection
with any investigative, administrative or judicial proceeding commenced or
threatened, whether or not such Indemnitee shall be designated as a party
thereto), which may be suffered by, imposed on, incurred by, or asserted against
that Indemnitee, in any manner resulting from, connected with, in respect of,
relating to or arising out of this Agreement, the other Loan Documents, the
Commitment Letter, the Lenders' agreements to make the Loans or the use or
intended use of any of the proceeds of the Loans hereunder or the issuance of
the Take-Out Securities (the "indemnified liabilities"); provided, however, that
the Company shall have no obligation to an Indemnitee hereunder with respect to
indemnified liabilities (a) to the extent such liabilities are finally and
unappealably judicially determined by a court of competent jurisdiction to have
resulted solely from the gross negligence or willful misconduct of that
Indemnitee or (b) in connection with the obligations of any Indemnitee under any
Loan Document or for any transfer fees. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Company
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all indemnified
liabilities incurred by the Indemnitees or any of them.
10.5 Setoff. In addition to any rights now or hereafter
granted under applicable Law and not by way of limitation of any such rights,
upon the occurrence and during the continuance of any Default or Event of
Default, each Lender, the Agent and each subsequent holder of any Note and any
Affiliate thereof is hereby authorized by the Company and the Guarantors at any
time or from time to time, without notice to the Company or any Guarantor, any
such notice being hereby expressly waived, to set off and to appropriate and to
apply any and all deposits (general or special, including, but not limited to,
Indebtedness evidenced by certificates of deposit, whether matured or unmatured)
and any other Indebtedness or obligations at any time held or owing by the
Agent, such Lender, such subsequent holder or such Affiliate to or for the
credit or the account of the Company or such Guarantor against and on account of
the obligations and liabilities of the Company or such Guarantor to the Lenders
under this Agreement, the Notes and the other Loan Documents, including, but not
limited to, all claims of any nature or description arising out of or connected
with this Agreement, the Notes, the Guarantees or the other Loan Documents,
irrespective of whether or not (a) the Agent, such Lender, such subsequent
holder or such Affiliate shall have made any demand hereunder or (b) the Agent,
such Lender, such subsequent holder or such Affiliate shall have declared the
principal of or the interest on its portion of the Loans and its Notes and
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other amounts due hereunder to be due and payable as permitted by Section 7 and
although said obligations and liabilities, or any of them, may be contingent or
unmatured.
10.6 Amendments and Waivers. No amendment, modification,
termination or waiver of any term or provision of this Agreement, of the Notes,
any Guarantee or the Pledge Agreement or consent to any departure by the Company
or any Guarantor therefrom, shall in any event be effective without the prior
written concurrence of the Company or such Guarantor, as the case may be, and
the Required Lenders, and, upon the request of any Lender, the receipt of a
written opinion of counsel of the Company addressed to the Lenders to the effect
that such amendment, modification, termination, waiver or consent does not
violate or conflict with any of the terms and provisions of any Contractual
Obligation of the Company; provided, however, that without the prior written
consent of each Lender affected, an amendment, modification, termination or
waiver of this Agreement, any Notes, any Guarantee, the Pledge Agreement or
consent to departure from a term or provision hereof or thereof may not: (a)
reduce the principal amount of Notes whose holders must consent to any such
amendment, modification, termination, waiver or consent; (b) reduce the rate of
or extend the time for payment of principal or interest on any Note; (c) reduce
the principal amount of any Note; (d) make any Note payable in money other than
that stated in the Note; (e) make any change in the definition of Change of
Control, in the last paragraph of Section 7 or in this Section 10.6; (f) reduce
the rate or extend the time of payment of fees or other compensation payable to
the Lenders hereunder (including the Prepayment Premium); (g) increase the
amount of the Commitment; (h) release all or substantially all or a material
portion of the collateral purported to be subject to the Liens of the Pledge
Agreement (other than releases necessary to effectuate transactions otherwise
permitted under this Agreement); or (i) change the definition of "Required
Lenders"; and provided, further, that without the consent of the Agent, no such
amendment, modification, termination or waiver may amend, modify, terminate or
waive any provision of Section 8 as the same applies to the Agent or any other
provision of this Agreement or any other Loan Document as it relates to the
rights or obligations of the Agent. Any waiver or consent shall be effective
only in the specific instance and for the specific purpose for which it was
given. No notice to or demand on the Company in any case shall entitle the
Company to any further notice or demand in similar or other circumstances. Any
amendment, modification, termination, waiver or consent effected in accordance
with this Section 10.6 shall be binding upon each Lender, and, if signed by the
Company or a Guarantor, on the Company and such Guarantor.
10.7 Independence of Covenants. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by
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any of such covenants, the fact that it would be permitted by an exception to,
or be otherwise within the limitation of, another covenant shall not avoid the
occurrence of a Default or Event of Default if such action is taken or condition
exists. For the purpose of determining compliance with any covenant contained
herein, if an item meets the criteria of more than one type of exception
described in such covenants or the definitions used therein, the Company or the
Subsidiary in question shall have the right to determine in its sole discretion
the category to which such item applies and shall not be required to include the
amount and type of such item in more than one of such categories and may elect
to apportion such item between or among two or more of such categories otherwise
applicable.
10.8 Entirety. The Loan Documents and the Fee Letter embody
the entire agreement of the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof and thereof.
10.9 Notices. Unless otherwise provided herein, any notice or
other communications herein required or permitted to be given shall be in
writing and may be personally served or delivered, telecopied, or sent by mail
and shall be deemed to have been given when delivered in person, upon receipt of
telecopy against receipt of answer back or four Business Days after depositing
it in the mail, registered or certified, with postage prepaid and properly
addressed; provided, however, that notices to the Agent and the Lenders shall
not be effective until received. For the purposes hereof, the addresses of the
parties hereto (until notice of a change thereof is delivered as provided in
this Section 10.9) shall be set forth under each party's name on the signature
pages hereto.
10.10 Survival of Warranties and Certain Agreements.
(1) All agreements, representations and warranties made herein
shall survive the execution and delivery of this Agreement, the making of the
Loans hereunder and the execution and delivery of the Notes and, notwithstanding
the making of the Loans, the execution and delivery of the Notes or any
investigation made by or on behalf of any party, shall continue in full force
and effect. The closing of the transactions herein contemplated shall not
prejudice any right of one party against any other party in respect of anything
done or omitted hereunder or in respect of any right to damages or other
remedies.
(2) Notwithstanding anything in this Agreement or implied by
Law to the contrary, the agreements of the Company set forth in Sections 10.3,
10.4, 10.14, 10.15, 10.17 and 10.19 shall survive the payment of the Loans and
the Notes and the termination of this Agreement.
10.11 Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of the Agent or any Lender or any holder of any
Note in the exercise of any power, right or privilege hereunder, under a
Guarantee, under the
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Pledge Agreement or under the Notes shall impair such power, right or privilege
or be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this Agreement, under a Guarantee, the Pledge
Agreement or the Notes are cumulative to and not exclusive of any rights or
remedies otherwise available.
10.12 Severability. In case any provision in or obligation
under this Agreement, under a Guarantee, the Pledge Agreement or the Notes shall
be invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
10.13 Headings. Section and subsection 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 or given any
substantive effect.
10.14 Applicable Law. THIS AGREEMENT, EACH GUARANTEE, THE
PLEDGE AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK INCLUDING,
WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW.
10.15 Successors and Assigns; Subsequent Holders of Notes.
This Agreement shall be binding upon the parties hereto and their respective
successors and assigns and shall inure to the benefit of the parties hereto and
the permitted successors and assigns of the Lenders. The terms and provisions of
this Agreement, each Guarantee and the Pledge Agreement shall inure to the
benefit of any assignee or transferee of the Loans pursuant to Section 10.2(a),
and in the event of such transfer or assignment, the rights and privileges
herein conferred upon the Lenders shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof. In
determining whether the holders of a sufficient aggregate principal amount of
the Loans shall have consented to any action under this Agreement, any amount of
the Loans owned or held by the Company, any Guarantor or any of their respective
Affiliates shall be disregarded. The Company's rights or any interest therein
hereunder may not be assigned without the prior express written consent of each
of the Lenders.
10.16 Counterparts; Effectiveness. This Agreement and any
amendments, waivers, consents or supplements may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counter-
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parts together shall constitute but one and the same instrument. This Agreement
shall become effective upon the execution of a counterpart hereof by each of the
parties hereto, and delivery thereof to the Agent or, in the case of the
Lenders, written facsimile notice or telephonic notification (confirmed in
writing) of such execution and delivery. The Agent will give the Company and
each Lender prompt notice of the effectiveness of this Agreement.
10.17 Consent to Jurisdiction; Venue; Waiver of Jury Trial;
Currency.
(1) Any legal action or proceeding with respect to this
Agreement, any Note, any Guarantee or the Pledge Agreement may be brought in the
courts of the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Agreement, each of
the parties to this Agreement hereby irrevocably accepts for itself and in
respect of its respective property, generally and unconditionally, the
jurisdiction of the aforesaid courts. Each of the parties to this Agreement
hereby further irrevocably waives any claim that any such courts lack
jurisdiction over itself, and agrees not to plead or claim, in any legal action
or proceeding with respect to this Agreement, the Notes, the Guarantees or the
Pledge Agreement brought in any of the aforesaid courts, that any such court
lacks jurisdiction over such party. Each of the parties to this Agreement
irrevocably consents to the service of process in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party, at its respective address for notices pursuant to
Section 10.9 or to the Process Agent in accordance with Section 10.17(d), such
service to become effective 30 days after such mailing. To the extent permitted
by Law, each of the parties to this Agreement hereby irrevocably waives any
objection to such service of process and further irrevocably waives and agrees
not to plead or claim in any action or proceeding commenced hereunder or under
any Note, any Guarantee or the Pledge Agreement that service of process was in
any way invalid or ineffective. Nothing herein shall affect the right of any
party to this Agreement to serve process in any other manner permitted by Law or
to commence legal proceedings or otherwise proceed against any party in any
other jurisdiction.
(2) Each of the parties to this Agreement hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in connection
with this Agreement, the Notes, the Guarantees or the Pledge Agreement brought
in the courts referred to in clause (a) above and hereby further irrevocably
waives and agrees not to plead or claim in any such court that any such action
or proceeding brought in any such court has been brought in an inconvenient
forum.
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(3) Each of the parties to this Agreement hereby irrevocably
waives all right to a trial by jury in any action, proceeding or counterclaim
arising out of or relating to this Agreement, the Notes, the Guarantees or the
Pledge Agreement or the transactions contemplated hereby or thereby.
(4) Each of the Company and the Guarantors hereby agrees that
service of all writs, process and summonses in any proceeding brought against it
in the State of New York may be made upon CT Corporation System, presently
located at 111 Eighth Avenue, New York, New York 10011 (the "Process Agent"),
and each of the Company and the Guarantors hereby has irrevocably appointed the
Process Agent as its agent and true and lawful attorney-in-fact in its name,
place and stead to accept such service of any and all such writs, process and
summonses, and agrees that the failure of the Process Agent to give any notice
to it of any such service of process shall not impair or affect the validity of
such service or of any judgment based thereon. Each of the Company and the
Guarantors agrees to maintain at all times an agent with an office in New York
to act as Process Agent as aforesaid. Nothing herein shall in any way be deemed
to limit the ability to serve any such writs, process and summonses in any other
manner permitted by applicable law.
(5) If for the purpose of obtaining judgment in any court it
is necessary to convert a sum due hereunder or under a Loan from one currency
into another currency, the Company and each Lender agree, to the fullest extent
that they may effectively do so, that the rate of exchange used shall be that at
which, in accordance with normal banking procedures, such Lender could purchase
the first currency with such other currency on the day two (2) Business Days
preceding the day on which final judgment is given.
(6) To the extent permitted by applicable law, the obligations
of the Company in respect of any sum payable by it to a Lender shall,
notwithstanding any judgment in a currency (the "Judgment Currency") other than
Dollars, be discharged only to the extent that on the Business Day following
receipt by such Lender of any sum adjudged to be so due in the Judgment
Currency, such Lender may, in accordance with normal banking procedures,
purchase Dollars with the Judgment Currency; if the amount of Dollars so
purchased is less than the sum originally due to the Lender in Dollars
(determined in the manner set forth in Section 10.17(e) above), the Company
agrees, as a separate obligation and notwithstanding any such judgment, to
indemnify the Lender against such loss, and if the amount of Dollars so
purchased exceeds the sum originally due to the Lender, such Lender agrees to
remit to the Company such excess; provided that the Lender shall have no
obligation to remit any such excess as long as the Company shall have failed to
pay such Lender any obligations due and payable under this Agreement, the other
Loan Documents or the Engagement Letter, in which case such excess may be
applied to
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such obligations of the Company, in accordance with the terms of this Agreement,
the other Loan Documents and the Engagement Letter.
10.18 Payments Pro Rata.
(1) The Agent agrees that promptly after its receipt of each
payment of any interest or premium on or principal of the Loans from or on
behalf of the Company or any Guarantor, it shall, except as otherwise provided
in this Agreement, distribute such payment to the Lenders (other than any Lender
that has consented in writing to waive its pro rata share of such payment) pro
rata based upon their respective pro rata shares, if any, of such payment.
(2) Each of the Lenders agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security, by
the exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Loan Documents, or otherwise)
which is applicable to the payment of the principal of, or interest on, the
Loans of a sum which with respect to the related sum or sums received by other
Lenders is in a greater proportion than the total of such Obligations then owed
and due to such Lender bears to the total of such Obligations then owed and due
to all of the Lenders immediately prior to such receipt, then such Lender
receiving such excess payment shall purchase for cash without recourse or
warranty from the other Lenders an interest in the Obligations of the Company to
such Lenders in such amount as shall result in a proportional participation by
all of the Lenders in such amount; provided that, if all or any portion of such
excess amount is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
10.19 Taxes.
(1) Any and all payments by the Company hereunder or under any
of the other Loan Documents shall be made free and clear of and without
deduction or withholding for or on account of any and all present or future
Taxes, unless such deduction or withholding is required by Law or the
administration thereof and excluding in the case of each Lender and the Agent,
Taxes imposed on such Lender's or the Agent's net income and franchise taxes
imposed on such Lender or the Agent by the jurisdiction under the Laws of which
such Person is organized or any political subdivision thereof (all such
nonexcluded Taxes hereinafter referred to as "Covered Taxes"). If the Company
shall be required by Law or the administration thereof to deduct or withhold any
Covered Taxes from or in respect of any sum payable hereunder or under any other
Loan Document, (1) the sum payable shall be increased as may be necessary so
that after making all required deductions or withholdings (including deductions
or withholdings applicable to additional amounts paid under this paragraph), the
Lender receives an amount equal to the sum it would have
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received if no such deduction or withholding had been made; (2) the Company
shall make such deductions or withholdings; and (3) the Company forthwith shall
pay the full amount deducted or withheld to the relevant authority in accordance
with applicable Law.
(2) The Company agrees to pay forthwith any present or future
stamp, duty or documentary taxes or any other excise or property taxes, charges
or similar levies (all such taxes, charges and levies hereinafter referred to as
"Other Taxes") imposed by any jurisdiction (or any political subdivision or
taxing authority thereof or therein) which arise from any payment made by the
Company hereunder or under any other Loan Document or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Document.
(3) The Company agrees to indemnify the Agent and each of the
Lenders for the full amount of Covered Taxes or Other Taxes not deducted or
withheld and paid by the Company in accordance with Section 10.19(a) and (b) to
the relevant authority and any Taxes other than Covered Taxes or Other Taxes
imposed by any jurisdiction on amounts payable by the Company under this Section
10.19 paid by the Lender or the Agent and any liability (including penalties,
interest, additions to tax and expenses) arising therefrom or with respect
thereto, whether or not any such Taxes or Other Taxes were correctly or legally
asserted. Payment under this indemnification shall be made within 30 days from
the date the Agent or such Lender makes written demand therefor. A certificate
as to the amount of such Taxes or Other Taxes and evidence of payment thereof
submitted to the Company shall be prima facie evidence, absent manifest error,
of the amount due from the Company to the Agent or such Lender.
(4) The Company shall promptly furnish to the Agent and each
of the Lenders the original or a certified copy of a receipt evidencing any
payment of Taxes or Other Taxes made by the Company.
(5) The provisions of this Section 10.19 shall survive the
termination of the Agreement and repayment of all Obligations.
10.20 Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay or extension law or any usury law or other Law that
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on the Loans as contemplated herein, wherever enacted,
now or at any time hereafter in force, or which may affect the covenants or the
performance of this Agreement; and (to the extent that it may lawfully do so)
the Company hereby expressly waives all benefit or advantage of any such Law,
and covenants that it will not hinder, delay or
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impede the execution of any power herein granted to the Agent, but will suffer
and permit the execution of every such power as though no such Law had been
enacted.
10.21 Requirements of Law. In the event that any change in Law
occurring after the date that any lender becomes a Lender party to this
Agreement with respect to such Lender shall, in the opinion of such Lender,
require that any Commitment of such Lender be treated as an asset or otherwise
be included for purposes of calculating the appropriate amount of capital to be
maintained by such Lender or any corporation controlling such Lender, and such
change in Law shall have the effect of reducing the rate of return on such
Lender's or such corporation's capital, as the case may be, as a consequence of
such Lender's obligations hereunder to a level below that which such Lender or
such corporation, as the case may be, could have achieved but for such change in
Law (taking into account such Lender's or such corporation's policies, as the
case may be, with respect to capital adequacy) by an amount deemed by such
Lender to be material, then from time to time following notice by such Lender to
the Company of such change in Law as provided in paragraph (b) of this Section
10.21, within fifteen (15) days after demand by such Lender, the Company shall
pay to such Lender such additional amount or amounts as will compensate such
Lender or such corporation, as the case may be, for such reduction.
10.22 Confidentiality. Each Lender shall hold all non-public
information obtained pursuant to the requirements of or in connection with this
Agreement which has been identified as confidential by the Company in accordance
with such Lender's customary procedures for handling confidential information of
this nature and in accordance with safe and sound banking practices, it being
understood and agreed by the Company that (a) in any event a Lender may make
disclosures reasonably required by any Eligible Assignee, transferee or
participant in connection with the contemplated assignment or transfer by such
Lender of any Loans or any participation therein or as required or requested by
any governmental agency or representative thereof or pursuant to legal process;
provided that unless specifically prohibited by applicable Law or court order,
each Lender shall notify the Company of any request by any governmental agency
or representative thereof (other than any such request in connection with any
examination of the financial condition of such Lender by such governmental
agency) for disclosure of any such non-public information prior to disclosure of
such information, (b) a Lender may share with any of its Affiliates, and such
Affiliates may share with any Lender, any information related to the Company or
the Company's or their respective Affiliates (including information relating to
creditworthiness) and (c) a Lender may make disclosures in connection with the
enforcement hereof or any litigation relating hereto or to any other Loan
Document; and provided, further, that in no event shall any Lender be
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obligated or required to return any materials furnished by the Company or any of
its Subsidiaries. Notwithstanding the foregoing, each of the Lenders and the
Agent agree to keep all information relating to the WBD Line of Credit
(including the whole or any part of the WBD Line of Credit facility agreement or
any of the facility documents, whether in draft or final form) made available to
it (either before or after the date of the WBD Line of Credit facility agreement
or any of the facility documents) confidential and not to communicate or allow
communications of that information to any third party or use it for any purpose
except in connection with the transactions contemplated in the WBD Line of
Credit facility documents without the prior written consent of Westdeutsche
Landesbank (France) S.A., unless the exceptions and conditions outlined in
clause 34.1 of the WBD Line of Credit facility agreement and clause 14.1 of the
WBD Line of Credit security trust deed have been satisfied.
10.23 Register. The Company hereby designates the Agent to
serve as the Company's agent, solely for purposes of this Section 10.23, to
maintain a register (the "Register") on which it will record the Loans made by
each of the Lenders and each repayment in respect of the principal amount of the
Loans of each Lender. Failure to make any such recordation, or any error in such
recordation shall not affect the Company's obligations in respect of such Loans.
With respect to any Lender, the transfer of the Commitments of such Lender and
the rights to the principal of, and interest on, any Loan made pursuant to such
Commitments shall not be effective until such transfer is recorded on the
Register maintained by the Agent with respect to ownership of such Commitments
and Loans and prior to such recordation all amounts owing to the transferor with
respect to such Commitments and Loans shall remain owing to the transferor. The
registration of assignment or transfer of all or part of any Commitments and
Loans shall be recorded by the Agent on the Register only upon the receipt by
the Agent of a properly executed and delivered assignment and assumption
agreement pursuant to Section 10.2(a). Coincident with the delivery of such an
assignment and assumption agreement to the Agent for acceptance and registration
of assignment or transfer of all or part of a Loan, or as soon thereafter as
practicable, the assigning or transferor Lender shall surrender the Note
evidencing such Loan, and thereupon one or more new Notes of the same type and
in the same aggregate principal amount shall be issued to the assigning or
transferor Lender and/or the new Lender.
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WITNESS the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.
COMPANY:
FORMUS COMMUNICATIONS, INC.
By:_____________________________
Bernard G. Dvorak
Senior Vice President
By:_____________________________
John F. Knoeckel
Assistant Secretary
GUARANTORS:
FORMUS INTERNATIONAL, INC.
By:_____________________________
Bernard G. Dvorak
Senior Vice President
By:_____________________________
John F. Knoeckel
Secretary
Formus Loan Agreement
<PAGE> 105
FORMUS COMMUNICATIONS - LATIN AMERICA
HOLDINGS, LLC
By: Formus International, Inc.
Its Sole Manager
By:_____________________________
Bernard G. Dvorak
Senior Vice President
By:_____________________________
John F. Knoeckel
Secretary
FORMUS INTERNATIONAL-POLAND, INC.
By:_____________________________
Bernard G. Dvorak
Senior Vice President
By:_____________________________
John F. Knoeckel
Secretary
Formus Loan Agreement
<PAGE> 106
FORMUS COMMUNICATIONS-CZECH REPUBLIC,
LLC
By: Formus International, Inc.
Its Sole Manager
By:_____________________________
Bernard G. Dvorak
Senior Vice President
By:_____________________________
John F. Knoeckel
Secretary
FORMUS COMMUNICATIONS-ROMANIA, LLC
By: Formus International, Inc.
Its Sole Manager
By:_____________________________
Bernard G. Dvorak
Senior Vice President
By:_____________________________
John F. Knoeckel
Secretary
Formus Loan Agreement
<PAGE> 107
FORMUS COMMUNICATIONS-GERMANY, LLC
By: Formus International, Inc.
Its Sole Manager
By:_____________________________
Bernard G. Dvorak
Senior Vice President
By:_____________________________
John F. Knoeckel
Secretary
Notice Address for the Company and each Guarantor:
720 South Colorado Boulevard, Suite 600 North
Denver, Colorado 80246
Attn: Chief Executive Officer
Telephone: (303) 504-3200
Telecopy: (303) 504-3201
with copies to:
720 South Colorado Boulevard, Suite 600 North
Denver, Colorado 80246
Attn: General Counsel
Telephone: (303) 504-3200
Telecopy: (303) 504-3201
and
Holme Roberts & Owen LLP
1700 Lincoln Street, Suite 4100
Denver, Colorado 80203
Attn: W. Dean Salter
Telephone: (303) 861-7000
Telecopy: (303) 866-0200
Formus Loan Agreement
<PAGE> 108
AGENT:
DLJ BRIDGE FINANCE, INC., as agent
By:_____________________________
Name:
Title:
Notice Address:
2121 Avenue of the Stars
Fox Plaza
Los Angeles, California 90067
Telephone: (310) 282-6161
Telecopy: (310) 282-6178
Attn:
Formus Loan Agreement
<PAGE> 109
LENDERS:
Commitment: $27,000,000 DLJ BRIDGE FINANCE, INC.
By:_____________________________ Name: Title:
Notice Address:
2121 Avenue of the Stars
Fox Plaza
Los Angeles, California 90067
Telephone: (310) 282-6161
Telecopy: (310) 282-6178
Attn:
Formus Loan Agreement
<PAGE> 110
Commitment: $27,000,000 SALOMON BROTHERS HOLDING
COMPANY INC.
By:_____________________________ Name: Title:
Notice Address:
390 Greenwich Street, 1st Floor
New York, New York 10013
Telephone: (212) 723-6662
Telecopy: (212) 723-8547
Attn: James Garvin
Formus Loan Agreement
<PAGE> 111
Commitment: $21,000,000 CREDIT SUISSE FIRST BOSTON
By:_____________________________
David L. Sawyer
Vice President
By:_____________________________
Name:
Title:
Notice Address:
Eleven Madison Avenue
New York, New York 10010-3629
Telephone: (212) 325-3641
Telecopy: (212) 325-8314
Attn: David L. Sawyer
Formus Loan Agreement
<PAGE> 1
EXHIBIT 21.1
FORMUS SUBSIDIARIES
Formus International, Inc., a Delaware corporation
Formus International-Poland, Inc., a Delaware corporation
Formus Communications - Ecuador, LLC, a Colorado limited liability company
Formus Communications - New Zealand, LLC, a Colorado limited liability company
Formus Communications - Romania, LLC, a Colorado limited liability company
Formus Communications - Czech Republic, LLC, a Colorado limited liability
company
Formus Communications - Oceania, LLC, a Colorado limited liability company
Formus Communications - Germany, LLC, a Colorado limited liability company
Communications-Ecuador Holdings, LLC, a Colorado limited liability company
Quicksat S.A., an Ecuadorian corporation
Nexsatel S.A., an Ecuadorian corporation
Formus Polska Sp. z o.o., a Polish limited liability company
Hinet Limited, a New Zealand corporation
Formus Interactive (Formus Interactiva del Ecuador) F.I.E. Cia. Ltda., an
Ecuadorian limited liability company
Formus Telecom Hungary Ltd., a Hungarian limited liability company
Formus Communications-Europe, B.V., a Netherlands company
Formus Communications Interactive S.R.L., a Romanian limited liability society
Callino GmbH, a German GmbH
Formus Communications-Germany, B.V.
Formus Communications France SAS, a French corporation
Formus Communications Ireland Limited, an Irish corporation
Formus Communications Finland Oy, a Finnish limited liability company
Formus Communications Iberica, S.A., a Spanish corporation
Formus Communications-Italia S.p.A., an Italian corporation
Formus Communications Sweden AB, a Swedish corporation
Beheer- en Beleggingsmaatschappij Apeko B.V., a Netherlands company
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated May 4, 2000 on Formus Communications, Inc.'s financial statements
included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
May 5, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated December 15, 1999 on Callino GmbH's financial statements included
in or made a part of this registration statement.
<TABLE>
<S> <C> <C>
Arthur Andersen
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft
Spannagl Petzoldt
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
Munich, May 5, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated September 30, 1999 on VeloCom, Inc.'s financial statements included
in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
May 5, 2000
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Bernard G. Dvorak and John F. Knoeckel,
and each of them, his or her attorneys-in-fact, with full power of substitution,
for him or her in any and all capacities, to sign a registration statement to be
filed with the Securities and Exchange Commission (the "Commission") on Form S-1
registration statement in connection with the offering by Formus Communications,
Inc., a Delaware corporation (the "Company"), of securities of the Company
("Securities"), and all amendments (including post-effective amendments)
thereto, and any registration statement with respect to Securities to be filed
pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Commission; and to sign all documents in connection with the
qualification and sale of the Securities with Blue Sky authorities and with the
National Association of Securities Dealers, Inc.; granting unto said
attorneys-in-fact full power and authority to perform any other act on behalf of
the undersigned required to be done in the premises, hereby ratifying and
confirming all that said attorneys-in-fact may lawfully do or cause to be done
by virtue hereof.
Date: April 11, 2000 /s/ William J. Elsner
------------------------------
William J. Elsner
Date: May ___, 2000
------------------------------
Andre De Montigny
Date: April 13, 2000 /s/ Steven C. Halstedt
------------------------------
Steven C. Halstedt
Date: April 13, 2000 /s/ Michael R. Hannon
------------------------------
Michael R. Hannon
Date: April 11, 2000 /s/ Osmo A. Hautanen
-------------------------------
Osmo A. Hautanen
Date: April 11, 2000 /s/ Dr. Michael Honig
-------------------------------
Dr. Michael Honig
Date: April 11, 2000 /s/ William A. Johnston
--------------------------------
William A. Johnston
<PAGE> 2
Date: April 11, 2000 /s/ Kevin J. Maroni
--------------------------------
Kevin J. Maroni
Date: May 4, 2000 /s/ Jeffrey D. Montgomery
--------------------------------
Jeffrey D. Montgomery
Date: April 11, 2000 /s/ Trygve E. Myhren
--------------------------------
Trygve E. Myhren
Date: April 14, 2000 /s/ Frederick A. Vierra
--------------------------------
Frederick A. Vierra
Date: April 11, 2000 /s/ James F. Wade
--------------------------------
James F. Wade
Date: April 12, 2000 /s/ Vernon F. Kenley
--------------------------------
Vernon F. Kenley
Date: April 12, 2000 /s/ Bernard G. Dvorak
--------------------------------
Bernard G. Dvorak
Date: April 14, 2000 /s/ Raymond W. Nettleton
--------------------------------
Raymond W. Nettleton
Date: April 12, 2000 /s/ John F. Knoeckel
--------------------------------
John F. Knoeckel
Date: April 11, 2000 /s/ Derek Van Keuren
--------------------------------
Derek Van Keuren
Date: April 11, 2000 /s/ Eric B. Alexander
--------------------------------
Eric B. Alexander
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 22,887 52,281
<SECURITIES> 0 43,818
<RECEIVABLES> 0 1,745
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 25,799 110,117
<PP&E> 4,804 25,668
<DEPRECIATION> 413 2,964
<TOTAL-ASSETS> 54,146 403,174
<CURRENT-LIABILITIES> 4,154 29,201
<BONDS> 0 0
56,870 359,061
0 0
<COMMON> 3 3
<OTHER-SE> (17,445) (61,202)
<TOTAL-LIABILITY-AND-EQUITY> 54,146 403,174
<SALES> 0 2,316
<TOTAL-REVENUES> 0 2,316
<CGS> 0 0
<TOTAL-COSTS> 15,947 79,848
<OTHER-EXPENSES> 225 891
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (14,910) (45,582)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (13,718) (40,047)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (13,718) (40,047)
<EPS-BASIC> (4.72) (13.19)
<EPS-DILUTED> (4.72) (13.19)
</TABLE>
