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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
U.S. REALTEL, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 36-4360426
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
555 WEST MADISON, ATRIUM LEVEL SOUTH, CHICAGO, ILLINOIS 60661
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
(312) 775-8900
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities to be registered pursuant to Section 12(b) of the Act:
NONE
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE
(TITLE OF CLASS)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT, INCLUDED
IN THIS REGISTRATION STATEMENT, INCLUDING, WITHOUT LIMITATION, THE STATEMENTS
UNDER "DESCRIPTION OF BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS"
ARE, OR MAY BE DEEMED TO BE, FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH
FORWARD-LOOKING STATEMENTS ("CAUTIONARY STATEMENTS") INCLUDE: OUR INABILITY
TO EXPAND OUR PORTFOLIO OF PROPERTIES, OUR FAILURE TO ATTRACT CUSTOMERS TO
SUBLEASE OUR TELECOMMUNICATIONS RIGHTS AND OUR INABILITY TO OBTAIN ADDITIONAL
CAPITAL. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON BEHALF OF THE COMPANY ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH CAUTIONARY STATEMENTS.
INTRODUCTION
We have developed a package of property site access and usage
rights, which we call "Telecommunications Rights." We obtain
Telecommunications Rights from property owners under long-term, typically
exclusive "Master Lease" Agreements. Under our Master Leases, we receive the
rights to install communications infrastructure in a property and/or to
provide communications services to the property's tenants. In exchange, we
agree to share with the property owner a percentage of the revenues that we
receive from subleasing the Telecommunications Rights to multiple service
providers. We are among the largest holders of telecommunications access
rights in the world. We have created a proprietary database, the "USRT
Telecom Grid", which contains site information about the location, size, type
and ownership of our properties. As of April 1, 2000, there are more than
138,700 sites in the USRT Telecom Grid.
We have two divisions, Site Leasing and RealTel Riser, the latter of
which is in an early stage of development. Our Site Leasing division enables
communications service by bringing together service providers and property
owners under long-term arrangements. We currently operate this business in
the U.S. and in Argentina through our subsidiary, RealTel de Argentina, S.A.,
and in February 2000 organized RealTel do Brasil, S.A. to serve the Brazilian
market. In our Site Leasing business, we sign "Master Subleases" with
telecommunications service providers ("Telecom Service Providers") that grant
us the right to install communications infrastructure and / or provide
communications services to the property's tenants. Each Master Sublease lays
out, up-front, the substantive business terms that define our arrangement
with each Telecom Service Provider and forms the base document for each
specific property sublease. As a result, Telecom Service Providers can access
thousands of sites via one document, significantly expediting access to
subscribers.
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Our RealTel Riser division will aim to improve access to broadband
services by installing advanced in-building centralized distribution systems
over which we will lease capacity to Telecom Service Providers. Through our
businesses, we serve tenants' communications needs, enhance the value of
property owners' assets and support Telecom Service Providers' business plan
execution, solidifying our position as a broadband distribution channel in
the "Last 100 Feet" -- the distance between the fiber networks outside
buildings to the end users within these properties.
Our portfolio of telecommunications access rights and our extensive
relationships with property owners and Telecom Service Providers comprise our
core assets and provide the platform for our existing and future businesses.
HISTORY AND FORMATION
U.S. RealTel, Inc., a Delaware Corporation, together with its
subsidiaries, is referred to herein as the "Company," "We" and "Us." The
Company has four subsidiaries: RealTel do Brasil, S.A., a majority owned
Brazilian Corporation, RealTel de Argentina, S.A., a majority owned
Argentinean Corporation, RealTel Consulting, Inc., a wholly owned Delaware
Corporation, and RealTel Finance, LLC, a wholly owned Illinois Limited
Liability Company. Unless indicated otherwise, all information contained in
this report gives effect to the reorganization (the "Reorganization"), which
the Company anticipates will be effected on or about April 28, 2000, pursuant
to which U.S. RealTel, Inc., an Illinois Corporation ("U.S.
RealTel-Illinois"), will merge with and into the Company, a newly formed
Delaware Corporation, and the current shareholders of U.S. RealTel-Illinois
will exchange all of their shares of common stock of U.S. RealTel-Illinois
for a like number of shares of common stock of the Company.
We were organized in January 1997 under the name "AGILE, LLC," and
we incorporated in the State of Illinois under the name "U.S. RealTel, Inc."
in August 1997. In November 1997, we merged with and into a shell
corporation, Admiral Two Capital Corporation, and the surviving company's
name was changed to "U.S. RealTel, Inc." On or about April 28, 2000, we
intend to reincorporate into the State of Delaware pursuant to the
Reorganization. We are based in Chicago, and we currently operate eight
branch offices throughout the United States. In
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addition, we established operations in Buenos Aires, Argentina in December
1998 and in Sao Paolo, Brazil in February 2000.
ORGANIZATION
We are led by a seven-member senior management team with experience
in communications and network services, real estate, property management, and
antenna site leasing. As of April 17, 2000, we employ 37 full-time employees
in eight cities in the United States.
We have three active subsidiaries.
- - We own 100% of RealTel Consulting, Inc., a small part of our
business, which provides strategic telecommunications consulting to
the real estate market and manages telecommunications license
agreements for property owners, including units of local government.
- - We own 56% of RealTel de Argentina, S.A., a corporation organized
under the laws of Argentina. This subsidiary has acquired
telecommunications access rights to more than 130,000 sites and has
begun to implement our site leasing business in Argentina.
- - We own approximately 89% of RealTel do Brasil, S.A., through which we
will develop our site leasing business in Brazil.
BUSINESSES
We offer in-building communications solutions through our two
principal divisions: Site Leasing and RealTel Riser. Our portfolio of
telecommunications access rights and relationships with property owners and
Telecom Service Providers provide the platform for each of these businesses.
We will continue to develop and operate businesses designed to enhance
broadband service provision in the "Last 100 Feet."
SITE LEASING
Through our Site Leasing division, we introduce telecom services in
our portfolio of telecommunications access rights by subleasing our
Telecommunications Rights to Telecom Service Providers on a non-exclusive
basis. Such subleases permit Telecom Service Providers to: (i) deploy
equipment in a building in order to offer telephony, Internet, video and data
services to the building's tenants through our "Occupant Services"; or (ii)
place wireless communications antennas and equipment on rooftops and vacant
land through our "Antenna Site Leasing". Our Occupant Services and Antenna
Site Leasing programs are described below.
We believe we serve an important function for Telecom Service
Providers, property owners and tenants:
- - For Telecom Service Providers, we expedite access to a nationwide grid
of properties from which providers can choose those properties that
best suit their siting and service needs. Each Telecom Service Provider
signs one Master Sublease with us that provides access rights to
multiple properties. By aggregating telecom access into a single
contract,
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we eliminate the time-consuming process of negotiating and executing
leases one owner and one property at a time.
- - For property owners, we manage the processes of negotiating with
multiple Telecom Service Providers - a process that owners typically
have neither the expertise nor the resources to handle effectively.
Each property owner signs one Master Lease with us that leases to us
the telecommunications access rights to the owner's properties. As part
of our services, we manage the review of the regulatory, legal,
engineering, logistical and construction processes required of an owner
before telecom services can be delivered. As a result, we significantly
accelerate the deployment process for Telecom Service Providers.
In the U.S., property owner approvals for all infrastructure
installation are necessary. In Argentina and Brazil, however, landlord
approvals are not required, thereby even further accelerating the
deployment process for Telecom Service Providers.
- - For building tenants, we deliver a competitive telecommunications
environment that offers greater choice of Telecom Service Providers,
competitive pricing and state-of-the art technology.
The platform for our Site Leasing services is our Master Lease
program through which property owners agree to allow us to sublease their
Telecommunications Rights. Our standard Master Lease provides that our
Telecommunications Rights are exclusive. However, a number of our Master
Leases require that certain performance standards be achieved in order to
retain our exclusivity. Our leases do not require payment of a fixed minimum
rent, and the landlords retain approval rights for each proposed
telecommunications installation.
We sublease these Telecommunications Rights to Telecom Service
Providers through Master Subleases. Our Telecom Services Group, one of our
sales and marketing groups, as described below, actively markets these
Telecommunications Rights to Telecom Service Providers. Generally, Telecom
Service Providers first execute our Master Subleases on a non-exclusive and
non-site-specific basis. Our form Master Sublease complements our form Master
Lease but we negotiate specific terms with both the property owners and the
Telecom Service Providers.
The USRT Telecom Grid is our proprietary database which contains
geographic and other pertinent site information to aid Telecom Service
Providers in selecting properties. Currently, we have more than 8,700
domestic sites in the USRT Telecom Grid. While the majority of these sites
are added to the USRT Telecom Grid pursuant to our Master Lease program, 381
multiple family residential properties were included at the inception of our
business under non-exclusive agency agreements. We market these properties
for Antenna Site Leasing only. In addition, 2,963 properties were added to
the USRT Telecom Grid pursuant to a servicing agreement to market the
property portfolio of a major discount retailer for antenna installations.
We enhance our Site Leasing program by use of the USRT Telecom Grid
- -our database of pertinent information relating to our extensive portfolio of
Telecommunications Rights. We
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maintain information about each property in the USRT Telecom Grid, including
location, ownership, property type, building specifics and telecommunications
usage, which we can configure in multiple forms in order to create targeted
marketing material, maintain inventory control and facilitate reporting and
forecasting. The database contains telecom market information to assist
marketing personnel in forecasting their customers' deployment needs. Site
information can be provided to Telecom Service Provider customers in a
variety of formats in order to facilitate their selection process. Once a
Telecom Service Provider enters into a Master Sublease, it may select these
sites by the submission of a simple request form, which can be converted into
an amendment to its Master Sublease to allow for expedited deployment.
When a site is selected by a Telecom Service Provider for
deployment, the process is managed on the database through a "9-Stage
Tracking System." This 9-Stage Tracking System enables us to track and manage
the site deployment process from coordinating initial customer site visits
through income generation from an authorized installation. Our processing
department uses the tracking system in order to verify lease and sublease
compliance, schedule site visits, record completion dates and track rent
requirements.
Our personnel negotiate any unique terms between the property owners
and the Telecom Service Providers. The agreed upon terms are sent to our
legal department to prepare the site specific documentation and our
engineering consultants review the proposed plans. The database is also
utilized to track the receipt, review and approval of all prerequisites to
construction, including plans and specifications, engineering, zoning and
building permits, Federal Communications Commission approval, as well as any
special conditions imposed by a property owner or required by a Telecom
Service Provider. The database can be modified to address any unique needs of
a property owner or customer. Rental and construction commencement dates are
also tracked, so that payments and reports may be submitted to the property
owner.
OCCUPANT SERVICES. Occupant Services focus on providing Telecom
Service Providers with access to multi-tenanted office buildings. Small and
medium-sized businesses are target customers for broadband services typically
provided by Telecom Service Providers. We believe that such businesses
generally are under-served by incumbent providers. We target large,
multi-tenanted office buildings in central business districts and suburban
office parks, buildings where small and medium-sized businesses are typically
located. Properties that house many tenants with heavy demand for telecom
services are the most desirable properties and generate the highest rents.
Occupant services revenue takes two forms: fixed rent and revenue-sharing.
Telecom Service Providers that have entered into Master Subleases related to
our Occupant Services business include leading competitive local exchange
carriers, Internet service providers, and "Shared Tenant Service" providers.
ANTENNA SITE LEASING SERVICES. Antenna Site Leasing Services provide
site access to wireless communication companies and broadcasters. Antenna
Site Leasing customers typically pay a fixed, monthly rent based upon the
size, type of installation and location of the site. The demand for antenna
sites is driven by the build-out of new wireless networks and expansion of
existing networks to address the increased use of wireless communications for
telephony, data transmission, and Internet access. As part of the antenna
site leasing services we provide to property owners we review permits,
construction drawings, installation plans, and regulatory
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compliance. We believe that we have attractive properties for antenna siting,
including office buildings, retail centers, hotels and vacant properties in
high-traffic areas.
SALES AND MARKETING. Sales and marketing operations of our Site
Leasing division are currently comprised of two operating groups: the Site
Development Group and the Telecom Services Group.
- - THE SITE DEVELOPMENT GROUP obtains Master Leases from property owners,
which serve as the foundation of each of our businesses. Our Senior
Vice President - Site Development presently supervises six employees
who are each responsible for a specific geographic region or property
owner type. Site Development Vice Presidents identify property
portfolios that are attractive master-lease opportunities and attempt
to secure Master Leases on them. All of the staff in the Site
Development Group are licensed real estate salespersons and seasoned
marketing professionals, with an average of 15 years of real estate and
sales experience.
- - THE TELECOM SERVICES GROUP markets our portfolio of properties to
Telecom Service Providers. There are currently four marketing employees
in the Telecom Group called "Telecom Leasing Managers". Telecom Leasing
Managers have extensive backgrounds in telecommunications, having
worked either for Telecom Service Providers or site acquisition
companies.
We support the efforts of our Site Development Group and our Telecom
Services Group with national advertising, trade show marketing and other
marketing support. We also provide our personnel with ongoing in-house
training on the ever expanding opportunities to be offered to property owners
and Telecom Service Providers.
REALTEL RISER
Our RealTel Riser division will install in-building broadband
centralized distribution systems in office properties with extensive
telecommunications needs and then lease capacity on these systems to Telecom
Service Providers. Not all properties are suitable for centralized
distribution systems. A typical building candidate for a centralized
distribution system is 200,000 square feet or larger and is multi-tenanted.
We anticipate that in those buildings in which a centralized distribution
system is installed, our RealTel Riser division will provide immediate access
to competitively-priced broadband data, video and voice communication
services on a carrier-neutral basis.
Through our "System License" agreements we intend to receive the
exclusive right from property owners to install and operate in-building
centralized distribution systems in selected properties. We expect to
leverage existing relationships with owners developed through our Site
Leasing business to secure System License agreements on an expedited and
targeted basis. A standard System License agreement will generally provide
for an exclusive right to build, own and operate the in-building centralized
distribution system for a period of 20 years and that all new Telecom Service
Providers must provide communications services to customers and tenants over
our systems. We expect, typically, to fund and own 100% of our system within
a particular property but, as certain contractors and property owners have
expressed a desire to participate
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financially, they may be offered the right to fund and partner in up to 50%
of individual in-building broadband centralized distribution systems.
Currently, we intend to construct systems primarily in
multi-tenanted properties of 200,000 square feet or greater. We will also
build facilities for Telecom Service Providers to co-locate their equipment
necessary to establish operations in buildings in which we operate systems.
Typically located in the basement, these "co-location" facilities provide a
secure, climate-controlled, environment for Telecom Service Providers.
RealTel Riser will directly address the bottleneck of broadband
connectivity in the "Last 100 Feet." As a result, we anticipate that Telecom
Service Providers will benefit from greater convenience, faster time to
market and significant cost-savings. For example, we expect to:
- - relieve Telecom Service Providers of the inconvenience of providing
local access themselves by either contracting with the incumbent local
exchange carrier ("ILEC") or constructing their own system by
installing carrier-neutral in-building systems that offer access to
end-users;
- - save Telecom Service Providers time by doing advance work, including
obtaining in-building permits, contracting for local access and
constructing the centralized distribution system;
- - deliver a "Plug-and-Play" environment that is easily accessible;
- - create a neutral transport system that does not favor any one Telecom
Service Provider, but instead establishes an open platform; and
- - install a common in-building centralized distribution system that
delivers the scale economies of a shared asset to Telecom Service
Providers, who incur only a monthly expense for leased capacity, and
use less capital to extend their networks to access new potential
customers.
RealTel Riser will benefit property owners as well by:
- - installing an in-building broadband centralized distribution system
that improves the building and increases the value of the property;
- - sharing a percentage of the revenues derived from RealTel Riser with
owners; and
- - enhancing a building's technology and delivering improved services to
tenants thereby providing such property owners with a competitive
advantage in attracting and retaining tenants in their property.
The in-building broadband riser infrastructure will run from the
basement of a building to the top floor through a building's vertical shaft
and will be designed with sufficient capacity to carry data, video and voice
communications service for all the building's tenants for the
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foreseeable future. Inside the building, typically in the basement, we will
establish a building point of presence. At each point of presence, the
fiber-optic cables that make up the infrastructure connect to routers,
switches and other equipment provided by the Telecom Service Providers that
enable the transmission of voice, data and video traffic and aggregate and
disseminate traffic to and from the fiber-optic cables. From the point of
presence, data, video and voice communications service is carried outside the
building over the Telecom Service Provider's local fiber lines. In many cases
we will arrange dual points of building access for security and redundancy.
Within a building site, the fiber infrastructure will likely have
interconnections to bolster network security and redundancy, comforting both
the Telecom Service Providers and the tenants that the backbone is secure and
"always on." In circumstances where a fiber infrastructure is impractical, we
will rely upon wireless, copper or other substitute technologies to create
our in-building broadband centralized distribution system.
We will monitor each in-building centralized distribution system on
a 24/7 basis. The on-going monitoring of these systems will be outsourced to
independent contractors. Working together with our operations personnel, our
independent contractors will develop a proprietary scalable database that
will monitor work order entry for new centralized distribution
system-installed sites which come on line, coordinate billing processes
between the Telecom Service Providers and end users of their services in each
property site, and serve as a central repository of information with respect
to demand and usage patterns for Telecom Service Providers and tenants who
utilize their services to review performance and plan capacity. In addition,
customer service representatives will be on call 24 hours a day, 365 days a
year to handle requests for service. Our proprietary database will capture,
track and save customer service orders, enabling us to monitor and improve
the quality of these services. Additionally, the independent support staff
will coordinate with a team of field operations personnel to provision,
activate, maintain, repair and troubleshoot problems in each network on a
24/7 basis.
We will contract with independent entities with an expertise in the
deployment and management of centralized distribution systems, to design and
install our in-building broadband centralized distribution systems. These
independent contractors have experience in office building construction and
electrical engineering. We believe that the construction capabilities of our
independent contractors will allow us to rapidly and efficiently deploy our
broadband centralized distribution systems in targeted property sites within
our portfolio.
The independent contractors have developed standardized installation
drawings and details that can be applied to most of our construction projects
and result in high quality construction processes. These construction
practices are focused on ensuring compliance with applicable building and
industry codes and standards. The expertise of our third party contractors in
designing and constructing centralized distribution systems will allow us to
reduce the space and resources needed to support our infrastructure and
associated electronic systems in buildings.
Typically, after we have targeted a property in our USRT Telecom
Grid as a potential site for the installation of a centralized distribution
system and received the approval of the property owner, our independent
contractors will work with our operations team to undertake a site survey to
determine if installation of a centralized distribution system is
economically viable. This survey will include an analysis of the physical
characteristics of the building and other important
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data, such as the number of tenants in the site, the size of the building and
an evaluation of any pre-existing centralized distribution system in the
building. If the site survey concludes installation of a centralized
distribution system is economically viable, we will conclude negotiations and
execute a Systems License agreement with the property owner for construction
and operation of the centralized distribution system. A purchase order will
be issued to the independent contractor authorizing the building of the
centralized distribution system. The independent contractor will then develop
a specific design plan for the targeted property site and commence a process
of securing the necessary permits, licenses and building materials for that
site.
SALES AND MARKETING. Our portfolio of properties in the USRT Telecom
Grid contains many attractive candidates for the RealTel Riser division. Our
sales and marketing team for the Site Leasing division is building on its
existing relationships with property owners to develop the RealTel Riser
division and is also marketing RealTel Riser's benefits to many new potential
landlords under our Site Leasing division. By focusing on leveraging and
expanding the portfolio properties in our USRT Telecom Grid, we expect to be
able to attract new RealTel Riser opportunities.
FOREIGN OPERATIONS
Our operations in Argentina were established in December 1998. Since
its inception, RealTel de Argentina has concentrated on Master Leasing
properties. As of March 1, 2000, RealTel de Argentina had Master Leased over
130,000 properties, over 100,000 of which are geocoded and currently being
marketed primarily as antenna sites for wireless voice service. RealTel de
Argentina has entered into an exclusive alliance with the Argentina Building
Managers Association, an organization whose members manage 65% of all
multi-tenant office and residential buildings in Argentina, including over
7,500 premier commercial office properties in the commercial business
district of Buenos Aires. RealTel de Argentina is now in the process of
signing Master Leases with the individual managers. RealTel de Argentina has
also entered into a teaming agreement with Lucent Technologies, which has
contracts to provide turnkey PCS telephone antenna networks for two carriers,
to be Lucent's preferred site provider throughout Argentina. On March 8,
2000, RealTel de Argentina signed its first Master Sublease in Argentina with
Winstar Communications. RealTel do Brasil, the entity through which we
operate in Brazil, was incorporated in February 2000 and opened its office in
Sao Paulo in March 2000.
EMPLOYEES
As of April 17, 2000, we had 37 full-time employees and one
part-time employee. We have a sales and support staff, including
telecommunications, real estate, legal and financial personnel, located in
eight cities in the United States.
OVERVIEW OF INDUSTRY/COMPETITION
TELECOMMUNICATIONS INDUSTRY. The telecommunications industry is
being revolutionized by rapid technological advances in general and, more
specifically, the emergence of the Internet as a means of communication. The
entire retail business telecommunications market, currently
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at approximately 90 million lines, generates approximately $100 billion in
revenue. According to industry sources, this market is growing 7%-9% per
year, with data and Internet revenue growing in excess of 25%, resulting in
total market revenues of an estimated $200 billion in 10 years. In
particular, demand for the high-bandwidth capacity required to take advantage
of emerging Internet services, data and multimedia communications is
experiencing phenomenal growth.
Internet usage is the primary force driving this demand. The
Internet has emerged as one of the fastest growing communications media in
history and is dramatically transforming how businesses and individuals
communicate. International Data Corporation ("IDC") estimates that the number
of Internet users in the United States reached 70 million in 1998, and will
grow to approximately 179 million by 2003. More specifically, increased
popularity of broadband Internet applications such as audio, video, and data
files is fueling demand for high speed connectivity. According to Pioneer
Consulting, total broadband subscribers are estimated to grow from 470,000 in
1998 to over 15 million in 2003, a compound annual growth rate of over 99%.
In the business segment, Forrester Research estimates that the market for
dedicated broadband Internet access to businesses will grow from $8 billion
in 1999 to $42 billion in 2003. Of that total, 75% is expected to be spent on
broadband services.
Increasing applications and enhanced services utilizing the Internet
are driving demand for high speed Internet access by U.S. businesses. For
example, the Yankee Group estimates that the amount of electronic commerce
conducted by U.S. businesses was $138 billion in 1999 and will grow to
approximately $541 billion in 2003. According to IDC, business-to-business
commerce over the Internet totaled almost $25 billion in 1998 and is expected
to grow to $632 billion by 2003. Enhanced services, including web hosting,
data storage and retrieval, video conferencing, network security, and others,
are further driving revenues for Internet service providers. IDC estimates
that value-added services, which amounted to $3 million in 1999, will grow to
almost $13 billion by 2003. These enhanced services and increasing
applications will continue to drive demand for high-bandwidth connectivity.
Another phenomenon in the telecommunications industry is the rapid
growth in the use of wireless communications for mobile telephony, wireless
local loop and wireless data services. IDC expects that by 2003, the
subscriber base will be over 185 million and revenue will reach approximately
$69 billion. Demand for wireless services has been driven by advancements in
technology, such as the use of digital technologies to deliver higher quality
services and additional data features, and is expected to experience further
rapid growth.
UNDERSERVED SUBSCRIBER MARKETS. Based on this rapid increase in
demand for telecommunications, many emerging, competitive communications
companies, as well as traditional local and long distance communications
companies, are developing businesses and investing billions of dollars in new
infrastructure for the deployment of networks and in new antennas for
wireless traffic. Yet small and medium-sized businesses, which industry
sources expect to represent as much as 93% of this demand, are currently
under-served by such companies. It is estimated that small and medium-sized
businesses will significantly increase their spending on telecommunications
in the next several years, but most of these companies still rely upon their
ILEC for services. As a result, these companies lack choice in service
provision, pay prices that are higher than those of a competitive provider
and do not yet have access to the
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full range of broadband services. For example, according to IDC, 89% of small
and 45% of medium-sized businesses currently access the Internet through
dial-up service versus only 15% of large businesses.
Small and medium-sized businesses are not the only underserved
customers. Regional mall tenants face a similar situation. This market is
perceived by competitive providers to be too small and too difficult to
service and therefore is currently primarily addressed by the ILECs. However,
tenants of regional malls and large retail centers have a growing demand for
broadband communications services, both for services they currently use,
including voice, Internet access, and data services for credit card
processing, intracompany reporting, inventory management and intra-chain
extranets, and for additional data and video services, for interactive, real
time merchandising, advertising and cybercasting of entertainment events.
The "Last 100 Feet" bottleneck in broadband connectivity lies at the
center of this service provision opportunity. While many carriers have
developed broadband long-haul and local fiber networks, the broadband network
rarely extends from the curb to the end user. Industry sources estimate that
less than 3% of commercial office buildings are currently equipped to provide
broadband services to their tenants. Large corporations have the resources to
install and maintain their own infrastructure or the traffic volume to induce
ILECs to run the fiber network to their locations. However, many
multi-tenanted office buildings and retail centers that typically house small
and medium-sized businesses are bandwidth constrained. Most smaller
businesses cannot support their own dedicated fiber optic infrastructure and
are limited to services that can be provided over their building's existing
copper infrastructure.
Currently, this broadband need is only marginally being addressed.
Emerging Telecom Service Providers have identified small and medium-sized
businesses as underserved and are crafting business plans around providing
services to such customers in targeted multi-tenanted buildings. There is a
growing recognition that the "Last 100 Feet" is extremely valuable and
companies that can deliver access and transport to the "Last 100 Feet" have
an important role in releasing the bottleneck and ensuring broadband access
to a new and growing set of customers.
REAL ESTATE MARKET. The U.S. commercial real estate market is
characterized by fragmented ownership and poses a challenge to Telecom
Service Providers, who need to obtain access rights from property owners in
order to provide telecom services. The Department of Energy estimates that
the size of the domestic commercial real estate market is approximately 33
billion square feet. Of that, about 10 billion square feet are in office
properties, 13 billion square feet are retail space, about 4 billion square
feet are in lodging properties and the balance is in warehouse and industrial
properties. We believe that the best candidates for broadband service
provision are large, multi-tenanted office buildings in central business
districts and suburban office parks. Most of the commercial real estate in
the U.S., approximately 81% of total square footage, is located in
metropolitan areas. In the commercial real estate market, publicly traded
real estate companies are the largest owners of assets. The largest
concentration of ownership is of retail assets.
COMPETITION. We face significant competition in each of our business
divisions and the numerous companies that may seek to enter one or more of
our niche businesses may expose us to severe price competition for our
services and for building access rights. Our competitors may
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also be able to respond more quickly to technological developments and
changes in customers' needs.
- - BUILDING OWNERS. Owners of buildings, malls and retail centers may
elect to either provide our services themselves or to partner with
other entities to do so. To the extent these owners elect to manage the
process of leasing or licensing access or placement directly to Telecom
Service Providers, which may include in-building competitors, such as
Allied Riser Communications, Broadband Office, or Cypress
Communications, we may face difficulty in expanding the properties in
our portfolio or in leveraging existing relationships to provide new
services under our RealTel Riser division.
- - SITE LEASING COMPETITORS. Site Leasing competitors, such as APEX Site
Management, Devnet Communications, LLC, Riser Management Systems, L.P.,
and TRM either master lease or otherwise represent property owners in
negotiations with Telecom Service Providers. To the extent property
owners elect to enter into exclusive or other agreements with these
companies, we may face difficulty in expanding the properties in the
USRT Telecom Grid.
- - REALTEL RISER COMPETITORS. Other companies such as Devnet, FiberNet
Telecom Group, Inc. and Riser Management Systems, L.P., are also
attempting to gain access to office buildings in order to construct
centralized distribution systems with co-location space in the same
target market as our RealTel Riser division. To the extent these
competitors successfully obtain the rights to construct centralized
distribution systems within our target buildings, we will be precluded
from expanding the RealTel Riser division into these buildings.
RISK FACTORS
OUR SHORT OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT OUR SUCCESS
Our business was founded in January 1997, and we have a short
operating history and limited historical financial and operating data with
respect to our business. We have limited commercial operations and have
recognized limited revenues since our inception.
OUR BUSINESS MODEL IS UNPROVEN AND MAY NOT SUCCEED
We have not validated our business model and strategy in the market,
particularly with respect to our RealTel Riser division. We believe that the
combination of our unproven business model and the highly competitive and
fast-changing communications market in which we compete makes it impossible
to predict the extent to which our business model, especially with respect to
RealTel Riser, will achieve market acceptance or our overall success.
Additionally, while we believe that RealTel Riser will become a significant
part of our overall business, this business line currently does not
contribute to our revenue stream. Our current business model anticipates that
a significant portion of the revenues generated under our agreements with
Telecom Service Providers to utilize our centralized distribution systems may
be shared with both property owners under our System Licenses and third party
contractors who install and maintain each centralized distribution system. We
cannot be assured that in order to ensure the successful deployment of our
RealTel Riser division we will not have to share a greater portion
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of these revenues than we currently anticipate with these parties. This
reduced revenue stream from our RealTel Riser division could have a material
adverse effect on our business.
To be successful, we must develop, market and implement our business
divisions at widely accepted prices that cover both our operating expenses
and our significant development costs. We may never be able to deploy our
business divisions, achieve significant market acceptance, favorable
operating results or profitability or generate revenues sufficient to cover
our capital and operating costs. We will continue to make substantial
expenditures before we know whether our business plan can be successfully
executed. As a result of these potential issues, there is a risk that our
business will fail. In addition, there is no assurance that our growth
strategies, including our future contemplated business lines, will be
deployed or achieve success in the marketplace.
DEMAND FOR OUR SERVICES IS UNCERTAIN
There is no assurance that all new technologies will be successful
in the marketplace or that the Telecom Service Providers introducing these
technologies will be successful in raising the capital necessary for
deployment. This inability of our Telecom Service Provider customers to
deploy their products could limit our ability to sustain current revenue
streams or to attract new customers to our Site Leasing or RealTel Riser
division. Additionally, there is no assurance that companies successfully
deploying these technologies will use our portfolio sites to the extent
projected by us for either our Site Leasing or our RealTel Riser division
lines, and if they do, there is no assurance that they will be successful and
not default on obligations to us. Our ability to be successful in all of our
divisions depends upon continued and growing demand by Telecom Service
Providers, the desirability of our portfolio and our services to Telecom
Service Providers and our ability to foster demand through our marketing of
our portfolio and our services. Failure to generate this demand will cause a
material adverse effect to our business.
WE ARE A DEVELOPMENT-STAGE COMPANY THAT HAS NOMINAL REVENUES AND MUST DEPEND
ON ADDITIONAL FINANCING TO STAY IN BUSINESS
Since inception, our efforts have been devoted to the development of
our principal businesses and to raising capital. We have received nominal
revenues and accordingly, as of the date hereof, we are considered to be in
the development stage. We may not achieve or sustain positive EBITDA
(earnings before non-cash equity transactions, interest, taxes, depreciation
and amortization), operating income or net income in the future. To date, we
have incurred increasing negative EBITDA, substantial losses and negative
cash flow on both an annual and quarterly basis. In 1999, we had negative
EBITDA of approximately $5,038,000 excluding noncash equity transactions, net
losses of approximately $5,744,000, and negative cash flow from combined
operating and investing activities of approximately $5,040,000. We expect our
negative EBITDA, net losses and negative cash flow to continue and to
increase. Our ability to continue as a going concern and to implement our
business plan is contingent upon our ability to raise capital, continue to
expand our property portfolio and obtain adequate revenues from operations.
If we are unsuccessful in raising capital through our current private
offering or through alternative means, our current projections indicate we
will run out of cash in the third quarter of 2000. Our independent auditors'
report on our 1998 and 1999 consolidated financial
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statements contains a modification concerning substantial doubt about our
ability to continue as a going concern.
We expect that the actual amount and timing of our future capital
requirements will depend on the demand for our services and on regulatory,
technological and competitive developments, including additional market
developments and new opportunities, in our industry. We will seek additional
financing if market conditions allow us to raise public or privately financed
capital on attractive terms. We may be unsuccessful in raising sufficient
capital at all or on terms that we consider acceptable. If we are unable to
obtain adequate funds on acceptable terms, our ability to fund our expansion
or respond to competitive pressures would be significantly impaired. These
limitations could hinder our ability to become profitable. If we decide to
borrow funds in the future to fund our business, the terms of those
borrowings would likely contain restrictive covenants that would limit our
ability to incur additional indebtedness, pay dividends or undertake certain
other transactions. These instruments could also require us to pledge assets
as security for the borrowings. If we leverage our business by incurring
significant debt, we may be required to devote a substantial portion of our
cash flow to service that indebtedness. This could require us to modify our
business plan.
WE DEPEND HEAVILY ON A LIMITED NUMBER OF TELECOM SERVICE PROVIDER CUSTOMERS;
A SIGNIFICANT REDUCTION IN THE REVENUES RECEIVED FROM THESE CUSTOMERS WOULD
HARM OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We derive a large portion of our revenue from a limited number of
Telecom Service Provider customers. The current annualized rent received by
us from transactions with Teligent Communication, Inc., Sprint Spectrum and
AT&T Wireless accounts for approximately 25%, 18% and 13%, respectively, of
our projected annualized rent from all of our Telecom Service Providers. If
these customers or a significant number of our smaller Telecom Service
Provider customers default on their current commitments to us or elect not to
renew their sublease arrangements with us, this could result in a significant
reduction in revenues which would have a material adverse effect on our
financial condition and results of operations. Telecom Service Providers
providing occupant services in our properties may not contract enough
subscribers in each building to be profitable. In such cases, Telecom Service
Providers leasing such sites may have the right to terminate their Subleases
for such sites which could result in a significant reduction in revenues
which would have a material adverse effect on our financial condition and
results of operations. Our typical amendment to a Master Sublease, which
makes its terms site specific as to new properties has an initial term of
five years, with renewal options ranging from five to 20 years.
WE MUST OBTAIN ADDITIONAL AGREEMENTS WITH OFFICE BUILDING OWNERS AND OWNERS
OF LARGE RETAIL CENTERS OR OUR BUSINESS GROWTH WILL BE CONSTRAINED
A significant portion of our Site Leasing division depends upon our
ability to obtain telecommunications access rights leases from property
owners and to sublease these rights to Telecom Service Providers who will
provide occupant services. There are a finite number of tenants in our
current portfolio of property sites with whom the Telecom Service Providers
may contract. If Telecom Service Providers saturate the tenant market in our
current portfolio and we do not enter into new Master Leases with our current
and new property owners covering
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additional properties which we can then sublease, this could reduce our
potential for new revenue streams in connection with Site Leasing and have a
material adverse effect on our business.
We derive a large portion of our revenue from customers located
within the buildings of a limited number of real estate owners. The current
annualized base rent received by us in respect of property sites covered
under Master Sublease amendments to Master Leases with The Rouse Company, The
Simon Property Group and Brandywine Realty Trust accounts for 37%, 20% and
8%, respectively, of our projected annualized base rent in respect of all
property sites under Master Leases. Many of our Master Lease agreements give
us exclusive rights with respect to the applicable site and contain minimum
performance criteria. If these Master Leases become non-exclusive for failure
to meet these performance criteria or if the Rouse Company, The Simon
Property Group or Brandywine Realty Trust or a significant number of other
property owners with whom we have Master Leases elect not to renew our Master
Leases, then we may lose our ability to sublease a significant portion of our
telecommunication access rights to Telecom Service Provider customers, which
could limit our potential for new revenue streams from new or existing
properties under Master Leases. Our typical Master Lease agreement has an
initial term of approximately two to five years, with renewal options ranging
from one to 20 years.
An important component of our RealTel Riser division is our ability
to leverage our expanding portfolio of telecommunications access rights to
allow us to install our centralized distribution system and to introduce our
System License agreements. Property owners with whom we have Master Leases
may decide not to permit us to install our centralized distribution system in
their buildings or, if installed, to engage or renew our System License
agreements. Moreover, non-renewal of Master Leases may further reduce our
ability to expand RealTel Riser which would reduce our potential revenues and
have a material adverse effect on our financial condition and results of
operations.
WE MAY BE UNABLE TO DELIVER SERVICES UNDER OUR REALTEL RISER BUSINESS IF OUR
CENTRALIZED DISTRIBUTION SYSTEMS ENCOUNTER TECHNICAL DIFFICULTIES
There may be disruptions in services provided to tenants by Telecom
Service Providers utilizing our centralized distribution systems under the
RealTel Riser program due to unauthorized access, computer viruses and/or
other disruptions. Remediating the effects of these technical and other
disruptions may require interruptions or cessation of services provided by
Telecom Service Providers to tenants. This loss of customers and/or revenue
could have a deleterious impact on these Telecom Service Providers' ability
to continue to use our centralized distribution systems in one or multiple
property sites. Our agreements with Telecom Service Providers to provide
services over centralized distribution systems may be terminated under
certain circumstances, including an inability of the Telecom Service
Providers to maintain certain thresholds of revenue or to achieve certain
performance criteria. If these agreements are terminated or are not renewed
and we are unable to secure replacement agreements with other Telecom Service
Providers, this will reduce our expected revenue from RealTel Riser. In
addition, when we install our centralized distribution systems for RealTel
Riser we will incur significant initial expenditures. These expenditures will
vary depending on the size of the building and whether we encounter any
construction-related difficulties. If agreements with
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Telecom Service Providers to utilize our centralized distribution systems are
terminated and we are unable to secure replacement agreements with
alternative Telecom Service Providers, this may preclude our ability to
recover infrastructure costs in connection with an installed centralized
distribution system.
OUR REALTEL RISER BUSINESS COULD SUFFER FROM A REDUCTION OR INTERRUPTION FROM
OUR EQUIPMENT SUPPLIERS OR OTHER THIRD PARTIES ON WHOM WE RELY FOR
INSTALLATION, MANAGEMENT AND PROVISION OF FIELD SERVICE
We anticipate that under our RealTel Riser division we will purchase
the equipment utilized in building centralized distribution systems in our
portfolio properties from various vendors. Any reduction in or interruption
of deliveries from our major equipment suppliers, such as a local cabling
company, could delay the build-out of the centralized distribution system in
any single or multiple property site(s) in our portfolio, impair our ability
to acquire or retain Telecom Service Provider customers under the RealTel
Riser business and harm this RealTel Riser business generally. In addition,
the price of the equipment we purchase may substantially increase over time,
increasing the costs we pay in the future. It could take a significant period
of time to establish relationships with alternative suppliers for each of our
technologies and substitute their technologies into our network.
In addition, we will outsource a significant portion of the
installation and ongoing monitoring, maintenance and repair service for the
RealTel Riser division to third parties. There are a limited number of such
companies providing these services and we will be seeking to secure
outsourcing agreements with these companies at the same time as our
competitors. We cannot be assured that in the event that we decide to replace
our existing third party contractors or to secure agreements with new third
party contractors for our RealTel Riser division that there will not be a
delay in the process of locating third party installers or field service
providers or securing agreements with these parties, or that we will be
successful in replacing or securing third party contractors at all. In
addition, we cannot be assured that we may not experience an interruption in
installation or ongoing service from any significant installer or field
service provider of our centralized distribution systems. Any of the
foregoing could impair our ability to acquire or retain Telecom Service
Provider customers under the RealTel Riser business and harm our RealTel
Riser business generally.
WE MUST ATTRACT AND RETAIN KEY PERSONNEL IN A TIGHT LABOR MARKET OR WE WILL
BE UNABLE TO MANAGE OUR GROWTH
There currently is intense competition for personnel with the
qualifications we require. The loss of the services of key personnel or the
failure to attract additional personnel as required could have a material
adverse effect on our ability to grow. We are highly dependent upon the
efforts of our existing senior management team. Although we have entered into
employment agreements with some members of our senior management team, these
agreements do not obligate the employees to remain with us for any length of
time. We believe that our future success will depend in large part on our
ability to attract and retain qualified technical and sales personnel.
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WE MAY NOT BE ABLE TO MANAGE OUR GROWTH, WHICH COULD HARM OUR BUSINESS
If we are successful in implementing our business plan, our
operations will expand rapidly. This rapid expansion could place a
significant strain on our management, financial and other resources. Our
ability to manage future growth, if it occurs, will depend on, among other
things, our ability to: (1) control expenses related to our business plan;
(2) maintain responsive customer service; (3) improve existing, and implement
new, billing and collections, operational support and administrative systems;
and (4) expand, train and manage our employee base, in particular qualified
sales, technical and managerial personnel. The failure to manage our growth
effectively would impair our business and operational performance. We may not
be able to maintain the quality of our operations, to control our costs, and
to expand our internal management, technical, information and accounting
systems in order to support our desired growth.
Sophisticated information processing systems are vital to our growth
and our ability to achieve operating efficiencies. We will rely on our USRT
Telecom Grid proprietary system and our RealTel Riser proprietary software
and database to provide services, send invoices and monitor our operations. A
failure of any of these systems could have a material adverse effect on our
operations and business. Our third party field service providers under the
RealTel Riser business will work with us to develop a proprietary software
and database system to monitor and operate each centralized distribution
system. We may be unable to implement these systems on a timely basis or at
all, and these systems may not perform as expected. This could materially
impact our ability to deploy and expand the RealTel Riser business. In
addition, there may be other systems we have not identified that are required
or in need of improvement both in our Site Leasing and RealTel Riser
divisions. We may also be unable to maintain and upgrade these systems as
necessary.
WE MAY FACE EXPOSURE TO REGULATORY AND GENERAL ECONOMIC CONDITIONS IN OUR
NON-U.S. OPERATIONS
The Argentine government exerts significant influence over its
economy. In the recent past, the Argentine government has provided
significant tax incentives and relaxed certain regulatory restrictions in
order to encourage foreign investment in certain sectors of the economy,
including the technology industry. Certain of these benefits that may
directly affect us include, among others, preferential rules on foreign
investment and repatriation. To be eligible for certain of these tax
benefits, we may be required to meet certain conditions and a failure to meet
such conditions could result in the unavailability of such benefits. Further,
there can be no assurance that such tax benefits will be continued in the
future at their current levels. Changes in the business or regulatory climate
of Argentina, or any other country in which we operate in the future,
including Brazil, could have a material adverse effect on our business.
Although wage costs in Argentina are significantly lower than in the U.S. and
elsewhere for comparably skilled professionals, wages in Argentina are
increasing at a faster rate than in the U.S. In the past, Argentina has
experienced significant inflation and shortages of foreign exchange, and has
been subject to civil unrest and acts of terrorism. Changes in inflation,
interest rates, taxation, unionization or other social, political, economic
or diplomatic developments affecting Argentina or any other country in which
we operate in the future, including Brazil, could have a material adverse
effect on our business.
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THE SECTOR IN WHICH WE OPERATE IS HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE
TO COMPETE EFFECTIVELY
We face competition from entities with significantly greater
financial resources, well-established brand names and larger customer bases
and property portfolios. Furthermore, the numerous companies that may seek to
enter our niche may expose us to greater price competition for our services
and for telecommunications access rights leases. We expect competition to
intensify in the future. We expect significant competition from traditional
and new in-building competitors. Some of these competitors have sought to
develop exclusive relationships with building owners. To the extent these
competitors are successful, we may face difficulties in expanding our
portfolio of properties, our ability to generate revenues from Master
Subleases, and to leverage new additions to our portfolio to introduce our
services, such as Occupant Services or our RealTel Riser business.
Competition could also result in a diminution of our net revenue margins.
REGULATION OF ACCESS TO OFFICE BUILDINGS COULD NEGATIVELY AFFECT OUR BUSINESS
There have been both federal and state proposals to require that
commercial office buildings give access to competitive providers of
telecommunications services. Several states have adopted such regulations at
the public utilities commission level and others may be adopted by state
legislators or public utilities commissions in the future. Recently, the
Federal Communications Commission, or FCC, initiated a regulatory proceeding
relating to utility shaft access in multiple tenant buildings, and a bill was
introduced in Congress regarding the same topic. Some of the issues being
considered in these developments include requiring building owners to provide
utility shaft access to telecommunications carriers, and requiring some
telecommunications providers to provide access to other telecommunications
providers. Many of our Master Leases currently afford us exclusivity with
respect to telecommunications access rights. In addition, we expect that our
Systems Licenses will afford the same exclusivity. We cannot predict whether
or in what form the access proposals will be adopted. If they are adopted and
regulatory or legal requirements change access rights to our target
buildings, these requirements could have a material adverse effect on all of
our lines of business.
OUR BUSINESS COULD BE ADVERSELY AFFECTED AS A RESULT OF LEGISLATION AND
GOVERNMENT REGULATION OF TELECOM SERVICE PROVIDERS
Changes in the regulatory environment could affect our operating
results by increasing competition, decreasing revenue, increasing costs or
impairing the ability of our Telecom Service Providers to offer services. The
provision of basic communications services is subject to significant
regulation at the federal and state level. The FCC regulates carriers
providing interstate and international communications services. State public
utilities commissions and municipalities exercise jurisdiction over
intrastate communications services but do not regulate most enhanced
services, which involve more than the pure transmission of customer provided
information. Many of our Telecom Service Provider customers are subject to
federal and state regulations. These regulations change from time to time in
ways that are difficult either for us or these other parties to predict.
Although we believe the services we provide today are not subject to
significant regulation by the FCC or the state public utilities commissions,
changes in
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regulation or new legislation may impose or eventually increase the
regulation of our current services or those we will offer under RealTel Riser
or future businesses.
ALTERNATIVE TECHNOLOGIES POSE COMPETITIVE THREATS
The communications industry is subject to rapid and significant
technological change, such as continuing developments in digital subscriber
line technology and alternative technologies for providing high-speed data
communications. In addition to fiber-optic technology, there are other
technologies, such as DSL and wireless technology, that provide more capacity
and speed than traditional copper wire transmission technology. These
technologies may be improved and other new technologies may develop that
provide more capacity and speed than the fiber-optic technology we will
employ in connection with our centralized distribution systems under the
RealTel Riser division. Such new technologies may be used in place of or
cause us to reconfigure or upgrade our centralized distribution system. In
addition, telecommunications technologies may be developed that replace those
that use antenna networks for which we have Master Subleases. Our success in
improving and expanding our Site Leasing and RealTel Riser divisions will
depend on our ability to anticipate or adapt to new technology on a timely
basis. We will rely on third parties, including some of our competitors and
potential competitors in the RealTel Riser business, to develop and provide
us with access to communications and networking technology. The development
of new technologies or the significant penetration of alternative
technologies into our target market may either reduce the demand for our
services, require us to devote important capital, human and technical
resources to upgrade, reconfigure or replace our current or future technology
or some combination of each of these, and consequently could have a material
adverse effect on our business.
WE MAY FACE SIGNIFICANT RISKS WITH RESPECT TO OUR NON-U.S. OPERATIONS
We plan to expand our operations in Argentina and Brazil and to
target additional foreign markets where the telecom, economic, regulatory and
real estate conditions support our business plan. There can be no assurance
that these non-U.S. operations will be profitable or support our growth
strategy. The risks inherent in our overseas business activities include but
are not limited to unexpected changes in regulatory environment, foreign
currency fluctuations, unionization, tariffs and other trade barriers,
difficulties in managing international operations and potential foreign tax
consequences, including repatriation of earnings and the burden of complying
with foreign laws and regulations. If we are unable to manage growth, attract
and retain personnel, manage major development efforts, or profitably deliver
services, this could have a material adverse impact on our ability to
successfully maintain and develop our international operations and could have
a material adverse effect on our business.
RETAINED CONTROL BY OUR PRINCIPAL STOCKHOLDERS MAY CREATE CONFLICTS OF
INTEREST
The concentration of ownership of our stock may have the effect of
delaying, deferring or preventing a change in control, merger, consolidation,
or a tender offer which could involve a premium over the price of our common
stock. Currently, our executive officers, directors and
greater-than-five-percent stockholders and their affiliates, in the
aggregate, beneficially own approximately 74% of the outstanding common stock
(not including shares issuable upon the conversion or exercise of convertible
debentures, warrants or options). If all of these stockholders were to vote
together as a group, they would have the ability to exert significant
influence over our board of directors and
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its policies as well as other significant corporate matters such as charter
and bylaw amendments and possible mergers or corporate control contests. A
number of our shareholders are parties to a shareholders agreement under
which, among other things, they have agreed to vote as a group on the
election of directors.
THERE IS LITTLE OR NO MARKET FOR OUR SECURITIES AND SIGNIFICANT RESTRICTIONS
ON THE TRANSFERABILITY OF OUR SECURITIES
A limited public market currently exists for our common stock, and
no public or other market exists for the securities offered hereby. In the
future, there can be no assurance that an active public market for any of our
securities will ever develop or be sustained. As of the date of this
registration statement, our common stock is quoted on Nasdaq's OTC Bulletin
Board. Unless this report is declared effective by May 3, 2000, our common
stock will no longer be eligible to be quoted on the OTCBB. In such event, we
anticipate our common stock will be quoted in the National Quotation Bureau's
Pink Sheets.
THE CONVERSION AND EXERCISE OF OUTSTANDING SECURITIES MAY HAVE A DILUTIVE
EFFECT
We have outstanding convertible debentures, warrants and options
with conversion and exercise prices ranging from $0.01 per share to $8.00 per
share. The conversion or exercise of these securities could have a dilutive
effect with respect to holders of our common stock.
FORWARD LOOKING STATEMENTS
This registration statement contains forward looking statements. We
believe that statements of past and existing facts contained in this
registration statement are accurate to the best of our knowledge, or are from
reliable sources, and that forward looking statements contained in this
registration statement are reasonable based upon present knowledge,
intentions and circumstances. However, we cannot and do not warrant, assure
or guarantee the accuracy or achievement of any forward looking statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion of our consolidated financial condition and
results of operations should be read in conjunction with our consolidated
financial statements, including the notes, included elsewhere in this
Registration Statement. Such consolidated financial statements include our
independent auditors' report, which contains a modification concerning
substantial doubt about our ability to continue as a going concern.
OVERVIEW
We are in the development stage and have experienced recurring
losses since inception (January 15, 1997) and have negative cash flows from
operations. For the periods ended December 31, 1999 and 1998, we experienced
net losses of $5,743,673 and $7,401,299, respectively, and we have
experienced net losses of $14,279,680 since inception. As of December 31,
1999, we had working capital of $1,941,883, reflecting a December 28, 1999
financing transaction.
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Management is pursuing various sources of debt and equity financing.
Although we plan to pursue additional financing, there can be no assurance
that we will be able to secure financing when needed or obtain financing on
terms satisfactory to us. Failure to raise such financing could result in the
depletion of our available funds. Without such funds we would be unable to
compensate our employees or comply with our payment obligations under our
loan agreements or with our vendors.
Our ability to continue as a going concern is contingent upon our
ability to raise capital, expand the network of telecommunications access
rights, successfully market these rights to the Telecom Service Providers and
attain profitable operations. Management expects to continue to incur
significant development costs to generate sufficient revenues to achieve
profitability. These costs could increase as we pursue new sources of
revenues such as in-building communications networks and broadband transport
services in office buildings and retail centers and communications services
to tenants of retail malls and large retail centers.
In order to meet anticipated expenses for the next year and the near
term, we intend to seek additional capital through debt and equity financing.
On February 11, 2000, we retained an investment banking firm to pursue a
private placement of equity or equity-linked securities. We currently expect
the amount of the private placement to be up to approximately $25 million. No
assurance can be given that we will be able to sell securities or raise
additional money to meet our operating needs, or that, if available, such
financing could be effected on terms acceptable to us. If we are not able to
sell additional securities or raise additional financing to meet our future
operating expenses and expansion, there is a substantial doubt that we will
be able to continue as a going concern. Our independent auditors' report on
our 1998 and 1999 consolidated financial statements contains a modification
concerning substantial doubt about our ability to continue as a going
concern. If we are unsuccessful in raising capital through our current
private offering, or through alternative means, our current projections
indicate we will run out of cash in the third quarter of 2000. As of the date
of this report, our common stock is quoted on Nasdaq's OTC Bulletin Board.
Unless this report is declared effective by May 3, 2000, our common stock
will no longer be eligible to be quoted on the OTCBB. In such event, we
anticipate our common stock will be quoted in the National Quotation Bureau's
Pink Sheets.
During the year ended December 31, 1999, our activities were
primarily focused on the development of our business plan, organizational
structure, raising operating capital, creating our Master Lease and Master
Sublease, adding properties to the "USRT Telecom Grid" pursuant to our Master
Lease program, signing Master Subleases with Telecom Service Providers, and
marketing our telecommunications access rights to Telecom Service Providers.
At the end of 1998, we formed a 56% owned subsidiary in Argentina. In
February 2000 we formed an 89% owned subsidiary in Brazil.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.
REVENUES. Revenues increased to $410,451 in 1999 from $43,395 in 1998.
The revenue increased as we accelerated our efforts to enter into site
specific Subleases of our telecommunications access rights with Telecom
Service Providers on properties in the "USRT Telecom Grid."
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REVENUES-NET. Revenues-net (after direct costs) also increased
consistent with the increased revenues although margins on the initial leases
were lower reflecting the startup nature of the business. Revenues and
revenues-net included $50,000 and $20,000 respectively for the sale of an
easement right and a fee for negotiating the termination of a third party
contract in 1999. Both of these transactions are related to our site leasing
business.
OPERATING EXPENSES. Operating expenses increased to $5,623,323 for
the year ended December 31, 1999 from $4,795,538 for the year ended December
31, 1998. In 1999, salaries and benefits increased to $2,966,928 from
$1,944,780 in 1998 as we hired additional personnel to implement our business
plan. General and administrative expenses increased in 1999 to $1,960,156
from $1,271,984 in 1998. This increase was for additional space, marketing
and travel costs. Professional and investment banking fees were $696,239 in
1999 compared to $1,578,774 in 1998, because of noncash equity charges for
common stock and warrants issued for services in 1998 of $899,000, primarily
related to the cancellation of an investment banking agreement, compared to
$170,500 in 1999, and lower professional fees.
Operating expenses include the cost to establish the operations in
Argentina, which were approximately $1,061,000 in 1999 compared to $59,000 in
1998. No foreign currency adjustments exist since the peso is equivalent to
one U.S. dollar.
INTEREST EXPENSE AND FINANCING COSTS. In 1999, interest expense and
financing costs decreased to $254,871 from $2,715,982 in 1998. The decrease
is attributable to noncash equity charges of $2,349,000 in 1998, primarily
for favorable and revised conversion rates related to convertible debentures,
compared to $225,000 in 1999, and reduced interest expense in 1999 as a
result of decreased average indebtedness outstanding.
OTHER INCOME. Other income amounting to $71,020 in 1998 represented a
one-time fee relating to a nonrefundable loan application fee received.
INCOME TAXES. No income tax benefit of our losses has been recognized
because of the uncertainty in realizing the benefit of our net operating
losses.
NET LOSS. Our net loss decreased in 1999 to $5,743,673 ($.96 per
basic and diluted common share) from $7,401,299 in 1998 ($1.64 per basic and
diluted common share), primarily because of the reduced noncash equity
charges discussed above, partially offset by the startup costs of the
Argentina subsidiary and increased salaries of personnel hired to support our
growth.
LIQUIDITY AND CAPITAL RESOURCES
We are in the development stage. We have a substantial ongoing
investment in business development efforts and expenditures to build the
appropriate infrastructure to support our expected growth. Consequently, we
have been substantially dependent on private placements of our equity
securities and debt financing to fund our cash requirements.
Net cash used in our operations was $4,915,428 for the year ended
December 31, 1999 and $3,677,112 for the year ended December 31, 1998. The
increase in net cash used for operating activities in 1999 was primarily due
to the funding of the startup of the Argentinean subsidiary and increased
salaries and benefits.
22
<PAGE>
Cash used in investing activities was $124,199 in the year ended
December 31, 1999 and $145,810 in the year ended December 31, 1998. Cash used
was primarily for the purchase of equipment and leasehold improvements. We
have no significant capital expenditure commitments.
Our primary sources of liquidity have been through the issuance of
common stock and borrowings through convertible debentures. Proceeds received
from financing activities were primarily used to fund our losses. Net cash
provided from financing activities was $8,790,627 for the year ended December
31, 1999 and $3,741,147 for the year ended December 31, 1998. The amounts in
both 1999 and 1998 were primarily from the proceeds from the issuance of
common stock, as well as from the issuance of convertible debentures.
In March 1998, we issued $1,550,000 of Series B convertible
debentures which had an interest rate of 9% per year. The debentures were due
on the earlier of December 31, 1998 or the date of funding of a secondary
equity offering as defined in the debentures. These debentures along with
$525,000 of Series A convertible debentures, which were issued in December
1997, were converted into 518,750 shares of our common stock at $4.00 per
share during the fourth quarter of 1998. On October 2, 1998, we sold 575,000
shares of our common stock at $4.00 per share in a private placement. The
proceeds from this sale totaled $2,118,000, net of expenses.
During 1999, we completed two private placements of our common
stock. We sold 578,500 shares of our common stock at $6.00 per share and
384,615 shares of our common stock at $6.50 per share and received net
proceeds (after expenses) of $5,783,601. In addition, stock options for
24,548 shares of our common stock were exercised resulting in net proceeds of
$117,278.
On September 24, 1999, we executed a $1,500,000 promissory
convertible note with a related party. The note bears interest at a rate of
7% annually. Interest is payable on March 30, 2000 and September 24, 2000.
The principal amount of the note is due and payable on September 24, 2000
unless the holder elects to exercise the right to convert the convertible
note into our common stock at $6.50 per share currently or into stock of our
Argentinean subsidiary.
On December 28, 1999, as part of our second private placement in
1999, we issued a $3,000,000 convertible debenture, which can be drawn upon
until December 28, 2000 ($1,500,000 was outstanding as of December 31, 1999).
The conversion price of this debenture is $7.50 per share of common stock.
This debenture carries interest at 12% and is due at the earlier of July 1,
2001 or the completion of a public offering of our common stock yielding
proceeds of at least $10,000,000. The debenture holder also has the option to
convert the interest due to shares of the Company's common stock, rather than
cash, at $6.50 per share.
We anticipate that the two private placements in 1999, including the
funds available under one of the convertible debentures issued in connection
therewith, and the private placement we are currently pursuing, will be
sufficient to fund operating losses anticipated in 2000. If we are
unsuccessful in raising capital through our current private offering or
through alternative means, our current projections indicate we will run out
of cash in the third quarter of 2000. We plan to seek additional financing in
2000 to fund the expansion and growth of our businesses such as providing
in-building communications networks and broadband transport
23
<PAGE>
services in office buildings and retail centers and communications services
to tenants of retail malls and large retail centers.
We do not consider our business seasonal in nature causing any
unusual liquidity issues.
YEAR 2000
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in
Year 2000, these date code fields need to accept four digit entries in order
to distinguish 21st century dates. All of our computers comply with "Year
2000" requirements. As of the date of this Registration Statement, our
internal systems have not had any "Year 2000" failures. In addition, we have
had no interruption of service from any of our vendors.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivatives and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000. We do
not expect the adoption of this statement to have a significant impact on our
consolidated results of operations, financial position or cash flows.
ITEM 3. DESCRIPTION OF PROPERTY
<TABLE>
<CAPTION>
SQUARE ANNUAL LEASE
LOCATION CITY GENERAL CHARACTER FEET RENT EXPIRATION
-------- ---- ----------------- ------ -------- ----------
<S> <C> <C> <C> <C> <C>
555 West Madison Atrium Chicago, Illinois Principal Executive 9,598 $171,780 September 30,
Level South Office 2004
</TABLE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of March 31, 2000 by (1) each
person who beneficially owns 5% or more of a class of capital stock, (2) each
of our directors, (3) each of the named executive officers and (4) all of our
directors and executive officers as a group.
Unless otherwise noted the address for each of the persons listed
below is: c/o U.S. RealTel, Inc., 555 West Madison, Atrium Level South,
Chicago, Illinois 60661.
24
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED (a)
-----------------------------------------
NAME OF BENEFICIAL OWNER NO. OF SHARES % OF CLASS (b)
------------------------ ------------- --------------
<S> <C> <C>
Craig M. Siegler (c)(d).................................. 1,784,383 27.02%
Ross J. Mangano (c)(e)................................... 1,664,272 24.16%
Gerard H. Sweeney (c)(f)................................. 1,209,615 16.70%
Brandywine Operating Partnership, L.P. (c)............... 1,084,615 14.98%
14 Campus Boulevard, Suite 100
Newtown Square, PA 19073
Jordan E. Glazov (c)(g).................................. 773,014 11.89%
Perry H. Ruda (c)........................................ 726,009 11.17%
Doerge-U.S. RealTel, L.L.C. (h).......................... 489,125 7.59%
30 South Wacker Drive, Suite 2112
Chicago, IL 60606
Mark J. Grant (c)(i)..................................... 168,651 2.56%
Ilene Dobrow Davidson (c)................................ 35,333 *
Burton Blinick (c)....................................... 33,333 *
Charles McNamee (c)...................................... 28,125 *
All executive officers and directors as a group (11 persons)
(c)(d)(e)(f)(g)(h)(i).................................... 6,422,735 76.84%
</TABLE>
*Represents less than one percent of the total.
(a) Except as otherwise noted, we believe that all persons have full voting
and investment power with respect to the shares indicated. Under the
rules of the Securities and Exchange Commission, a person (or group of
persons) is deemed to be a "beneficial owner" of a security if he or
she, directly or indirectly, has or shares the power to vote or to
direct the voting of such security, or the power to dispose of or to
direct the disposition of such security. Accordingly, more than one
person may be deemed to be a beneficial owner of the same security. A
person is also deemed to be a beneficial owner of any security which
that person has the right to acquire within 60 days, such as options or
warrants to purchase our common stock.
(b) The calculations in this table of the percentage of outstanding shares
are based on 6,442,808 shares of our common stock outstanding as of
March 31, 2000. Shares of our common stock subject to options that are
presently exercisable within 60 days of March 31, 2000 are deemed to be
outstanding and beneficially owned by the person holding such options
for the purpose of computing the percentage of ownership of such person
but are not treated as outstanding for the purpose of computing the
percentage of any other person.
(c) Includes unissued shares of our common stock subject to warrants
exercisable within 60 days of March 31, 2000, as follows: Mr. Ruda,
58,554; Mr. Glazov, 58,554; Mr. Siegler, 160,858; Mr. Grant, 60,002;
Mr. Mangano, 60,000; Mr. Sweeney, 25,000; Brandywine Operating
Partnership, L.P., 600,000 warrants and a convertible debenture
convertible into 200,000 shares of common stock; Access Financial,
91,524. Includes unissued shares of our common stock subject to
options exercisable within 60 days of March 31, 2000, as follows:
Ms. Davidson, 33,333; Mr. McNamee, 28,125; Mr. Blinick, 33,333.
25
<PAGE>
(d) Does not include 11,000 shares held by Mr. Siegler's father, and 1,500
shares held by Mr. Siegler's brother. Includes 20,895 shares held by
the Florence Skolnik Siegler Foundation over which shares Mr. Siegler
has voting and dispositive control.
(e) Includes 285,960 shares held by trusts of which Mr. Mangano serves as
trustee: Joseph D. Oliver Trust - GO Cunningham Fund (62,500 shares),
Joseph D. Oliver Trust - James Oliver II Fund (62,500), Joseph D.
Oliver Trust - Joseph D. Oliver, Jr. Fund (62,500), Joseph D. Oliver
Trust - Susan C. Oliver Fund (62,500), C. Frederick Cunningham II rev.
trust 11/25/75 (24,460 shares), J. Oliver Cunningham Jr. rev. trust
5/24/77 (11,500 shares). Also includes warrants to purchase 116,667
shares held by such trusts; 525,000 shares and warrants to purchase
250,876 shares held by Jo & Co., a corporation for which Mr. Mangano
serves as President; 65,000 shares held by John S. Warriner and 37,500
shares and warrants to purchase 17,500 shares held by James Hart over
which, respectively, Mr. Mangano has voting and/or dispositive
control. Also includes 230,769 shares issuable upon the conversion
of a convertible debenture held by Jo & Co. and trusts of which
Mr. Mangano serves as trustee.
(f) Includes 384,615 shares held by Brandywine Operating Partnership, L.P.
and 600,000 unissued shares subject to warrants exercisable within 60
days of March 31, 2000 held by Brandywine Operating Partnership, L.P.
and 200,000 shares issuable upon the conversion of a convertible
debenture held by Brandywine Operating Partnership, L.P., of which
Mr. Sweeney disclaims any beneficial ownership. Mr. Sweeney is the
President and Chief Executive Officer of Brandywine Realty Trust,
the general partner of Brandywine Operating Partnership, L.P.
(g) Shares are held in joint tenancy with Mr. Glazov's wife. Does not
include 3,568 shares held by one of Mr. Glazov's sons, 3,568 shares
held by another of Mr. Glazov's sons and 2,318 shares held by Mr.
Glazov's daughter.
(h) Does not include 25,000 unissued shares subject to warrants exercisable
within 60 days of March 31, 2000 held by David J. Doerge, the manager
of Doerge-U.S. RealTel, L.L.C.
(i) Includes 7,500 shares held by Access Financial Group, Inc. and 91,524
unissued shares subject to warrants exercisable within 60 days of March
31, 2000 held by Access Financial Group, Inc. Mr. Grant serves as the
President--Capital Markets for Access Financial Group, Inc.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of our
directors and executive officers as of March 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Perry H. Ruda(1) 57 Chairman of the Board, Director
Jordan E. Glazov 57 President, Director
Ross J. Mangano(1)(2) 54 Director
Craig M. Siegler(2) 49 Director
Mark J. Grant(1)(2) 49 Director
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Gerard H. Sweeney 43 Director
Charles McNamee 52 President, Business Development
Ilene Dobrow Davidson 49 Executive Vice President, General Counsel
John R. Glass 56 Chief Financial Officer
Burton Blinick 44 Senior Vice President , Site Development
Peter Gould 58 Senior Vice President, Telecom Leasing
</TABLE>
___________________________________________
(1) Member of Finance Committee
(2) Member of Compensation Committee
PERRY H. RUDA co-founded AGILE, LLC, the predecessor to the Company, in 1997.
He serves as a Director and Chairman of the Board and Chief Executive Officer
of the Company. In 1995 Mr. Ruda entered the telecommunications industry in
the site acquisition sector. From 1991 to 1997, he served as president of
Perry Ruda & Company, where he was responsible for negotiating corporate
facilities leases for Fortune 500 corporations and providing real estate
acquisition services for high profile properties and tenants. Mr. Ruda also
has more than 25 years of experience in commercial real estate and holds real
estate licenses in Illinois, Florida, Alabama and Pennsylvania. He attended
the University of Maryland.
JORDAN E. GLAZOV has served as a director and President since he co-founded
the Company in 1997. From January 1997 to August 1997, Mr. Glazov co-managed
AGILE, LLC; from August 1990 to January 1997, he was the sole principal of
Jordan E. Glazov Real Estate Financial Services, which acted as an
acquisition and asset management consultant to institutional investors. From
January 1989 to August 1990, he was a vice president and manager of the
Financial Services Group of Cushman & Wakefield of Illinois. Mr. Glazov holds
a B.S. in accounting from the University of Illinois School of Commerce, a
J.D. from the Northwestern University School of Law, and a real estate
brokers license in Illinois.
ROSS J. MANGANO has been a director since October 1998. Mr. Mangano has
served as the Chairman of the Board of Directors of Cerprobe, a public
company, since February 1993 and as a director of Cerprobe since February
1998. Mr. Mangano has served as the President of Oliver Estate, Inc., an
investment management company located in South Bend, Indiana, since 1996.
Prior to that time, Mr. Mangano served in various management positions with
Oliver Estate, Inc., since 1971. Mr. Mangano also is an investment analyst
for Oliver Estate, Inc. Mr. Mangano has served on the Board of Directors of
BioSante Pharmaceuticals, Inc. a public company located in Lincolnshire,
Illinois since July 1999 and Orchard Software Corporation a privately held
27
<PAGE>
company which develops software for the medical industry located in Carmel,
Indiana since August 1998.
CRAIG M. SIEGLER has been a director since November 1997. Since April 1994,
Mr. Siegler has been president and owner of Siegler Corporation, a venture
capital and investment banking firm. From October 1991 until April 1994, Mr.
Siegler was employed as a managing director of Gruntal & Co., Incorporated,
an investment banking firm. From April 1990 until October 1991, he was
chairman of the board and chief executive officer of Discus Music World,
Inc., a wholesale and retail distributor of recorded music products. From
November 1985 until April 1990, Mr. Siegler was a managing director of
Ladenburg, Thalman & Co., Inc., an investment banking firm.
MARK J. GRANT has served as a director since October 1998. Mr. Grant has
served as a director and President of Capital Markets of Access Financial
Group, Inc. since October 1995. From September 1988 to January 1994, he
served as a director and Executive Vice President of Capital Markets of
Rodman & Renshaw, an investment banking firm. Prior to this position, Mr.
Grant held various positions at Stern Brothers & Co., including head of the
fixed income department, the syndicate department and a director.
GERARD H. SWEENEY has been a director since January 2000. Mr. Sweeney is
president and chief executive officer of Brandywine Realty Trust and was
elected a trustee of Brandywine Realty Trust in February 1996. Prior to
August 1994, Mr. Sweeney served as vice president of LCOR, Incorporated
("LCOR"), a real estate development firm. Mr. Sweeney was employed by The
Linpro Company (a predecessor of LCOR) from 1983 to 1994 and served in
several capacities, including financial vice president and general partner.
Mr. Sweeney is a member of NAREIT, the ULI, the American Institute of
Certified Public Accountants and the Pennsylvania Institute of Certified
Public Accountants.
CHARLES MCNAMEE is our President of Business Development and has headed up
our Occupant Services Group since March 1998. Mr. McNamee has been employed
in the telecommunications industry for more than 20 years with ROLM
Corporation, IBM and Siemens prior to 1989. He co-founded and was president
of RealCom Office Communications from 1989 until 1994, an entity acquired by
Metropolitan Fiber Systems Communications Company in 1994. From November 1994
to April 1995, Mr. McNamee served as senior vice president of MFS
Intelenet/Realcom. From April 1995 to July 1996, he was president and chief
executive officer of Communications Access, LLC. From October 1995 to
December 1996, Mr. McNamee served as president and chief executive officer of
Tie Communications, Inc., and he continued to serve as chief executive
officer of Tie Communications, Inc. until March 1998. Tie Communications,
Inc. filed a voluntary petition for bankruptcy in April 1998. Mr. McNamee has
a degree in Economics from the University of Michigan and an MBA in
Accounting and Finance from Michigan State University.
ILENE DOBROW DAVIDSON serves as our Executive Vice President and General
Counsel. Ms. Davidson began practicing law in 1975. She was a partner in
Sachnoff & Weaver, Ltd., a Chicago law firm, where she specialized in land
use and real estate from July 1983 to January 1991. She returned to the firm
in December 1992 where she remained until becoming General
28
<PAGE>
Counsel to the Company in October 1997. Ms. Davidson is a graduate of Tulane
University and received her J.D. from Washington University.
JOHN R. GLASS has served as our Chief Financial Officer since March 1999.
From January 1990 to March 1996, Mr. Glass was president and owner of J. R.
Glass & Associates, Inc. From March 1996 to December 1998, he was
vice-president and chief financial officer of Health Charge Corporation. Mr.
Glass served as a consultant, primarily to Health Charge Corporation, from
January 1999 to March 1999. He received his BBA in Accounting from Loyola
University, Chicago and has been a CPA since 1969.
BURTON BLINICK serves as our Senior Vice President of the Site Development
Group. Prior to joining U.S. RealTel, Inc. in 1998, he served as senior vice
president at Sheldon Good & Company, a national real estate auction company.
Mr. Blinick holds real estate licenses in Illinois, Georgia, New York,
Massachusetts, Rhode Island, New Jersey and Minnesota and holds a B.S. in
Business Administration from the University of Illinois.
PETER GOULD has served as our Senior Vice President of the Telecom Leasing
Group since January 1999. In 1995, Mr. Gould founded Lincoln Mills Associates
where he was employed until he joined Advanced Radio Telecom as their Eastern
Region Director of Site Acquisitions until 1998. He then became Teligent's
National Portfolio Director. He holds a B.A. in English and Business
Administration from Upsala College.
Each of our directors holds office until the next annual meeting of our
stockholders or until his successor has been duly elected and qualified.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth certain summary information
concerning the compensation earned during 1999 by our chief executive officer
and the four other most highly compensated executive officers. We use the
term "named executive officers" to refer to these people in this registration
statement. The table excludes certain perquisites and other personal benefits
received by a named executive officer that do not exceed the lesser of
$50,000 or 10% of any such officer's salary and bonus disclosed in the table.
29
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------- ------------------
SECURITIES
UNDERLYING
FISCAL SALARY BONUS OTHER ANNUAL OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION ($) (#)
- ------------------------------- -------- ------------ ----------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Perry H. Ruda 1999 $190,300 $50,000 $18,000 (1) 40,000
Chairman of the Board,
Chief Executive Officer
Jordan E. Glazov 1999 $190,481 $50,000 $18,000 (1) 40,000
President, Director
Ilene Dobrow Davidson 1999 $150,000 --- $8,400 (1) 30,000
Executive Vice President,
General Counsel
Charles McNamee 1999 $150,000 --- --- 67,500
President-Occupant
Services Division
Burton Blinick 1999 $150,000 --- $8,400 (1) 30,000
Senior Vice President
(1) Automobile allowance
</TABLE>
30
<PAGE>
OPTION GRANTS IN 1999
The following table sets forth information on grants of stock
options during 1999 to the named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT OF TOTAL AT ASSUMED RATES OF STOCK
OPTIONS GRANTED EXERCISE PRICE APPRECIATION FOR
OPTIONS TO EMPLOYEES PRICE EXPIRATION OPTION TERM
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- --------------------------- ------------ ---------------- --------- ----------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Perry H. Ruda 40,000 9.11% $8.00 (1) 109,171 248,619
Jordan E. Glazov 40,000 9.11% $8.00 (1) 109,171 248,619
Ilene Dobrow Davidson 30,000 6.83% $8.00 (2) 81,878 186,463
Charles McNamee 67,500 15.37% (3) (3) 165,036 375,840
Burton Blinick 30,000 6.83% $8.00 (2) 81,878 186,463
</TABLE>
(1) 13,333 of these options expire December 30, 2005, 13,333 December 30,
2006, and 13,334 December 30, 2007.
(2) 10,000 of these options expire on each of December 30, 2005, December 30,
2006, and December 30, 2007.
(3) Charles McNamee was granted 37,500 options with an excise price of $6.50
per share which expire on October 13, 2004 and 30,000 options with an
exercise price of $8.00 per share 10,000 of which expire on each of
December 30, 2005, December 30, 2006, and December 30, 2007.
DECEMBER 31, 1999 OPTION VALUES
The following table provides information on the value of named
executive officers' unexercised stock options as of December 31, 1999. There
were no option exercises in fiscal 1999 by such officers. The value of
unexercised in-the-money options in the following table is computed based on
the closing bid price of our common stock on December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
DECEMBER 31, 1999(#) DECEMBER 31, 1999($)
NAME EXERCISABLE/ UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------------- ---------------------------------
<S> <C> <C>
Perry H. Ruda 0/ 40,000 0/0
Jordan E. Glazov 0/ 40,000 0/0
Ilene Dobrow Davidson 33,333/41,111 58,333/19,444
Charles McNamee 18,750/48,750 9,375/9,375
Burton Blinick 22,222/52,222 38,889/8,889
</TABLE>
31
<PAGE>
COMPENSATION OF DIRECTORS
In consideration of Messrs. Mangano and Grant joining the board in
October 1998, they each received warrants to purchase 25,000 shares of our
common stock at an exercise price of $4.00 per share. These warrants, if not
sooner exercised, expire on October 2, 2003. In consideration of Mr. Sweeney
joining the Board in January 2000, he received warrants to purchase 25,000
shares of our common stock at an exercise price of $8.00 per share. These
warrants, if not sooner exercised, expire on February 14, 2005. All directors
are reimbursed for travel expenses incurred in connection with attending
board and committee meetings. Directors are not entitled to additional fees
for serving on committees of the board. From time to time, we may also grant
our non-employee directors options after reviewing the level of compensation
paid to non-employee directors to other companies similarly situated to us.
EMPLOYMENT AND STOCK OPTION AGREEMENTS
We have employment agreements with two officers, Messrs. Ruda and
Glazov. The agreements were entered into as of January 15, 1997 The
agreements each have an initial term of five years. The agreements were
amended as of April 20, 1999. The agreements as amended provide for a base
salary of $200,000 per year and certain bonuses. Each of the agreements as
amended provide for automatic three-year rolling renewals. Our board of
directors may terminate either of the agreements as of April 1 of any year by
providing written notice to the employee not later than February 1 of such
year. Each of the agreements provide for the payment of the present value of
the base salary for the remaining term of the agreement in the event of any
termination other than for cause. The agreements contain certain provisions
regarding the non-disclosure of confidential information and non-competition.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We entered into an agreement with Siegler Corporation, an affiliate
of Craig M. Siegler, one of our directors, that provided that we pay a
minimum investment banking fee to Siegler Corporation of $100,000 per year
for a three-year period commencing July 28, 1997, extendable for an
additional nine years under certain conditions. The agreement also provided
for the reimbursement of certain expenses incurred by Siegler Corporation up
to $17,000 and for the issuance of 0.5% of our common stock (20,895 shares),
as defined, to a charitable foundation. In 1998, this agreement was canceled,
and we paid $150,000 and issued 83,395 shares of common stock and 43,750
warrants with an exercise price of $4 per share, expiring in October 2003, to
Mr. Siegler and Siegler Corporation. In 1998 and 1997, we paid $225,000 and
$75,000, respectively, to the Siegler Corporation for investment banking
services.
During 1998, we received and subsequently repaid advances of
approximately $110,000 from Jordan E. Glazov, our President and a director.
Interest on these amounts was paid at 9% per annum and aggregated $1,447.
On September 24, 1999, we executed a $1,500,000 convertible
promissory note with a partnership and certain trusts of which Ross J.
Mangano, one of our directors, is a partner or trustee. The note bears
interest at a rate of 7% annually. Interest is payable on March 30, 2000 and
September 24, 2000. The principal amount of the note is due and payable on
September 24, 2000 unless the holder
32
<PAGE>
elects to exercise the right to convert the convertible note into our common
stock at $6.50 per share currently or into stock of our Argentinean
subsidiary.
On December 28, 1999, as part of our second private placement in
1999, we issued to Brandywine Operating Partnership, L.P., of whose general
partner, Brandywine Realty Trust, Gerard H. Sweeney is President and Chief
Executive Officer, a $3,000,000 convertible debenture, which can be drawn
upon until December 28, 2000 ($1,500,000 was outstanding as of December 31,
1999). The conversion price of this debenture is $7.50 per share of common
stock. This debenture carries interest at 12% and is due at the earlier of
July 1, 2001 or the completion of a public offering of our common stock
yielding proceeds to the Company of at least $10,000,000. The debenture
holder also has the option to convert the interest due to shares of the
Company's common stock, rather than cash, at $6.50 per share. As part of the
same transaction, we sold to Brandywine Operating Partnership, L.P. 384,615
shares of common stock at $6.50 per share, for a total aggregate purchase
price of $2,500,000. In connection therewith, we issued to Brandywine
Operating Partnership, L.P. warrants to purchase 600,000 shares of the
Company's common stock at an exercise price of $8.00 per share.
Consulting fees to Mark J. Grant, one of our directors, amounted to
$81,500 in 1999 and $13,500 in 1998.
ITEM 8. DESCRIPTION OF SECURITIES
THIS SUMMARY CONTAINS A DESCRIPTION OF ALL OF THE MATERIAL TERMS OF
OUR CAPITAL STOCK. HOWEVER, IT DOES NOT DESCRIBE EVERY TERM OF THE CAPITAL
STOCK CONTAINED IN OUR CERTIFICATE OF INCORPORATION. WE REFER YOU TO THE
PROVISIONS OF DELAWARE CORPORATE LAW AND OUR CERTIFICATE OF INCORPORATION AND
BYLAWS, WHICH YOU CAN ACCESS THROUGH EDGAR AT WWW.SEC.GOV/EDGARHP.HTM.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our certificate of incorporation authorizes us to issue 50,000,000
shares of common stock, $0.001 par value per share, and 5,000,000 shares of
preferred stock, $0.001 par value per share. The preferred stock is issuable
in series. On March 31, 2000, there were 6,442,808 shares of U.S. RealTel
common stock outstanding, held of record by 109 stockholders, and there were
no shares of preferred stock outstanding.
COMMON STOCK
VOTING RIGHTS. Holders of our common stock are entitled to one vote
per share on all matters to be voted upon by the stockholders. The holders of
common stock are not entitled to cumulative voting rights with respect to the
election of directors, and as a result, minority stockholders will not be
able to elect directors on the basis of their votes alone.
DIVIDEND RIGHTS. Subject to preferences that may be applicable to
any then outstanding shares of preferred stock, holders of common stock are
entitled to receive ratably such dividends as may be declared by the board
out of funds legally available therefor.
LIQUIDATION RIGHTS. In the event of our liquidation, dissolution or
winding up, holders of the common stock are entitled to share ratably in all
assets remaining after payment of liabilities
33
<PAGE>
and the liquidation preference of any then outstanding preferred stock.
Holders of common stock have no preemptive, conversion or other rights to
subscribe for additional securities of U.S. RealTel. No redemption or sinking
fund provisions apply to the common stock. All outstanding shares of common
stock are validly issued, fully paid and nonassessable.
PREFERRED STOCK
Our board has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms
of redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series. The
issuance of preferred stock could adversely affect the voting power of
holders of our common stock and could decrease the likelihood that such
holders will receive dividend payments and payments upon liquidation and
could have the effect of delaying, deferring or preventing a change of
control of the Company Accordingly, the issuance of shares of preferred stock
may discourage offers for our common stock or may otherwise adversely affect
the market price of our common stock. We may issue shares of preferred stock
in the near future.
REGISTRATION RIGHTS
We are a party to a registration rights agreement, as amended, with
Craig M. Siegler, Siegler Corp., Stanley Siegler, Steven Siegler, the
Florence Skolnik Siegler Foundation, Jordan E. Glazov, individually and as a
joint tenant with Sheila N. Glazov, Perry H. Ruda, Jo & Co., Access Financial
Group, Inc., Ross J. Mangano, James Hart, Joseph D. Oliver Trust - GO
Cunningham Fund, Joseph D. Oliver Trust - James Oliver II Fund, Joseph D.
Oliver Trust - Joseph D. Oliver, Jr. Fund, Joseph D. Oliver Trust - Susan C.
Oliver Fund, and Troon & Co. If we register our shares under the Securities
Act of 1933 (the "Securities Act"), the stockholders who are parties thereto
have the right to have their shares of our common stock registered. In
addition, we are a party to a securities purchase agreement with Brandywine
Operating Partnership, L.P. and Brandywine Realty Services Corporation
(collectively, "Brandywine"). This securities purchase agreement grants the
holders of certain securities issued pursuant thereto rights to have their
shares of common stock registered under certain circumstances. The
registration rights under the registration rights agreement and under the
securities purchase agreement are subject to certain limitations and cutbacks.
SHAREHOLDERS' AGREEMENT
We are a party to a shareholders' agreement, as amended, with Craig
M. Siegler, Siegler Corp., Stanley Siegler, Steven Siegler, the Florence
Skolnik Siegler Foundation, Jordan E. Glazov, individually and as a joint
tenant with Sheila N. Glazov, Perry H. Ruda, Jo & Co., Access Financial
Group, Inc., Ross J. Mangano, James Hart, Joseph D. Oliver Trust - GO
Cunningham Fund, Joseph D. Oliver Trust - James Oliver II Fund, Joseph D.
Oliver Trust - Joseph D. Oliver, Jr. Fund, Joseph D. Oliver Trust - Susan C.
Oliver Fund, Troon & Co and Brandywine. The shareholders' agreement requires
each stockholder who is a party thereto to vote their shares in favor of the
following persons to serve as our directors: one individual designated by
each of Jordan E. Glazov, Perry H. Ruda, Craig M. Siegler, the Oliver Trusts,
34
<PAGE>
Access Financial Group, Inc. and Brandywine. This voting provision terminates
on the date the stockholders who are parties to the shareholders' agreement
no longer collectively own at least 40% of our issued and outstanding common
stock. The shareholders' agreement also requires the approval of 80% of our
directors for certain actions such as management compensation, financings,
incurrence of obligations in excess of a specified amount, mergers,
consolidations or sale of substantially all of our assets and the adoption of
business plans and budgets. Except for shares issued pursuant to registered
public offerings, exercise of options, to employees and consultants,
dividends and in connection with an acquisition, if we sell shares, we must
first offer to the shareholders who are parties to the shareholders'
agreement, the right to purchase their pro rata share of any such stock
issuance. This right of first refusal terminates if we receive at least $10
million in net proceeds from an underwritten public offering of our common
stock under the Securities Act. In addition, certain parties to the
shareholders' agreement are prohibited from selling their shares unless they
provide the other parties to the shareholders' agreement the right to sell
their shares on the same terms. The shareholders' agreement terminates on the
date the stockholders who are parties to the shareholders' agreement no
longer collectively own at least 30% of our issued and outstanding common
stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
DELAWARE ANTI-TAKEOVER STATUTE. We are subject to the provisions of
Section 203 of the Delaware General Corporation Law, an anti-takeover law.
Subject to certain exceptions, the statute prohibits a publicly held Delaware
corporation 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:
- prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares
outstanding those shares owned (x) by persons who are directors
and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
- on or subsequent to such date, the business combination is
approved by the board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by
the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
For purposes of Section 203, a "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to
the interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior to
the date of determination whether the person is an "interested stockholder,"
did own)
35
<PAGE>
15% or more of the corporation's voting stock. Section 203 could prohibit or
delay mergers or other changes in control with respect to U.S. RealTel and,
accordingly, may discourage attempts to acquire us.
CERTIFICATE OF INCORPORATION. Our certificate of incorporation
contains the following provisions which are intended to enhance the
likelihood of continuity and stability in the composition of the board and in
the policies formulated by the board and to discourage certain types of
transactions that may involve an actual or threatened change of control of
U.S. RealTel. These provisions provide:
- for the authorization of the board to issue, without further
action by the stockholders, up to 5,000,000 shares of preferred
stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof;
- that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special
meeting of the stockholders and may not be effected by a consent
in writing;
- that special meetings of our stockholders may be called only by
the Chairman of the Board of Directors, the Chief Executive
Officer, the President or the board;
- that vacancies on the board, including newly created
directorships, can be filled only by a majority of the directors
then in office;
- that our directors may be removed only for cause and only by the
affirmative vote of holders of at least 66 2/3% of the outstanding
shares of voting stock, voting together as a single class;
- that cumulative voting is expressly prohibited;
- that certain provisions of the certificate of incorporation may be
amended only by a vote of 66 2/3% of the stockholders entitled to
vote; and
- that stockholders wishing to nominate directors and propose other
business to be conducted at stockholder meetings must meet certain
advance notice requirements.
These provisions are designed to reduce our vulnerability to an
unsolicited proposal for a takeover that does not contemplate the acquisition
of all of our outstanding shares, or an unsolicited proposal for the
restructuring or sale of all or part of the Company. Such provisions,
however, could discourage potential acquisition proposals and could delay or
prevent a change of control of the Company. Such provisions may also have the
effect of preventing changes in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is LaSalle
National Bank and its address is 135 South LaSalle Street, Chicago, Illinois
60603.
36
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS.
MARKET INFORMATION
Our common stock has been quoted on the Nasdaq OTC Bulletin Board
under the symbol "USRT" since February 27, 1998. If this registration
statement is not declared effective prior to May 3, 2000, our common stock
may not be quoted on the OTC Bulletin Board.
Set forth below are the high and low closing bid quotations for our
common stock for the periods indicated as reflected on the electronic
bulletin board. Such quotations reflect interdealer prices without retail
mark-up, mark-down or commissions, and may not reflect actual transactions.
<TABLE>
<CAPTION>
2000 LOW ($) HIGH ($)
- ---- ------- --------
<S> <C> <C>
April 1, 2000 through April 14, 2000 11.75 14.75
January 1 through March 31, 2000 7 15
1999
- ----
October 1 through December 31, 1999 5.875 11.5
July 1 through September 30, 1999 5 9
April 1 through June 30, 1999 9 12
January 1 through March 31, 1999 7 13
1998
- ----
October 1 through December 31, 1998 8 13
July 1 through September 30, 1998 7 12
April 1 through June 30, 1998 9 14.5
February 27, 1998 (first available) 7.25 15.625
through March 31, 1998
</TABLE>
HOLDERS
As of March 31, 2000, there were approximately 109 record holders of
our common stock, although we believe that there are more than 500 beneficial
owners of our common stock. There are no shares of preferred stock currently
outstanding.
37
<PAGE>
DIVIDENDS
We have not paid any dividends on our common stock in the past, and
we do not expect to pay any dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
We are not involved in any material legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1997, we have sold and issued the unregistered
securities listed below. These issuances were deemed exempt from registration
under the Securities Act in reliance on either (a) Section 4(2) of the
Securities Act, as transactions not involving a public offering, or (b) Rule
701 promulgated under the Securities Act.
In November 1997, our predecessor corporation issued 2,214,870
shares of its common stock to its shareholders in connection with a corporate
reorganization.
In December 1997, we completed the sale of Series A convertible
debentures to accredited investors for an aggregate purchase price of
approximately $525,000. For services rendered in connection with this
transaction, we issued to Access Financial Group, Inc. warrants to purchase
54,375 shares of our common stock at $4 per share.
In December 1997, we sold 25,000 shares of common stock to
accredited investors at $4 per share, for an aggregate purchase price of
$100,000.
In December 1997, we issued 43,750 shares of common stock related to
the exercise of warrants at $4 per share to the placement agent in our Series
A debenture offering for an aggregate purchase price of $175,000.
In December 1997, we issued 5,000 shares to Craig M. Siegler upon
the conversion of a $25,000 debenture at $5 per share.
In March 1998, we sold Series B convertible debentures to accredited
investors for an aggregate purchase price of approximately $1,550,000. For
services rendered in connection with this transaction, we issued to Access
Financial Group, Inc. 7,500 shares of our common stock and warrants to
purchase 92,262 shares of our common stock at $4.75 per share.
In October 1998, we issued founders warrants to purchase 58,554
shares of common stock at $1.92 per share to each of two of our directors and
founders warrants to purchase 117,108 shares of our common stock at $1.92 per
share to another of our directors.
38
<PAGE>
In October 1998, we issued 83,395 shares of common stock and
warrants to purchase 43,750 shares of our common stock with an exercise price
of $4 per share to one of our directors and an affiliate of this director in
exchange for the cancellation of an investment banking agreement.
In October 1998, we sold 575,000 shares of our common stock at $4
per share and warrants to purchase 420,043 shares of our common stock at $4
per share to accredited investors in a private offering, for an aggregate
purchase price of $2,300,000. We issued 13,750 shares of common stock to
Access Financial Group, Inc. for services rendered in connection with this
private placement.
In October and December 1998, in connection with the conversion of
the Series A and Series B convertible debentures into 518,750 shares of
common stock, we issued options to purchase 175,190 shares of common stock at
$5.25 per share to the debenture holders as a part of the conversion. In
December 1998, these former debenture holders exercised certain of these
stock options to purchase 4,000 shares of common stock for an aggregate
purchase price of $21,000.
For services rendered in connection with the October 1988 sale of
common stock and warrants and the October and December 1998 conversion of
convertible debentures, we issued to Access Financial Group, Inc. warrants to
purchase 9,625 shares of our common stock at $4 per share and warrants to
purchase 39,477 shares of our common stock at $5.25 per share.
From January through April 1999, we sold 578,500 shares to
accredited investors at $6 per share, for an aggregate purchase price of
$3,471,000.
In February, March and April 1999, former holders of the Series A
and Series B convertible debentures exercised stock options to purchase
24,548 shares at $5.25 per share for an aggregate purchase price of $128,877.
For services rendered in connection with this transaction, we issued to
Access Financial Group, Inc. warrants to purchase 4,348 shares of our common
stock at $5.25 per share.
In September 1999, we issued 7% convertible promissory notes to
accredited investors for an aggregate purchase price of $1,500,000.
In December 1999, we issued a 12% convertible debenture to an
accredited investor for an aggregate purchase price of up to $3,000,000 and
sold to that accredited investor 384,615 shares of common stock at $6.50 per
share, for a total aggregate purchase price of $2,500,000. In connection
therewith, we issued to the accredited investor warrants to purchase 600,000
shares of the Company's common stock at an exercise price of $8.00 per share.
In December 1999, we issued warrants to purchase 25,000 shares of
our common stock at $0.01 per share to David J. Doerge for investment
advisory services.
Since February 1998, we have issued options to purchase 528,888
shares of our common stock to employees as compensation. 516,388 of these
options are still outstanding. 12,500 of these options have been forfeited.
None of these options have been exercised. We have also issued warrants to
purchase 25,000 shares of our common stock to each of three of our directors
in consideration of their service as directors.
39
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
To the extent permitted by Delaware General Corporation Law, we have
included in our certificate of incorporation a provision to eliminate the
personal liability of directors for monetary damages due to their breach or
alleged breach of their fiduciary duties. Our charter does not, however,
provide for indemnification for liability due to a director's breach of his
or her duty of loyalty to us or our stockholders, for acts involving bad
faith or intentional misconduct or violations of law, or for any transaction
from which the director received an improper personal benefit. In addition,
our bylaws require us to indemnify our officers and directors under certain
circumstances, and we are required to advance to our officers and directors
certain of their expenses incurred in connection with the proceeding against
them. We intend to obtain directors' and officers' liability insurance.
40
<PAGE>
PART F/S
U.S. REALTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
===========================================================
CONSOLIDATED FINANCIAL STATEMENTS
Form 10-SB - PART F/S
Period From Inception (January 15, 1997) Through
December 31, 1999
<PAGE>
U.S. REALTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
================================================================================
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheet at December 31, 1999 F-4
Consolidated Statements of Operations for each of the years ended
December 31, 1999 and 1998 and for the period from inception
through December 31, 1999 F-5
Consolidated Statements of Changes in Stockholders' Equity for
each of the years ended December 31, 1999 and 1998 and for
the period from inception through December 31, 1999 F-6 - F-7
Consolidated Statements of Cash Flows for each of the years ended
December 31, 1999 and 1998 and for the period from inception
through December 31, 1999 F-8 - F-9
Notes to Consolidated Financial Statements F-10 - F-30
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
U.S. RealTel, Inc.
Chicago, Illinois
We have audited the accompanying consolidated balance sheet of U.S. RealTel,
Inc. (A Development Stage Company) as of December 31, 1999, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years ended December 31, 1999 and 1998, and for the period
from inception (January 15, 1997) through 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 generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of U.S. RealTel, Inc.
at December 31, 1999, and the results of its operations and cash flows for each
of the years ended December 31, 1999 and 1998, and for the period from inception
(January 15, 1997) through December 31, 1999 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company is in the development stage and has incurred losses since inception and
has negative cash flows from operations. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
BDO Seidman, LLP
Chicago, Illinois
January 21, 2000, except for
Note 11 which is as of
February 11, 2000
F-3
<PAGE>
FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,133,468
Accounts receivable 24,267
Prepaid expenses 26,369
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,184,104
- ----------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT (Note 3)
Property and equipment 282,778
Less accumulated depreciation (98,624)
- ----------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 184,154
- ----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 24,342
- ----------------------------------------------------------------------------------------------------------------------
$ 4,392,600
======================================================================================================================
</TABLE>
U.S. REALTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
================================================================================
<TABLE>
<CAPTION>
DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Convertible note payable with related party (Note 4(a)) $ 1,500,000
Accounts payable and accrued expenses (Note 5) 742,221
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,242,221
- ----------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME 101,285
CONVERTIBLE DEBENTURE (Note 4(b))
Debenture payable 1,500,000
Less debt discount (1,170,000)
- ----------------------------------------------------------------------------------------------------------------------
330,000
- ----------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 6, 9 and 10)
STOCKHOLDERS' EQUITY (Notes 6 and 11)
Common stock, $.001 par value; 50,000,000 shares authorized;
6,442,808 issued and outstanding shares 6,443
Additional paid-in capital 15,439,675
Accumulated deficit during the development stage (13,727,024)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,719,094
- ----------------------------------------------------------------------------------------------------------------------
$ 4,392,600
======================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT.
F-4
<PAGE>
U.S. REALTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
CUMULATIVE
AMOUNTS FROM
DATE OF
INCEPTION
(JANUARY 15,
1997)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES (Note 10) $ 453,846 $ 410,451 $ 43,395
DIRECT COSTS 349,118 319,841 29,277
- ------------------------------------------------------------------------------------------------------------------------
Revenues - net 104,728 90,610 14,118
- ------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Salaries and benefits (Notes 6 and 9) 5,464,394 2,966,928 1,944,780
General and administrative (Note 9) 3,631,301 1,960,156 1,271,984
Professional and investment banking fees
(Notes 6 and 7) 2,432,798 696,239 1,578,774
- ------------------------------------------------------------------------------------------------------------------------
Total operating expenses 11,528,493 5,623,323 4,795,538
- ------------------------------------------------------------------------------------------------------------------------
Operating loss (11,423,765) (5,532,713) (4,781,420)
- ------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income (Note 7) 71,604 43,911 25,083
Other income 74,220 - 71,020
Interest expense and financing costs
(Notes 4, 6 and 7) (3,001,739) (254,871) (2,715,982)
- ------------------------------------------------------------------------------------------------------------------------
Total other expense - net (2,855,915) (210,960) (2,619,879)
- ------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (14,279,680) $ (5,743,673) $ (7,401,299)
========================================================================================================================
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.96) $ (1.64)
========================================================== ==========================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,962,000 4,509,000
========================================================== ==========================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT.
F-5
<PAGE>
U.S. REALTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
ACCUMULATED
DEFICIT
COMMON STOCK ADDITIONAL DURING THE
--------------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, at January 15, 1997 - $ - $ - $ - $ -
ISSUANCE OF SHARES OF COMMON STOCK (Note 1) 4,204,000 4,204 722,408 - 726,612
CONVERSION OF DEBT INTO COMMON STOCK
(Notes 1 and 4(d)) 5,000 5 24,995 - 25,000
WARRANTS EXERCISED (Note 1) 43,750 44 174,956 - 175,000
WARRANTS ISSUED TO PLACEMENT AGENT FOR
BRIDGE FINANCING - - 10,000 - 10,000
WARRANTS ISSUED TO HOLDER OF BRIDGE
FINANCING - - 10,000 - 10,000
NET LOSS - - - (1,134,708) (1,134,708)
NET LOSS OF LLC AND "S" CORPORATION PRIOR
TO BECOMING A "C" CORPORATION - - (552,656) 552,656 -
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1997 4,252,750 4,253 389,703 (582,052) (188,096)
INTEREST EXPENSE RELATED TO CONVERSION RATE
OF CONVERTIBLE DEBENTURES (NOTE 6) - - 627,000 - 627,000
ISSUANCE OF SHARES OF COMMON STOCK (NOTE 6) 575,000 575 2,117,425 - 2,118,000
CONVERSION OF DEBENTURES INTO COMMON STOCK
(Note 4(c)) 518,750 519 3,418,266 - 3,418,785
STOCK OPTIONS EXERCISED (Notes 4(c) and 6) 4,000 4 19,106 - 19,110
STOCK OPTION COMPENSATION (Note 6) - - 69,000 - 69,000
ISSUANCE OF COMMON STOCK FOR (Notes 4(c)
and 6):
INVESTMENT BANKING SERVICES 13,750 13 (13) - -
CANCELLATION OF INVESTMENT BANKING
AGREEMENT 83,395 83 833,917 - 834,000
SERVICES RENDERED FOR ISSUANCE OF
DEBENTURES 7,500 8 54,992 - 55,000
ISSUANCE OF OPTIONS AND WARRANTS FOR
(Notes 4(c) and 6):
CANCELLATION OF INVESTMENT BANKING
AGREEMENT - - 65,000 - 65,000
BRIDGE FINANCING - - 26,000 - 26,000
DIRECTORS FEES - - 74,000 - 74,000
ISSUANCE AND CONVERSION OF DEBENTURES
INTO COMMON STOCK - - 241,000 - 241,000
NET LOSS - - - (7,401,299) (7,401,299)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1998 5,455,145 5,455 7,935,396 (7,983,351) (42,500)
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATED
DEFICIT
COMMON STOCK ADDITIONAL DURING THE
-------------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, at December 31, 1998 5,455,145 $ 5,455 $ 7,935,396 $ (7,983,351) $ (42,500)
ISSUANCE OF SHARES OF COMMON STOCK
(Notes 4(b) and 6) 963,115 963 5,782,638 - 5,783,601
STOCK OPTIONS EXERCISED (Notes 4(c) and 6) 24,548 25 117,253 - 117,278
ISSUANCE OF WARRANTS FOR (Notes 4(b),
6 and 7):
INVESTMENT BANKING SERVICES - - 170,500 - 170,500
ISSUANCE OF CONVERTIBLE DEBENTURE - - 1,170,000 - 1,170,000
INTEREST EXPENSE RELATED TO CONVERSION
RATE OF CONVERTIBLE DEBENTURE (Note
4(b)) - - 225,000 - 225,000
STOCK OPTION COMPENSATION (Note 6) - - 38,888 - 38,888
NET LOSS - - - (5,743,673) (5,743,673)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1999 6,442,808 $ 6,443 $ 15,439,675 $ (13,727,024) $ 1,719,094
==========================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT.
F-7
<PAGE>
U.S. REALTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
AMOUNTS FROM
DATE OF
INCEPTION
(JANUARY 15,
1997)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (14,279,680) $ (5,743,673) $ (7,401,299)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation of property and equipment 98,624 60,349 33,529
Amortization of deferred financing costs 72,500 - 60,417
Noncash equity transactions charged to operations
(Note 6) 3,825,388 434,388 3,391,000
Changes in assets and liabilities
Increase in accounts receivable (24,267) (19,736) (2,731)
Increase in prepaid expenses (26,369) (26,369) -
Increase in accounts payable and accrued
expenses 742,221 278,328 241,972
Increase in deferred income 101,285 101,285 -
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (9,490,298) (4,915,428) (3,677,112)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (282,778) (132,944) (117,410)
Increase in other assets (76,842) (16,255) (3,400)
Decrease (increase) in note receivable - employee
(Note 7) - 25,000 (25,000)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (359,620) (124,199) (145,810)
- --------------------------------------------------------------------------------------------------------------------------
F-8
<PAGE>
<CAPTION>
CUMULATIVE
AMOUNTS FROM
DATE OF
INCEPTION
(JANUARY 15,
1997)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, stock
options and warrants exercised, net of related
costs $ 8,883,386 $ 5,900,879 $ 2,080,895
Proceeds from issuance of notes
payable/debentures 5,253,000 3,000,000 1,550,000
Stock subscription payable - (110,252) 110,252
Repayment of notes payable (153,000) - -
Advances from stockholder (Note 7) 110,000 - 110,000
Repayment of advances (Note 7) (110,000) - (110,000)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 13,983,386 8,790,627 3,741,147
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,133,468 3,751,000 (81,775)
CASH AND CASH EQUIVALENTS, at beginning of year - 382,468 464,243
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, at end of year $ 4,133,468 $ 4,133,468 $ 382,468
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 174,057 $ 22,569 $ 137,918
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Notes payable/debentures converted into
common stock $ 2,100,000 $ - $ 2,075,000
Noncash equity transactions charged to operations
(Note 6) 3,825,388 434,388 3,391,000
Warrants issued for financing costs 20,000 - -
Warrants related to Convertible Debenture (Note 4(b)) 1,170,000 1,170,000 -
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT.
F-9
<PAGE>
U.S. REALTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. THE COMPANY The Company was originally organized under the name of
AGILE, LLC on January 15, 1997. The Company was
subsequently incorporated on August 8, 1997 under the
name U.S. RealTel, Inc. ("Predecessor Corporation"). On
November 3, 1997, the Predecessor Corporation merged
into a shell corporation, Admiral Two Capital
Corporation (which had 4,179,000 shares outstanding
which were issued in 1997) and the surviving company's
name was changed to U.S. RealTel, Inc. ("Surviving
Corporation"). As of the date of the merger,
shareholders of the Predecessor Corporation were issued
2,214,870 common shares of the Surviving Corporation.
Also on the merger date, 2,214,870 common shares of the
Surviving Corporation held by a principal shareholder
were surrendered and returned to the Surviving
Corporation's authorized, but unissued, shares. The
merger transaction was accounted for as a reverse
acquisition into a public shell.
In addition to the merger in 1997, the Company issued
73,750 shares of common stock as follows:
- 43,750 shares related to the exercise of
warrants at $4 per share
- 25,000 shares sold at $4 per share
- 5,000 shares related to debenture conversion at
$5 per share
The Company's business is to lease telecommunication
rights from owners of real property for sublease to
telecommunications providers needing access to real
estate for their services to reach building occupants
and/or placement of antenna networks in the U.S. and
internationally. The Company is continuing the process
of adding sites through the use of its master leases and
other programs, to add to its network of sites for the
"USRT Telecom Grid." During 1998, the Company also
established a separate wholly owned finance subsidiary
(inactive) and a 56% owned Argentinean subsidiary. For
purposes of the accompanying consolidated financial
statements, the Company has expensed all amounts
advanced to the Argentinean subsidiary until it becomes
operational and such advances are considered
recoverable. Accordingly, no minority interest is
recognized in the consolidated financial statements. The
net loss of the Argentinean subsidiary included in the
consolidated financial statements was $1,061,000 in 1999
and $59,000 in 1998.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-10
<PAGE>
Since its inception, the Company's efforts have been
devoted to raising capital, adding sites to the "USRT
Telecom Grid" and, beginning in 1999, substantially
increasing marketing of these sites. The Company has
received nominal revenues from the sale of its services
throughout the U.S. Accordingly, through the date of
these consolidated financial statements, the Company is
considered to be in the development stage and the
accompanying consolidated financial statements represent
those of a development stage enterprise. No assurance
can be given that the Company will be able to obtain
sufficient sites for its "USRT Telecom Grid" and
sublease the sites to its customers profitably. As of
the date of these consolidated financial statements, the
Company has acquired the rights to approximately 41,000
sites (unaudited). Certain site leases contain
performance standards which require a minimum (a) number
of telecommunication installations be constructed or (b)
revenue stream be generated within a specified time
period. If these performance standards are not achieved,
the landlord may elect to terminate the Company's
exclusive rights under such leases.
As reflected in the accompanying consolidated financial
statements, the Company has incurred losses since
inception and has negative cash flows from operations.
The Company's ability to continue as a going concern is
contingent upon its ability to raise capital, continue
to expand its "USRT Telecom Grid" and attain profitable
operations. Moreover, the Company expects to continue to
incur significant development costs to generate
significant revenue to achieve profitability. These
costs could increase as the Company pursues other new
sources of revenues such as providing in-building
communications networks and broadband transport services
in office buildings and retail centers and
communications services to tenants of retail malls and
large retail centers. The Company is pursuing various
sources of debt and/or equity financing. The Company,
however, can give no assurance as to its ability to
raise capital or attain profitable operations. These
factors give rise to substantial doubt as to the ability
of the Company to continue as a going concern. The
consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-11
<PAGE>
2. SUMMARY OF
SIGNIFICANT
ACCOUNTING POLICIES
PRINCIPLES OF
CONSOLIDATION The Company's subsidiaries are listed below:
<TABLE>
<CAPTION>
Percent
Location Owned Description
---------------------------------------------------------------------------
<S> <C> <C> <C>
RealTel de Argentina, Argentina 56% Development stage
S.A. foreign subsidiary
RealTel Finance, LLC Chicago, Illinois 100% Inactive subsidiary
</TABLE>
The consolidated financial statements include the
accounts of the Company and its subsidiaries that are
more than 50% owned.
All significant intercompany transactions and balances
between the companies included in the consolidation are
eliminated.
CASH AND CASH
EQUIVALENTS Cash equivalents consist of short-term, highly liquid
investments which are readily convertible into cash.
PROPERTY, EQUIPMENT
AND DEPRECIATION Property and equipment are stated at cost. Depreciation
is computed over the estimated useful lives of the
assets (three to seven years) by accelerated methods for
financial and income tax reporting purposes.
Depreciation of leasehold improvements is computed over
the lesser of the estimated useful lives of the assets
or the term of the lease by the straight-line method for
financial and income tax reporting purposes.
REVENUE RECOGNITION Monthly rent for leases containing fixed rental
increases during their term are recognized on a
straight-line basis over the term of the leases. For all
other leases, rents are recognized over the term of the
leases as earned.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-12
<PAGE>
One-time initial license and review fees received, and
related direct costs incurred, at lease inception are
deferred and recognized on a straight-line basis over
the lease terms.
Contingent rentals, such as rentals based on sales
levels of sublessees, are recognized when earned, as
targeted levels are achieved.
Deferred income represents rental payments received in
advance and the deferral of one-time fees, net of costs.
STOCK-BASED
COMPENSATION The Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), became
effective in 1997. SFAS No. 123 encourages companies to
recognize expense for stock options and other
stock-based employee compensation plans based on their
fair value at the date of grant. As permitted by SFAS
No. 123, the Company has and will retain its prior
accounting policy under APB Opinion Number 25,
"Accounting for Stock Issued to Employees".
ADVERTISING COSTS Advertising costs, aggregating $96,000 in 1999, $55,000
in 1998 and $160,000 from inception to December 31,
1999, are expensed as incurred.
COSTS OF START-UP In April 1998, the American Institute of Certified
ACTIVITIES Public Accountants issued Statement of Position ("SOP")
98-5, "Reporting on the Costs of Start-up Activities".
This SOP requires that the costs of start-up activities,
including organization costs, be expensed as incurred.
The Company has followed this policy since its
inception.
TRANSLATION OF FOREIGN The Company follows the translation policy as provided
CURRENCY by SFAS No. 52. Accordingly, assets and liabilities are
translated at the rates of exchange on the balance sheet
date. Income and expense items are translated at the
average exchange rates prevailing throughout the years.
Since the Argentina peso is equivalent to one U.S.
dollar, no foreign currency translation adjustments
occurred.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-13
<PAGE>
TAXES ON INCOME Prior to August 8, 1997, the Company was taxed as a
limited liability company and from August 8, 1997 to
November 3, 1997 the Company was taxed as an "S"
corporation. Any income or losses prior to November 4,
1997 are recognized on the individual stockholders'
income tax returns. Effective November 4, 1997, the
Company is taxed as a "C" corporation. The net loss of
$552,656 prior to November 4, 1997 was reclassified to
additional paid-in capital.
Income taxes are accounted for using the asset and
liability method under which deferred income taxes are
recognized for the estimated tax consequences of
temporary differences between the financial statement
carrying amounts and the tax bases of assets and
liabilities and for the benefits, if any, of tax credit
or loss carryforwards. The amounts of any future tax
benefits are reduced by a valuation allowance to the
extent such benefits are uncertain as to realization.
NET LOSS PER SHARE Net loss per share is calculated using the weighted
average number of common shares outstanding during the
period. Shares of common stock issuable upon the
exercise of options (528,888 and 262,078 shares in 1999
and 1998, respectively) and warrants (1,573,096 and
943,748 shares in 1999 and 1998, respectively) and the
conversion of debt (430,769 shares in 1999) are
antidilutive and are not included in the computation of
shares outstanding.
ESTIMATES The consolidated financial statements include estimated
amounts and disclosures based on management's
assumptions about future events.
RECENT ACCOUNTING In March 1998, the American Institute of Certified
PRONOUNCEMENTS Public Accountants ("AICPA") issued Statement of
Position ("SOP") 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal
Use" ("SOP 98-1"). SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer
software developed or obtained for internal use,
including the requirement to capitalize and amortize
specified costs. The adoption of this standard did not
have a material effect on the Company's capitalization
policy.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-14
<PAGE>
In June 1998, the FASB issued SFAS No. 133, "Accounting
for Derivatives and Hedging Activities", which
establishes accounting and reporting standards for
derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities.
SFAS No. 133 is effective for fiscal years beginning
after June 15, 2000. The Company does not expect the
adoption of this statement to have a significant impact
on its consolidated results of operations, financial
position or cash flows.
RECLASSIFICATIONS Certain items in the 1998 consolidated financial
statements have been reclassified to conform to the 1999
classifications.
3. PROPERTY AND Property and equipment at December 31, 1999 consists of
EQUIPMENT the following:
<TABLE>
<S> <C>
---------------------------------------------------------------------
Equipment $ 245,181
Office furniture and fixtures 5,734
Leasehold improvements 31,863
---------------------------------------------------------------------
282,778
Less accumulated depreciation 98,624
---------------------------------------------------------------------
Net property and equipment $ 184,154
=====================================================================
</TABLE>
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-15
<PAGE>
4. CONVERTIBLE NOTES (a) CONVERTIBLE NOTE PAYABLE WITH RELATED PARTY
AND DEBENTURES
The Company executed a $1,500,000 promissory note on
September 24, 1999 ("Convertible Note") with a related
party. It bears interest at a rate of 7%, compounded
annually. Interest under the Convertible Note is due and
payable on March 30, 2000 and on September 24, 2000. The
note may not be prepaid. The principal amount of the
Convertible Note is due and payable on September 24,
2000, unless the holder of the Convertible Note elects
to exercise the right to convert the Convertible Note
into the Company's common stock or into stock of the
Company's Argentinean subsidiary. The holder of the
Convertible Note may, at any time after January 1, 2000
until the Convertible Note is paid in full, convert the
principal amount of the Convertible Note into the number
of shares of the Argentinean subsidiary which will
result in the holder owning 9% of the total shares of
such subsidiary or into shares of the Company's common
stock at a conversion price equal to the lowest price
per share paid for the Company's common stock (or other
security convertible into common stock) after September
24, 1999 in a sale of the common stock or any security
convertible into common stock.
Should the holder of the Convertible Note elect to
convert the Note into ownership of the Argentinean
subsidiary, the Company would maintain majority
ownership of the Argentinean subsidiary.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-16
<PAGE>
(b) CONVERTIBLE DEBENTURE
On December 28, 1999, the Company completed a private
placement which included:
(i) The issuance of a Convertible Debenture
("Convertible Debenture"), which can be drawn
upon until December 28, 2000, up to $3,000,000
($1,500,000 outstanding at December 31, 1999).
This Convertible Debenture carries interest at
12%, payable quarterly, and is due at the
earlier of July 1, 2001 or the completion of a
public offering of at least $10 million (see
iii. below). This Convertible Debenture is
convertible into the Company's common stock, at
any time, at $7.50 per share. The convertible
debenture holder also has the option to receive
interest in shares of the Company's common
stock, rather than cash, at $6.50 per share.
The difference between the conversion rate of
$7.50 per share and the market price of the
Company's common stock of $8.625 per share
resulted in a favorable conversion rate interest
expense of $225,000 in 1999 related to the $1.5
million outstanding at December 31, 1999.
(ii) The sale of 384,615 shares of common stock at
$6.50 per share, net of expenses of $32,297.
(iii) The issuance of warrants to purchase 600,000
shares of the Company's common stock at an
exercise price of $8 per share. These warrants
are exercisable through December 31, 2004. The
Company has the option to extend the maturity of
the Convertible Debenture until the earlier of
October 1, 2001 or the completion of a public
offering of at least $10 million, which would
result in reducing the exercise price of these
warrants to $6.50 per share.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-17
<PAGE>
Based on the Black-Scholes pricing model, the warrants
issued were valued at $1,170,000, which increased
additional paid-in capital and decreased the Convertible
Debenture (debt discount). The debt discount will be
amortized, commencing in 2000, over the maturity of the
Convertible Debenture.
(c) CONVERTED DEBENTURES
On December 3, 1997, the Company completed a Series A
convertible debenture bridge financing of $525,000
resulting in net proceeds of approximately $470,000
(after expenses of the offering). The debentures were
payable, together with interest at the rate of 9% per
annum, on the earlier of June 1, 1998 (which was amended
to December 31, 1998) or the date of funding of a
secondary equity offering, as defined. The debentures
were convertible at maturity into shares of the
Company's common stock with a conversion price of $5.25
per share. In connection with this financing, the
Company issued to its investment banking firm warrants
to acquire 54,375 shares of the Company's common stock
at an exercise price of $4 per share. These warrants are
exercisable through November 2000.
On March 5, 1998, the Company completed a Series B
convertible debenture bridge financing of $1,550,000
resulting in net proceeds of approximately $1,400,000
(after expenses of the offering). The debentures were
payable, together with interest at the rate of 9% per
annum, on the earlier of December 31, 1998 or the date
of funding of a secondary equity offering, as defined.
The debentures were convertible at maturity into shares
of common stock with a conversion price of $5.25 per
share. The Company also issued 7,500 shares of common
stock to its investment banking firm in connection with
this financing, which were recorded as financing costs
and subsequently as interest expense when the debentures
were converted.
While both the Series A and B debentures were
outstanding, the Company was precluded from paying cash
dividends on its common stock and the Company's ability
to redeem its common stock was limited.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-18
<PAGE>
On October 2, 1998 and December 31, 1998, the Series A
and Series B convertible debenture bonds were converted
to 518,750 shares of common stock, at a $4 per share
conversion rate rather than the original $5.25 per share
conversion rate. The revision in the conversion rate was
accounted for in 1998 by an increase in additional
paid-in capital and interest expense of $1.4 million for
the additional shares issued. Costs associated with
these conversions were approximately $56,215 during
1998. These costs are netted against the principal
amount of debt converted in the accompanying
consolidated statement of stockholders' equity. The
Company also issued to an investment banking firm in
1998 92,262 warrants with an exercise price of $4.75 per
share, expiring in March 2001. The Company also issued
options to purchase 175,190 shares of common stock at
$5.25 per share to the debenture holders as a part of
the conversion, of which 4,000 options were exercised in
1998, 24,548 options were exercised in 1999 and the
balance expired.
(d) PROMISSORY NOTE
The Company had a promissory note payable to a
shareholder, due on the earlier of October 14, 1999 or
the funding of a secondary equity offering, as defined.
Interest, to be paid quarterly, was calculated at the
prime rate plus two percent. In December 1997, this note
was repaid through the conversion of this debt into
5,000 shares of the Company's common stock, pursuant to
the terms of the note.
5. ACCOUNTS PAYABLE Accounts payable and accrued expenses at December 31,
AND ACCRUED 1999 consist of:
EXPENSES
<TABLE>
----------------------------------------------------
<S> <C>
Accounts payable $ 274,575
Accrued professional fees 155,056
Accrued compensation 160,475
Interest 29,615
Other, including related party of $52,000 122,500
-----------------------------------------------------
$ 742,221
=====================================================
</TABLE>
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-19
<PAGE>
6. STOCKHOLDERS' EQUITY (a) COMMON STOCK ISSUANCES
In addition to the common stock issued through debt
conversions (Note 4) and the merger and other 1997
transactions discussed in Note 1, common stock was
issued as follows:
In 1998 -
(i) Sale of common stock - In connection with a
private placement, the Company sold 575,000
shares at $4 per share in October 1998. Expenses
related to this sale were approximately
$182,000. The Company also issued warrants,
which expire in October 2003, to purchase
402,500 shares of the Company's stock at an
exercise price of $4 per share in connection
with this private placement.
(ii) Stock options exercised - During 1998, one stock
option for 4,000 shares was exercised at $5.25
per share, less commissions of $1,890.
(iii) Services rendered - The Company issued 13,750
shares of common stock to an investment banking
firm for services rendered in connection with
the private placement discussed above.
The Company entered into an agreement with an affiliate
of one of its principal shareholders (the "Affiliate")
that provided that the Company pay a minimum investment
banking fee to the Affiliate of $100,000 per year for a
three-year period commencing July 28, 1997, extendable
for an additional nine years under certain conditions.
The agreement also provided for the reimbursement of
certain expenses incurred by the Affiliate up to $17,000
and for the issuance of .5% of the Company's common
stock (20,895 shares), as defined, to a charitable
foundation. In 1998, this agreement was canceled and the
Affiliate was paid $150,000 and issued 83,395 shares of
common stock and 43,750 warrants with an exercise price
of $4 per share, expiring in October 2003. In 1998, the
Company paid, in cash, $225,000 to the Affiliate for
investing banking services ($300,000 from inception to
December 31, 1999).
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-20
<PAGE>
In 1999 -
(i) Sale of common stock - In connection with a
private placement, the Company sold 578,500
shares at $6 per share in January through April
1999. Expenses related to this sale were
$155,102.
(ii) Stock options exercised - Stock options for
24,548 shares (Note 4(c)) were exercised at
$5.25 per share, less commissions of $11,599.
(iii) Sale of common stock, Convertible Debenture and
warrants - On December 28, 1999, the Company
sold 384,615 shares at $6.50 per share, received
$1.5 million for a Convertible Debenture of up
to $3 million and issued 600,000 warrants
exercisable at $8.00 per share until December
2004 (Note 4(b)). Expenses related to the sale
of common stock were $32,297.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-21
<PAGE>
U.S. REALTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
(b) STOCK OPTIONS AND WARRANTS ISSUED
Exercise
Price
Per Date Expiration
Date Issued Description Shares Share Exercisable* Date
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Options:
February 1998 Company executives 88,888 $5.25 25% exercisable March 2003
on issuance, remainder
vests ratably over three
years
October 1999 Company executive 37,500 $6.50 50% exercisable October 2004
on issuance, remainder
over two years
April 1998 Employee 1,000 $4.00 April 2003
December 1999 Options issued under the Employee Exercisable ratably over
Equity Incentive Plan (Note 6(d)) 401,500 $8.00 three years December 2004 - 7
---------
Option shares 528,888
---------
Warrants:
November 1997 Three shareholders 234,216 $1.92 October 2003
December 1997 Investment banking fee -
Series A debentures
(Note 4(c)) 54,375 $4.00 November 2000
March 1998 Investment banking fee - Series
B debentures (Note 4(c)) 92,262 $4.75 March 2001
August 1998 In connection with bridge
financing 17,543 $4.00 August 2003
October 1998 Investment banking fee for sale
of common stock 30,667 $5.25 October 2003
October 1998 Issued with common stock sold 402,500 $4.00 October 2003
October 1998 Directors fees 50,000 $4.00 October 2003
October 1998 Cancellation of investment
banking agreement 43,750 $4.00 October 2003
October 1998 Investment banking fee for sale
of common stock 9,625 $4.00 October 2003
December 1998 Debenture conversion 8,810 $5.25 December 2003
March 1999 Investment banking services 4,348 $5.25 March 2004
December 1999 Investment banking services (Note 7) 25,000 $.01 December 2004
December 1999 Issued with Convertible Debenture
(Note 4(b)) 600,000 $8.00 December 2004
---------
Warrant shares 1,573,096
---------
Total options and warrant
shares 2,101,984
=========
</TABLE>
*Exercisable on issuance except as noted
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-22
<PAGE>
U.S. REALTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
At December 31, 1999, the Company has options and
warrants for 1,648,401 shares of common stock currently
exercisable at a weighted average exercise price of
$5.25 per share. The options and warrants expire as
follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
YEAR ENDING DECEMBER 31, Shares Price
- ----------------------------------------------------------------------------
<S> <C> <C>
2000 54,375 $ 4.00
2001 92,262 4.75
2003 886,999 3.63
2004 700,182 7.62
2005 133,833 8.00
2006 133,833 8.00
2007 100,500 8.00
- ----------------------------------------------------------------------------
Total 2,101,984 $ 5.78
============================================================================
</TABLE>
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-23
<PAGE>
U.S. REALTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(c) NONCASH EQUITY TRANSACTIONS
In connection with the noncash aspects of certain
issuances of common stock, options and warrants, the
Company valued such transactions as follows in 1999,
1998 and since inception:
<TABLE>
<CAPTION>
INCEPTION
(JANUARY 15,
1997)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
Issuance 1999 1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense related to
conversion rate of
convertible debentures (i) $ 852,000 $ 225,000 $ 627,000
Revision of debt conversion rate
(ii) 1,400,000 - 1,400,000
Common stock issued for
cancellation of investment
banking agreement and debt
issuance (iii) 889,000 - 889,000
Stock option compensation (i) 107,888 38,888 69,000
Options issued to debenture
holders for debenture
conversion (iv) 95,000 - 95,000
Warrants issued for services (iv) 481,500 170,500 311,000
- -----------------------------------------------------------------------------------
Total $3,825,388 $ 434,388 $3,391,000
===================================================================================
</TABLE>
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-24
<PAGE>
(i) Value based on excess of market price of the
Company's publicly traded common stock over the
conversion or exercise price. The excess stock
option value is amortized over the vesting
period of the options.
(ii) Value based on increased common shares issued,
due to the reduced conversion rate, using the
market price of the Company's publicly traded
common stock.
(iii) Value based on market price of the Company's
publicly traded common stock.
(iv) Value based on Black-Scholes pricing model.
Based on current accounting practices for public
companies, the Company used the valuation methods above
rather than values of its common stock from recent
private placements. The Company's common stock has
limited public trading, which commenced in February
1998, on the OTC Bulletin Board.
The amounts above were charged to the following expense
accounts:
<TABLE>
<CAPTION>
INCEPTION
(JANUARY 15,
1997)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1998
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and benefits $ 181,888 $ 38,888 $ 143,000
Professional and
investment
banking fees 1,069,500 170,500 899,000
Interest expense 2,574,000 225,000 2,349,000
----------------------------------------------------------------------------------
Total $ 3,825,388 $ 434,388 $ 3,391,000
==================================================================================
</TABLE>
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-25
<PAGE>
The Company accounts for stock options under APB Opinion
Number 25, under which compensation is recorded to the
extent the exercise price is less than the quoted public
market at grant date. Had salary expense been determined
consistent with SFAS No. 123, the Company's net loss and
net loss per common share, basic and diluted, would not
have been materially different than the amounts
reported.
(d) EMPLOYEE EQUITY INCENTIVE PLAN
In April 1999, the Company's Board of Directors approved
a 10-year Employee Equity Incentive Plan ("Plan"),
subject to approval of its stockholders. The
stockholders ratified the Plan in September 1999. Under
the Plan, 484,655 shares of the Company's common stock
are reserved for issuance under various award plans
including stock options, restricted stock, bonus and
performance shares, etc. Options for 401,500 shares of
common stock under the Plan have been granted through
December 31, 1999 at $8 per share. These options vest
ratably over three years and expire five years after
they become exercisable. Since the market price on the
date the options were granted was $9.00 per share, the
compensation expense related to the favorable option
price ($401,500) will be amortized, commencing in 2000,
over the vesting period of the options.
The Company also granted an option for 37,500 shares at
$6.50 per share in October 1999. Similar to the options
mentioned above, the excess of the market price at grant
date over the option price ($84,375) will be amortized
as compensation expense over the vesting period
commencing in 2000.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-26
<PAGE>
The following table summarizes the Company's employee
stock option activity:
<TABLE>
<CAPTION>
Exercisable
------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
Granted and outstanding at
December 31, 1998 89,888 $5.24 34,333 $5.21
========================
1999:
Granted 439,000 $7.87
------------
Outstanding at December 31,
1999 528,888 $7.42 75,305 $5.54
================================================
</TABLE>
7. RELATED PARTY During 1998, the Company received advances and
TRANSACTIONS subsequently repaid those advances of approximately
$110,000 from one of its shareholders. Interest was paid
at 9% per annum and aggregated $1,447.
During 1998, the Company advanced $25,000 to an employee
pursuant to terms of an 8% note receivable that was paid
in November 1999.
Consulting fees to one of the Company's directors
amounted to $81,500 in 1999 and $13,500 in 1998.
During 1999, the Company issued warrants to a
stockholder to purchase 25,000 shares of the Company's
common stock at $.01 per share for investment banking
services. These warrants, valued at $162,000 using the
Black-Scholes pricing model, are exercisable immediately
and expire in December 2004.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-27
<PAGE>
8. INCOME TAXES Due to net operating losses and the uncertainty of
realization, no tax benefit has been recognized for
operating losses.
At December 31, 1999, net federal operating losses of
approximately $8.9 million are available for
carryforward against future years' taxable income and
expire in 2012 ($.4 million), 2018 ($4.5 million) and
2019 ($4.0 million). The Company's ability to utilize
its federal net operating loss carryforwards is
uncertain and thus a valuation reserve has been provided
against the Company's net deferred tax assets.
The net deferred tax assets consist of the following at
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------------
<S> <C> <C> <C>
Net federal operating
loss carryforwards $ 3,446,000 $ 1,904,000 $ 174,000
Other 86,000 2,000 -
Valuation allowance (3,532,000) (1,906,000) (174,000)
----------------------------------------------------------------------------
Net deferred tax assets $ - $ - $ -
============================================================================
</TABLE>
9. COMMITMENTS AND (a) LEASES - OFFICE SPACE
CONTINGENCIES
The Company is leasing office space in Illinois, Texas
and Maryland.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-28
<PAGE>
Future minimum lease obligations are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
-----------------------------------------------------------------------------
<S> <C>
2000 $ 173,000
2001 186,000
2002 202,000
2003 219,000
2004 195,000
=============================================================================
Total $ 975,000
=============================================================================
</TABLE>
Rent expense for 1999 and 1998 was $157,000 and
$102,000, respectively.
(b) LEASES - SITE LEASES AND SUBLEASES
Rent sublease income on existing lease sites
approximates $949,000 annually through 2004, with rental
expense approximating $750,000 annually through 2004.
(c) EMPLOYMENT AGREEMENTS
The Company has employment agreements with two officers.
The agreements have automatic three-year rolling
renewals, unless terminated by the Board of Directors,
as of April 1 of any year in which event such
determination will be considered a termination without
cause. The agreements provide for a base annual salary
of $200,000 for each calendar year for each individual.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-29
<PAGE>
10. CONCENTRATIONS OF Financial instruments which potentially subject the
CREDIT RISK AND Company to concentrations of credit risk consist
SIGNIFICANT principally of cash equivalents and trade receivables.
CUSTOMERS Concentrations of credit risk with respect to trade
receivables are limited due to the Company's customers
generally being of significant size and financial
stability. The Company's cash and cash equivalents are
primarily held by one bank.
In 1999, three telecommunications customers accounted
for approximately 54% of revenues. Also, 65% of revenue
is derived from buildings owned by three real estate
entities. There is a risk that these telecommunications
customers and real estate entities may not renew their
leases at the termination date (leases generally have
initial terms of five years with four renewal options by
the lessees of five years each).
11. SUBSEQUENT EVENT On February 11, 2000, the Company retained an investment
banking firm to pursue a private placement of equity or
equity-linked securities. The amount of the private
placement is expected to be up to approximately $20
million.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-30
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
U.S. REALTEL, INC.
/s/ Jordan E. Glazov
----------------------
Date: April 19, 2000 Jordan E. Glazov
President
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Form of Certificate of Merger
2.2 Plan and Agreement of Merger
3.1 Certificate of Incorporation
3.2 Bylaws
4.1 Form of Common Stock Certificate
4.2 Shareholders' Agreement dated October 2, 1998
4.3 Registration Rights Agreement dated October 2, 1998
4.4 Convertible Promissory Note dated September 24, 1999
4.5 Amendment dated September 24, 1999 to Shareholders
Agreement dated October 2, 1998
4.6 Amendment dated September 24, 1999 to Registration
Rights Agreement dated October 2, 1998
4.7 12% Convertible Debenture dated December 28, 1999
4.8 Amendment dated December 28, 1999 to Shareholders
Agreement dated October 2, 1998, as amended
10.1 Presidential Towers Office Lease dated October 6, 1999
10.2 Employment Agreement dated as of January 15, 1997
between the Company's predecessor and Perry H. Ruda
10.3 Employment Agreement dated as of January 15, 1997
between the Company's predecessor and Jordan E. Glazov
10.4 Amendment to Employment Agreement dated as of April 20, 1999
between the Company and Perry H. Ruda.
10.5 Amendment to Employment Agreement dated as of April 20, 1999
between the Company and Jordan E. Glazov
10.6 1999 Employee Equity Incentive Plan
21.1 List of the Company's Subsidiaries
27 Financial Data Schedule
</TABLE>
<PAGE>
CERTIFICATE OF MERGER
OF
U.S. REALTEL, INC.,
AN ILLINOIS CORPORATION,
INTO
U.S. REALTEL, INC.,
A DELAWARE CORPORATION
U.S. RealTel, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
U.S. RealTel, Inc. Illinois
U.S. RealTel, Inc. Delaware
SECOND: That a plan and agreement of merger between the parties to the
merger has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations in accordance with the requirements of
Section 252(c) of the General Corporation Law of the State of Delaware.
THIRD: That the name of the surviving corporation of the merger is U.S.
RealTel, Inc.
FOURTH: That the Certificate of Incorporation of U.S. RealTel, Inc., a
Delaware corporation and the surviving corporation, shall be the Certificate
of Incorporation of the surviving corporation.
FIFTH: That the executed plan and agreement of merger is on file at the
principal place of business of the surviving corporation. The address of the
principal place of business of the surviving corporation is 555 W. Madison
St., Atrium Level South, Chicago, IL 60661.
SIXTH: That a copy of the plan and agreement of merger will be furnished
by the surviving corporation, on request and without cost, to any stockholder
of any constituent corporation.
SEVENTH: That the authorized capital stock of U.S. RealTel, Inc., an
Illinois corporation and the disappearing corporation, consists of 50,000,000
shares of Common Stock, par value $0.001 per share.
<PAGE>
IN WITNESS WHEREOF, U.S. RealTel, Inc., a Delaware corporation, has
caused this certificate to be signed by Jordan E. Glazov, its President, this
_____ day of March, 2000.
By: ________________________________
Jordan E. Glazov
President
2
<PAGE>
PLAN AND AGREEMENT OF MERGER
BY AND BETWEEN
U.S. REALTEL, INC.,
AN ILLINOIS CORPORATION
AND
U.S. REALTEL, INC.,
A DELAWARE CORPORATION
THIS PLAN AND AGREEMENT OF MERGER is made by and between U.S. RealTel,
Inc., an Illinois corporation (the "TERMINATING CORPORATION"), and U.S.
RealTel, Inc., a Delaware corporation (the "SURVIVING CORPORATION"), pursuant
to Section 11.35 of the Illinois Business Corporation Act of 1983, as
amended, and Section 252 of the Delaware General Corporation Law.
RECITALS
A. The Terminating Corporation is authorized to issue 50,000,000 shares
of Common Stock, $0.001 par value per share, of which 6,442,808 shares are
issued and outstanding as of February 14, 2000.
B. The Surviving Corporation is authorized to issue 50,000,000 shares of
Common Stock, $0.001 par value per share, of which ten (10) shares are issued
and outstanding, and 5,000,000 shares of Preferred Stock, $0.001 par value
per share, none of which are issued and outstanding.
C. The respective Boards of Directors of the Terminating Corporation and
the Surviving Corporation have determined that it is in the best interests of
Terminating Corporation and the Surviving Corporation to merge the
Terminating Corporation with and into the Surviving Corporation (the
"MERGER") on the terms and conditions herein contained in order to create a
single corporation organized under the laws of the State of Delaware.
TERMS AND CONDITIONS
NOW, THEREFORE, the parties to this Plan and Agreement of Merger, in
consideration of the premises, mutual covenants, agreements and provisions
herein contained, do hereby agree to and prescribe the terms and conditions
of the Merger and the mode of carrying the same into effect as follows:
1. MERGER. The Terminating Corporation shall be merged with and into
the Surviving Corporation.
2. EFFECTIVE DATE. The Merger shall become effective on the date on
which Articles of Merger are filed with the Secretary of State of Illinois
(the "EFFECTIVE DATE").
<PAGE>
3. SURVIVING CORPORATION. The Surviving Corporation shall survive the
Merger and shall continue to be governed by the laws of the State of
Delaware, but the separate corporate existence of the Terminating Corporation
shall cease forthwith upon the Effective Date.
4. AUTHORIZED CAPITAL. The authorized capital stock of the Surviving
Corporation following the Effective Date will be 50,000,000 shares of Common
Stock, $0.001 par value per share, and 5,000,000 shares of Preferred Stock,
$0.001 par value per share, unless and until such authorized capital shall be
changed in accordance with the laws of the State of Delaware.
5. CERTIFICATE OF INCORPORATION. The current Certificate of
Incorporation of the Surviving Corporation shall continue to be the Surviving
Corporation's Certificate of Incorporation following the Effective Date,
unless and until the same shall be otherwise amended or repealed in
accordance with the provisions thereof and in accordance with the laws of the
State of Delaware.
6. BYLAWS. The current Bylaws of the Surviving Corporation shall be
the Bylaws of the Surviving Corporation following the Effective Date unless
and until the same shall be otherwise amended or repealed in accordance with
the provisions thereof and of the Surviving Corporation's Certificate of
Incorporation and in accordance with the laws of the State of Delaware.
7. DIRECTORS AND OFFICERS. The officers and directors of the
Terminating Corporation shall, from and after the Effective Date, be the
officers and directors of the Surviving Corporation until their successors
have been duly elected or appointed and qualify or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
8. CONVERSION OF OUTSTANDING SHARES OF TERMINATING CORPORATION. The
manner and basis of converting the outstanding shares of capital stock of the
Terminating Corporation into shares of the Surviving Corporation shall be as
follows:
As of the Effective Date, by virtue of the Merger and without any
further action on the part of the Surviving Corporation, the Terminating
Corporation, or the holders thereof:
(i) Each share of Common Stock of the Surviving Corporation
outstanding immediately prior to the Effective Date shall be canceled;
and
(ii) Each share of Common Stock of the Terminating Corporation
outstanding immediately prior to the effective Date shall be cancelled
and converted into the right to receive from Surviving Corporation one
fully paid and non-assessable share of the Common Stock of the
Surviving Corporation, par value of $0.001 per share.
2
<PAGE>
9. TRANSFER OF TANGIBLE AND INTANGIBLE PROPERTY INTERESTS UPON THE
EFFECTIVE DATE. Immediately upon the Effective Date, without limiting the
force and effect of any applicable provisions of the Illinois Business
Corporation Act of 1983, as amended (the "ILLINOIS ACT"), or of the Delaware
General Corporation Law, as amended (the "DELAWARE ACT"), with respect to the
legal effect of the Merger, all the real and personal property rights and
interests, privileges, franchises, patents, trade secrets, confidential
information, trademarks, licenses, registrations and all other legal rights
and assets of every kind and description of the Terminating Corporation,
whether tangible or intangible, shall be automatically transferred to, vested
in and devolve upon the Surviving Corporation without further act or deed;
and all property, rights and every other interest of the Surviving
Corporation and of the Terminating Corporation shall be as effectively the
property of the Surviving Corporation as they theretofore were of the
Surviving Corporation and the Terminating Corporation, respectively. The
Terminating Corporation and its directors and officers hereby agree from time
to time as and when requested by the Surviving Corporation or by its
successors and assigns, to execute and deliver or cause to be executed and
delivered all such deeds and instruments and to take or cause to be taken
such further or other actions as the Surviving Corporation may deem necessary
or desirable in order to vest in, and confirm to, the Surviving Corporation,
title to and possession of any and all property of the Terminating
Corporation acquired or to be acquired by the Surviving Corporation by reason
or as a result of the Merger and otherwise to carry out all of the intents
and purposes hereof. The officers and directors of the Terminating
Corporation and the officers and directors of the Surviving Corporation are
hereby fully authorized in the name of the Terminating Corporation and the
Surviving Corporation, respectively, to take any and all such actions on
behalf of the respective corporations to effect the Merger.
10. ASSUMPTION OF CONTRACTS; STOCK PLANS. Immediately upon the
Effective Date, without limiting the force and effect of any applicable
provisions of the Illinois Act, or of the Delaware Act, with respect to the
legal effect of the Merger, all of the contracts, agreements, instruments and
obligations to which the Terminating Corporation is a party or by which it is
bound shall be automatically assumed by and become binding upon the Surviving
Corporation. Without limiting the generality of the foregoing, the Surviving
Corporation shall satisfy all obligations on the part of the Terminating
Corporation to issue securities to holders of options or rights to purchase
such securities by means of granting or issuing of options or rights to
purchase substantially equivalent securities of the Surviving Corporation as
provided in Section 8(ii) above. In addition, the Surviving Corporation, and
by their approval hereof, its stockholders, hereby adopt and approve each of
the Terminating Corporation's equity compensation and nonmandatory employee
benefit plans (the "PLANS") which Plans shall have terms, conditions and
provisions on the Effective Date which are substantially identical to those
in effect for the Terminating Corporation immediately prior to the Effective
Date, excepting only that appropriate references to equity securities of the
Surviving Corporation shall be substituted throughout the text of such plans
wherever there were previously references to equity securities of the
Terminating Corporation.
11. REPRESENTATIONS OF THE TERMINATING CORPORATION AND THE SURVIVING
CORPORATION. The Terminating Corporation and the Surviving Corporation each
hereby represents and warrants that (i) it is not a party, jointly or
severally, to any contract or agreement, the terms of which
3
<PAGE>
would be violated or breached by it upon execution and consummation of this
Plan and Agreement of Merger, or (ii) appropriate waivers of all such
agreements have been obtained. In addition, the Terminating Corporation and
the Surviving Corporation each hereby represents and warrants that this Plan
and Agreement of Merger is enforceable against each of the respective
corporations in accordance with its terms.
12. SURVIVAL OF REPRESENTATIONS. All representations and warranties of
the Terminating Corporation and of the Surviving Corporation contained in
this or any other instrument delivered by or on behalf of any of them are
true and correct now, and will be true and correct on the Effective Date with
the same force and effect as if made on and as of said date.
13. ENTIRE AGREEMENT. This Plan and Agreement of Merger constitutes the
entire agreement by and between the parties hereto with respect to the
matters herein contemplated. This Plan and Agreement of Merger supersedes all
previous agreements, negotiations and commitments in respect thereto. This
Plan and Agreement of Merger shall not be changed or modified in any manner,
except by mutual consent in a writing of subsequent date signed by the duly
authorized representatives of each party hereto.
14. FURTHER ASSURANCES. Following the receipt of all required approvals
of this Plan and Agreement of Merger by the respective stockholders of the
parties, as applicable, each of the parties hereto shall immediately execute
and deliver to the other party hereto and file with appropriate governmental
authorities such instruments as may be reasonably required in connection with
the consummation of the Merger contemplated hereby.
15. BINDING EFFECT. This Plan and Agreement of Merger shall be binding
upon and inure to the benefit of all the parties hereto and their respective
successors in interest.
16. MISCELLANEOUS. Paragraph headings do not form a part of this Plan
and Agreement of Merger, but are for convenience of reference only and shall
not limit or affect in any way the meaning or interpretation hereof. The
failure of either party to enforce any of the provisions hereof shall not
waive or limit the right of such party thereafter to strictly enforce such
provision, or of the right of such party thereafter to enforce each and every
provision hereof.
17. REVOCABILITY OF PLAN AND AGREEMENT. Anything herein or elsewhere to
the contrary notwithstanding, this Plan and Agreement of Merger may be
terminated and abandoned either by the Board of Directors of the Terminating
Corporation or by the Board of Directors of the Surviving Corporation at any
time prior to the date of filing. Without limiting the generality of the
foregoing, this Plan and Agreement of Merger may be terminated and abandoned
by the Board of Directors, in its sole discretion, of the Terminating
Corporation if any shareholder of the Terminating Corporation retains his or
her or its dissenters' rights immediately prior to the Effective Date.
4
<PAGE>
IN WITNESS WHEREOF, the Terminating Corporation and the Surviving
Corporation, respectively, have caused this Plan and Agreement of Merger to
be executed and delivered by their respective executive officers, thereunto
duly authorized, effective as of this 14th day of March, 2000.
ATTEST: U.S. RealTel, Inc., an Illinois corporation
/s/ Craig M. Siegler By: /s/ Jordan E. Glazov
----------------------------- ---------------------------------------
Craig M. Siegler, Secretary Jordan E. Glazov, President
ATTEST: U.S. RealTel, Inc., a Delaware corporation
/s/ Craig M. Siegler By: /s/ Jordan E. Glazov
------------------------------ ---------------------------------------
Craig M. Siegler, Secretary Jordan E. Glazov, President
5
<PAGE>
CERTIFICATE OF INCORPORATION
OF
U.S. REALTEL, INC.
The undersigned, a natural person, for the purposes of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known and referred to as
the "DGCL"), hereby certifies that:
I
The name of the corporation is U.S. RealTel, Inc.
II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, 19805.
The name of the registered agent at such address is Corporation Service Company.
III
The nature of the business to be conducted or promoted is to engage in
any lawful act or activity for which corporations may be organized under the
DGCL.
IV
The total number of shares of all classes of stock that the Corporation
is authorized to issue is Fifty-Five Million (55,000,000) shares, consisting of
Fifty Million (50,000,000) shares of Common Stock, par value of $0.001 per
share, and Five Million (5,000,000) shares of Preferred Stock, par value of
$0.001 per share.
Any of the shares of Preferred Stock may be issued from time to time in
one or more series. Subject to the limitations in this Article IV set forth
herein, the Board of Directors, by resolution or resolutions, is authorized to
create or provide for any such series, and to fix the designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including, without
limitation, the authority to fix or alter the dividend rights, dividend rates,
conversion rights, exchange rights, voting rights, rights and terms of
redemption (including sinking and purchase fund provisions), the redemption
price or prices, the dissolution preferences and the rights in respect to any
distribution of assets of any wholly unissued series of Preferred Stock and the
number of shares constituting any such series, and the designation thereof, or
any of them and to increase or decrease the number of shares of any series so
created, subsequent to the issued of that series but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so
<PAGE>
decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
There shall be no limitation or restriction on any variation between
any of the different series of Preferred Stock as to the designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof; and the several series
of Preferred Stock may, except as hereinafter in this Article IV otherwise
expressly provided, vary in any and all respects as fixed and determined by the
resolution or resolutions of the Board of Directors, providing for the issuance
of the various series; provided, however, that all shares of any one series of
Preferred Stock shall have the same designation, preferences, and relative,
participating, optional or other special rights and qualifications, limitations
and restrictions.
V
The name and the mailing address of the sole incorporator is as
follows:
NAME MAILING ADDRESS
Christopher G. Barrett Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Suite 2900
Chicago, Illinois 60606
VI
The business and affairs of the Corporation shall be managed by or
under the direction of a board of directors. The number of directors of the
Corporation shall be as specified in the By-Laws of the Corporation, but such
number may from time to time be increased or decreased in such manner as may be
prescribed by the By-Laws. In no event shall the number of directors be less
than the minimum prescribed by law. The election of directors need not be by
ballot. Directors need not be stockholders.
VII
In furtherance and not in limitation of the power conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the By-Laws of the Corporation.
VIII
No stockholder of the Corporation shall by reason of holding shares of
any class of stock have any cumulative voting right.
2
<PAGE>
IX
A director of the Corporation shall not, in the absence of fraud, be
disqualified by his or her office from dealing or contracting with the
Corporation either as a vendor, purchaser or otherwise, nor in the absence of
fraud shall a director of the Corporation be liable to account to the
Corporation for any profit realized by the director from or through any
transaction or contract of the Corporation by reason of the fact that the
director, or any firm of which he or she is a member or any corporation of which
he or she is an officer, director or stockholder, was interested in such
transaction or contract if such transaction or contract has been authorized,
approved or ratified in a manner provided in the DGCL for authorization,
approval or ratification of transactions or contracts between the Corporation
and one or more of its directors or officers or between the Corporation and any
other corporation, partnership, association or other organization in which one
or more of its directors or officers are directors or officers or have a
financial interest.
X
Meetings of stockholders may be held within or without the State of
Delaware as the By-Laws may provide. The books of the Corporation may be kept
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors of the Corporation or in the By-Laws of
the Corporation. Election of directors need not be by written ballot unless the
By-Laws of the Corporation so provide.
XI
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of the DGCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of the DGCL order a meeting of the creditors or
class of creditors and/or the stockholders or class of stock of the Corporation,
as the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing two-thirds the value of the creditors or class
of creditors and/or the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement or to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement of the said reorganization
shall, if sanctioned by the Court to which the said application has been made,
be binding on all the creditors or class of creditors and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
XII
A. INDEMNIFICATION OF OFFICERS AND DIRECTORS: The Corporation shall:
3
<PAGE>
(a) indemnify, to the fullest extent permitted by the DGCL, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that such person is or
was a director or an officer of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
or, if such person has previously been designated for indemnification by
the resolution of the Board of Directors, an officer, employee or agent of
the Corporation, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
such person in connection with such action, suit or proceeding if such
person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interest of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such person's conduct was
unlawful; and
(b) indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit
by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that such person is or was a director or an
officer, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, joint
venture, trust or other enterprise, or, if such person has previously
been designated for indemnification by the resolution of the Board of
Directors, an officer, employee or agent of the Corporation, against
expenses (including attorneys' fees) actually and reasonably incurred by
each person in connection with the defense or settlement of such action
or suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper; and
(c) indemnify any director, or, if such person has previously been
designated for indemnification by the resolution of the Board of Directors,
an officer, employee or agent against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith, to
the extent that such director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of
any
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action, suit or proceeding referred to in Article XII.A. (a) and (b), or
in defense of any claim, issue or matter therein; and
(d) make any indemnification under Article XII.A. (a) and (b) (unless
ordered by a court) only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because such director, officer,
employee or agent has met the applicable standard of conduct set forth in
Article XII.A. (a) and (b). Such determination shall be made (1) by the
Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or
(3) by the stockholders of the Corporation; and
(e) pay expenses incurred by a director or an officer in defending
a civil or criminal action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such director or
officer is not entitled to be indemnified by the Corporation as
authorized in this Article XII. Notwithstanding the foregoing, the
Corporation shall not be obligated to pay expenses incurred by a
director or an officer with respect to any threatened, pending, or
completed claim, suit or action, whether civil, criminal,
administrative, investigative or otherwise ("Proceedings") initiated or
brought voluntarily by a director or an officer and not by way of
defense (other than Proceedings brought to establish or enforce a right
to indemnification under the provisions of this Article XII unless a
court of competent jurisdiction determines that each of the material
assertions made by the director or officer in such proceeding were not
made in good faith or were frivolous). The Corporation shall not be
obligated to indemnify the director or officer for any amount paid in
settlement of a Proceeding covered hereby without the prior written
consent of the Corporation to such settlement; and
(f) not deem the indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of this
Article XII exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such director's or officer's official
capacity and as to action in another capacity while holding such office;
and
(g) have the right, authority and power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the
provisions of this Article XII; and
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(h) deem the provisions of this Article XII to be a contract
between the Corporation and each director, or appropriately designated
officer, employee or agent who serves in such capacity at any time while
this Article XII is in effect and any repeal or modification of this
Article XII shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon such state of facts. The
provisions of this Article XII not be deemed to be a contract between
the Corporation and any directors, officers, employees or agents of any
other Corporation (the "Second Corporation") which shall merge into or
consolidate with this Corporation when this Corporation shall be the
surviving or resulting Corporation, and any such directors, officers,
employees or agents of the Second Corporation shall be indemnified to
the extent required under the DGCL only at the discretion of the Board
of Directors of this Corporation; and
(i) continue the indemnification and advancement of expenses
provided by, or granted pursuant to, this Article XII, unless otherwise
provided when authorized or ratified, as to a person who has ceased to
be a director, officer, employee or agent of the Corporation and such
rights shall inure to the benefit of the heirs, executors and
administrators of such a person.
B. ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS: No director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, as the same exists or hereafter may be amended, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the DGCL is amended to authorize the further elimination or
limitation of liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by a amended DGCL. Any
repeal or modification of this Article XII by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
XIII
The Board of Directors of the Corporation may adopt a resolution
proposing to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute.
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IN WITNESS WHEREOF, I have hereunto set my hand on February 29, 2000.
/s/ Christopher G. Barrett
--------------------------
Christopher G. Barrett
Sole Incorporator
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U.S. REALTEL, INC.
A DELAWARE CORPORATION
BYLAWS
ARTICLE
1.
OFFICES
1.1. REGISTERED OFFICE. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
1.2. OTHER OFFICES. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.
ARTICLE
2.
MEETINGS OF STOCKHOLDERS
2.1. PLACE OF MEETING. All meetings of the stockholders for the election of
directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated by the Board of Directors in the notice of the
meeting or in a duly executed waiver of notice thereof. If no designation is
made, the place of meeting shall be the principal office of the Corporation in
Illinois.
2.2. VOTING LISTS. The officer who has charge of the ledger of the
Corporation shall prepare and make available, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting on such issue, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
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2.3. TIME OF ANNUAL MEETING. Annual meetings of all stockholders shall be
held at such date and time as shall be designated from time to time by the Board
of Directors and stated in the notice of the meeting, which date shall be within
six months after the end of the fiscal year. At each annual meeting, the
stockholders shall elect directors to hold office for the term provided in
Section 3.2 of these Bylaws, and conduct such other business as shall be
considered in accordance with this Section 2.3.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the Board of Directors, or (ii) by any stockholder of the
Corporation who complies with the notice procedures set forth in this Section
2.3 of these Bylaws, in the time herein provided. For business to be properly
brought before an annual meeting by a stockholder, the stockholder must deliver
written notice to, or mail such written notice so that it is received by, the
Secretary of the Corporation, at the principal executive offices of the
Corporation, not less than one hundred twenty (120) nor more than one hundred
fifty (150) days prior to the first anniversary of the date of the Corporation's
consent solicitation or proxy statement released to stockholders in connection
with the previous year's election of directors or meeting of stockholders,
except that if no annual meeting of stockholders or election by consent was held
in the previous year, the stockholder must deliver written notice to, or mail
such written notice so that it is received by, the Secretary of the Corporation,
at the principal executive offices of the Corporation, within ten (10) days
after the Corporation has "publicly disclosed" the date of the meeting in the
manner provided below in this Section 2.3. The stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (iv) any material interest of the stockholder in such business.
No matter which is not a proper matter for stockholder consideration shall be
brought before the meeting. For purposes of these Bylaws, "publicly disclosed"
or "public disclosure" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press, or a comparable national news service
or in a document filed by the Corporation with the Securities and Exchange
Commission.
2.4. NOTICE OF ANNUAL MEETINGS. Written or printed notice stating the
place, day and hour of the meeting, and in the case of a special meeting, the
purposes for which the meeting is called, shall be delivered not less than ten
nor more than sixty days before the date of the meeting, or in the case of a
merger or consolidation, not less than twenty (20) nor more than sixty (60) days
before the meeting, either personally or by mail, by or at the direction of the
Chairman of the Board, the President, or the Secretary, or the officer or
persons calling the meeting, to each stockholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the stockholder at his address
as it appears on the records of the Corporation, with postage thereon prepaid.
2.5. DIRECTOR NOMINATIONS. Only persons who are nominated in accordance
with the following procedure shall be eligible to serve as directors.
Nominations of persons for election
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to the Board of Directors of the Corporation at a meeting of stockholders may be
made (i) by or at the direction of the Board of Directors, or (ii) by any
stockholder of the Corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Section
2.5. Such nominations, other than those made by or at the direction of the Board
of Directors, shall be made pursuant to timely notice in writing to the
secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to, or mailed and received by, the Secretary of the Corporation at the
principal executive offices of the Corporation not less than one hundred twenty
(120) nor more than one hundred fifty (150) days prior to the meeting; provided,
however, that if the Corporation has not "publicly disclosed" (in the manner
provided in the last sentence of Section 2.3) the date of the meeting at least
seventy (70) days prior to the meeting date, the stockholder must deliver
written notice to, or mail such written notice so that it is received by, the
Secretary of the Corporation, at the principal executive offices of the
Corporation, within ten (10) days after the Corporation has "publicly disclosed"
the date of the meeting. Such stockholder's notice shall set forth (i) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (ii) as to the stockholder giving notice (A) the name
and address, as they appear on the Corporation's books, of such stockholder, and
(B) the class and number of shares of the Corporation which are beneficially
owned by such stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a director shall furnish to
the Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible to serve as a director of the Corporation unless nominated in
accordance with the procedure set forth herein. The presiding officer shall, if
the facts so warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the Bylaws, and if such
officer should so determine, such officer shall so declare to the meeting, and
the defective nomination shall be disregarded.
2.6. SPECIAL MEETINGS OF THE STOCKHOLDERS. Special meetings of all of the
stockholders of the Corporation, may be called only by the Chairman of the Board
or the President; the Board of Directors, pursuant to a resolution approved by a
majority of the Board of Directors; or at the request in writing of stockholders
owning at least twenty percent (20%) of the entire capital stock of the
Corporation issued and outstanding and entitled to vote. The business transacted
at any special meeting of the stockholders shall be limited to the purposes
stated in the notice for the meeting transmitted to stockholders.
2.7. NOTICE OF SPECIAL MEETINGS. Written notice of a special meeting
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be given by the secretary of the Corporation
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting, or in the case of
a merger or consolidation, not less than twenty (20) nor more than sixty (60)
days before the meeting, either personally or by mail, by or at the direction of
the Chairman of the Board, the
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President, or the Secretary, or the officer or persons calling the meeting, to
each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. No business may be transacted at any
special meeting except that referred to in the notice thereof, or in a
supplemental notice given also in compliance with the provisions hereof, or such
other business as may be germane or supplementary to that stated in said
notice(s).
2.8. QUORUM AND ADJOURNMENTS. The holders of a majority of the voting power
of the stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except as otherwise provided by
statute or the Corporation's Certificate of Incorporation. If, however, such
quorum shall not be present or represented at any such meeting of the
stockholders, a majority of the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented; provided that if the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed by the directors for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
adjourned meeting. At such adjourned meeting at which a quorum shall be present
or represented any business may be transacted which might have been transacted
at the meeting as originally notified.
2.9. FIXING OF RECORD DATE. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or stockholders
entitled to receive payment of any dividend, or in order to make a determination
of stockholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, sixty (60) days. If the stock
transfer books shall be closed for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such books shall
be closed for at least ten (10) days, or in the case of a merger or
consolidation, at least twenty (20) days, immediately preceding such meeting. In
lieu of closing the stock transfer books, the Board of Directors may fix in
advance a date as the record date for any such determination of stockholders,
such date in any case to be not more than sixty (60) days and, for a meeting of
stockholders, not less than ten (10) days, or in the case of a merger or
consolidation, not less than twenty (20) days, immediately preceding such
meeting. If the stock transfer books are not closed and no record date is fixed
for the determination of stockholders entitled to notice of or to vote at a
meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
stockholders.
2.10. VOTE REQUIRED. When a quorum is present at any meeting of all
stockholders, the affirmative vote of holders of a majority of the voting power
of the stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall decide any question brought before such
meeting, unless the question is one upon which by express provision of law
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or of the Certificate of Incorporation requires a different vote, in which case
such express provision shall govern and control the decision of such question.
2.11. VOTING RIGHTS. Unless otherwise provided in the Certificate of
Incorporation, each stockholder having voting power shall at every meeting of
the stockholders be entitled to one vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after eleven (11) months from its date, unless the proxy
provides for a longer period. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing or by a transmission permitted by law flied in accordance
with the procedure established for the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used; provided that, such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission. All voting, including the election of
directors but except where otherwise required by law, may be by a voice vote;
provided, however, that upon demand by a stockholder entitled to vote or by his
or her proxy, a stock vote shall be taken. Every stock vote shall be taken by
ballots, each of which shall state the name of the stockholder or proxy voting
and such other information as may be required under the procedure established
for the meeting. The Corporation may, and to the extent required by law, shall,
in advance of any meeting of stockholders, appoint one or more inspectors to act
at the meeting and make a written report thereof. Such inspector may be an
officer, director or employee of the Corporation. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting may, and to the extent
required by law, shall, appoint one or more inspectors to act at the meeting.
Each inspector, before entering upon the discharge of his or her duties, shall
take and sign an oath to faithfully execute the duties of inspector with strict
impartiality and according to the best of his or her ability. Every vote taken
by ballots shall be counted by an inspector or inspectors appointed by the
chairman of the meeting.
2.12. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Corporation held
by the Corporation, unless held by it in a fiduciary capacity, shall not be
voted, directly or indirectly, at any meeting, and shall not be counted in
determining the total number of outstanding shares at any given time. Shares
registered in the name of another corporation, domestic or foreign, may be voted
by such officer, agent, proxy or other legal representative authorized to vote
such shares under the law of incorporation of such corporation. Shares
registered in the name of a deceased person, a minor ward or a person under
legal disability may be voted by his administrator, executor or court appointed
guardian, either in person or by proxy, without a transfer of such shares into
the name of such administrator, executor or court appointed guardian. Shares
registered in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares registered in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer thereof into
his name if authority so to do is contained in an appropriate order of the court
by which such
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receiver was appointed. A stockholder whose shares are pledged shall be entitled
to vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
2.13. MEETING LEADERSHIP; INSPECTORS. The Chairman of the Board of
Directors shall preside at all meetings of the stockholders. In the absence or
inability to act of the Chairman, the Chief Executive Officer (if such an
officer has been appointed), the President, the Chief Financial Officer (if such
an officer has been appointed) or an executive vice president (in that order)
shall preside, and in their absence or inability to act another person
designated by one of them shall preside. The chairman of the meeting shall
appoint a person who need not be a stockholder to act as secretary of the
meeting.
2.14. ORDER. Meetings of the stockholders need not be governed by any
prescribed rules of order. The presiding officer's rulings on procedural matters
shall be final. The presiding officer is authorized to impose time limits on the
remarks of individual stockholders and may take such steps as such officer may
deem necessary or appropriate, in his or her sole discretion, to assure that the
business of the meeting is conducted in an orderly manner.
2.15. INFORMAL ACTION BY STOCKHOLDERS. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of the stockholders, or any other action which may be taken at
any annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE
3.
DIRECTORS
3.1. GENERAL POWERS. The business of the Corporation shall be managed by or
under the direction of its Board of Directors which may exercise all such powers
of the Corporation and do all such lawful acts and things as are not required by
statute, by the Certificate of Incorporation, or by these Bylaws to be done by
the stockholders. Directors need not be residents of the State of Delaware or
stockholders of the Corporation.
3.2. NUMBER, TENURE AND ELECTION. The number of directors of the
Corporation shall be no less than five (5) and no more than ten (10). The exact
number of directors may be fixed from time to time by resolution of the Board of
Directors of the Corporation. Each director shall hold office until the next
annual meeting of stockholders or until his successor shall have been
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duly elected and qualify. Directors need not be residents of Delaware or
stockholders of the Corporation.
3.3. VACANCIES. Any vacancy occurring in the Board of Directors and any
directorship to be filled by reason of an increase in the number of directors
may be filled by the directors at a special meeting called for such purpose. Any
director elected to such vacancy shall hold office until the next annual meeting
of stockholders. In addition, vacancies may be filled by election at an annual
meeting or special meeting of the stockholders called for that purpose.
3.4. PLACE OF MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. The first meeting of each newly elected Board of Directors may be held
immediately following the adjournment of the annual meeting of the stockholders
at the same place as such annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not
held at such time and place, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors, or as shall be specified in a written waiver
signed by all of the directors.
3.5. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be
held, without notice, immediately after and at the same place as the annual
meeting of the stockholders. Additional regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors.
3.6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the Chairman, the Chief Executive Officer (if such an officer has been
appointed) or the President on at least one days' notice to each director,
either personally, or by courier, telephone, facsimile, mail or telegram.
Special meetings shall be called by the Chairman, the Chief Executive Officer
(if such an officer has been appointed), the President or the Chief Financial
Officer (if such an officer has been appointed) in like manner and on like
notice at the written request of any two directors stating the purpose or
purposes for which such meeting is requested. Notice of any meeting of the Board
of Directors for which a notice is required may be waived in writing signed by
the person or persons entitled to such notice, whether before or after the time
of such meeting, and such waiver shall be equivalent to the giving of such
notice. Attendance of a director at any such meeting shall constitute a waiver
of notice thereof, except where a director attends a meeting for the express
purpose of objecting to the transaction of any business because such meeting is
not lawfully convened. Neither the business to be transacted at nor the purpose
of any meeting of the Board of Directors for which a notice is required need be
specified in the notice, or waiver of notice, of such meeting. The Chairman
shall preside at all meetings of the Board of Directors. In the absence or
inability to act of the Chairman, the Chief Executive Officer, the President,
the Chief Financial Officer or an executive vice president (in that order) shall
preside, and in their absence or inability to act another director designated by
one of them shall preside.
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3.7. QUORUM; NO ACTION ON CERTAIN MATTERS. At all meetings of the Board of
Directors, a majority of the then duly elected directors shall constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute, by the Certificate of Incorporation or by these Bylaws. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
3.8. RESIGNATIONS. Any director of the Corporation may resign at any time
by giving written notice to the Board of Directors, the Chairman, the Chief
Executive Officer (if such an officer has been appointed), the President, the
Chief Financial Officer (if such an officer has been appointed) or the Secretary
of the Corporation. Such resignation shall take effect at the time specified
therein and, unless tendered to take effect upon acceptance thereof, the
acceptance of such resignation shall not be necessary to make it effective.
3.9. REMOVAL OF DIRECTORS. One or more of the directors may be removed,
with or without cause, at a meeting of stockholders by the affirmative vote of
the holders of a majority of the outstanding shares then entitled to vote at an
election of directors, except that no director shall be removed at a meeting of
stockholders unless the notice of such meeting shall state that a purpose of the
meeting is to vote upon the removal of one or more directors named in the
notice. Only the named director or directors may be removed at such meeting.
3.10. INFORMAL ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board of Directors or committee, as the
case may be, consent thereto in writing. The action taken shall be effective
when all the directors have approved the consent unless the consent specifies a
different effective date.
3.11. PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board of
Directors, or any committee designated by such board, may participate in a
meeting of such board, or committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
subsection shall constitute presence in person at such meeting.
3.12. PRESUMPTION OF ASSENT. A director of the Corporation who is present
at a meeting of the Board of Directors at which action on any corporate matter
is taken shall be conclusively presumed to have assented to the action taken
unless his or her dissent shall be entered in the minutes of the meeting or
unless he or she shall file his or her written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
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3.13. COMPENSATION. In the discretion of the Board of Directors, the
directors may be paid their expenses, if any, for attendance at each meeting of
the Board of Directors, may be paid a fixed sum for attendance at each meeting
of the Board of Directors or a stated salary as director, and may be able to
participate in certain benefit plans of the Corporation, including stock option
plans. No such payment shall preclude any director from serving the Corporation
in any other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
ARTICLE
4.
COMMITTEES OF DIRECTORS
4.1. APPOINTMENT AND POWERS. The Board of Directors may, by resolution
passed by a majority of the whole board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority to (i) amend the Certificate of
Incorporation, (ii) authorize distributions, (iii) approve or recommend to
stockholders any act which requires the approval of the stockholders, (iv) fill
vacancies on the Board of Directors or on any of its committees, (v) elect or
remove officers or fix the compensation of any member of the committee, (vi)
adopt, amend or repeal these Bylaws, (vii) approve a plan of merger not
requiring stockholder approval, (viii) authorize or approve reacquisition of
shares, except according to a general formula or method prescribed by the Board
of Directors, (ix) authorize or approve the issuance or sale, or contract for
sale of shares or determine the designation and relative rights, preferences,
and limitations of a series of shares, except that the Board of Directors may
direct a committee to fix the specific terms of the issuance or sale or contract
for sale or the number of shares to be allocated to particular employees under
an employee benefit plan, or (x) amend, alter, repeal, or take action
inconsistent with any resolution or action of the Board of Directors when the
resolution or action of the Board of Directors provides by its terms that it
shall not be amended, altered or repealed by action of a committee.
4.2. COMMITTEE MINUTES. Each committee shall keep regular minutes of its
meetings and shall file such minutes and all written consents with the Secretary
of the Corporation. Each committee may determine the procedural rules for
meeting and conducing its business and shall act in accordance therewith, except
as otherwise provided herein or required by law. Adequate
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provision shall be made for notice to members of all meetings; one-third of the
members shall constitute a quorum unless the committee shall consist of one or
two members, in which event one member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
ARTICLE
5.
NOTICES
5.1. MANNER OF NOTICE. Whenever under applicable law or the Certificate of
Incorporation or of these Bylaws, notice is required to be given to any director
or stockholder, unless otherwise provided in the Certificate of Incorporation or
these Bylaws, such notice may be given in writing, delivered personally or by
courier or mail, addressed to such director or stockholder, at his or her
address as it appears on the records of the Corporation, with freight or postage
thereon prepaid. If delivered personally, such notice shall be deemed delivered
upon receipt. If notice is given by courier, such notice shall be deemed to be
delivered one business day following deposit with the courier. If mailed, such
notice shall be deemed to be delivered two days following deposit in the United
States mail. Notice to directors may also be given by telegram, mailgram, telex
or facsimile. If such notice is given by telegram or mailgram, such notice shall
be deemed to be delivered one day following delivery of the telegram or mailgram
to the telegraph company or post office. If notice is given by telex or
facsimile, such notice shall be deemed to be delivered on the day of
transmission if transmitted during the recipient's normal business hours or one
business day following transmission if transmitted after business hours.
5.2. WAIVER. Whenever any notice is required to be given under the
provisions of law or of the Certificate of Incorporation or of these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
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ARTICLE
6.
OFFICERS
6.1. NUMBER AND QUALIFICATIONS. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a chairman of the board, a
president, a secretary and a treasurer or chief financial officer. The Board of
Directors may also choose additional co-chairman, a chief executive officer, one
or more vice-presidents, a treasurer, one or more assistant secretaries and
assistant treasurers and such additional officers as the Board of Directors may
deem necessary or appropriate from time to time. Membership on the board shall
not be a prerequisite to the holding of any other office. Any number of offices
may be held by the same person, unless the Certificate of Incorporation or these
Bylaws otherwise provide.
6.2. ELECTION. The Board of Directors at its first meeting after each
annual meeting of stockholders shall elect a chairman of the board, a president,
a treasurer or chief financial officer and a secretary, and may choose a
treasurer, one or more vice-presidents, one or more assistant secretaries and
assistant treasurers and such other officers as the Board of Directors shall
deem desirable.
6.3. OTHER OFFICERS AND AGENTS. The Board of Directors may choose such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
6.4. SALARIES. The salaries of all officers and agents of the Corporation
shall be fixed by the Board of Directors.
6.5. TERM OF OFFICE. The officers of the Corporation shall hold office
until their successors are chosen and qualify or until their earlier resignation
or removal. Any officer elected or appointed by the Board of Directors may be
removed at any time by the Board of Directors. Any vacancy occurring in any
office of the Corporation shall be filled by the Board of Directors.
6.6. REMOVAL AND RESIGNATION. Any officer may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Any officer may resign at any time by
giving written notice to the Board of Directors, the Chairman of the Board, the
President or the Secretary. Such resignation shall take effect at the time
specified therein; and, unless tendered to take effect upon acceptance thereof,
the acceptance of such resignation shall not be necessary to make it effective.
6.7. THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall be elected
by and from the membership of the Board of Directors and shall preside at all
meetings of the stockholders and of the Board of Directors. He or she shall see
that orders and resolutions of the
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Board of Directors are carried into effect. In addition, the Chairman of the
Board shall perform such duties as may be assigned by the Board of Directors.
6.8. THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the
principal, executive officer of the Corporation and shall, in general, supervise
and control all of the business and affairs of the Corporation, unless otherwise
provided by the Board of Directors. He or she may sign bonds, mortgages,
certificates for shares and all other contracts and documents whether or not
under the seal of the Corporation except in cases where the signing and
execution thereof shall be expressly delegated by law, by the Board of Directors
or by these Bylaws to some other officer or agent of the Corporation. He or she
shall have general powers of supervision and shall be the final arbiter of all
differences between officers of the Corporation and his or her decision as to
any matter affecting the Corporation shall be final and binding as between the
officers of the Corporation subject only to its Board of Directors.
6.9. THE PRESIDENT. The President shall be the chief operating officer of
the Corporation. In the absence of the Chairman, the president shall perform the
duties of the Chairman, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Chairman. He or she shall have
concurrent power with the Chairman to sign bonds, mortgages, certificates for
shares and other contracts and documents, whether or not under the seal of the
Corporation except in cases where the signing and execution thereof shall be
expressly delegated by law, by the Board of Directors or by these Bylaws to some
other officer or agent of the Corporation. In general, he or she shall perform
all duties incident to the office of president and such other duties as the
Chief Executive Officer or the Board of Directors may from time to time
prescribe.
6.10. THE VICE-PRESIDENTS. In the absence of the President or in the event
of his or her inability or refusal to act, the Vice-President (or in the event
there be more than one Vice-President, the Executive Vice-President and then the
other vice-president or vice-presidents) shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. The Vice-Presidents shall perform such
other duties and have such other powers as the Chief Executive Officer or the
Board of Directors may from time to time prescribe.
6.11. THE SECRETARY. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He or she shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or the Chief Executive Officer, under whose supervision he or she shall be. He
or she shall have custody of the corporate seal of the Corporation and he or
she, or an assistant secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such assistant secretary. Any other officer
shall also have the authority to affix the seal of the Corporation and to attest
the affixing by his or her signature.
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6.12. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall be the
principal financial and accounting officer of the Corporation, and shall (a)
have charge and custody of, and be responsible for, all funds and securities of
the Corporation; (b) keep or cause to be kept correct and complete books and
records of account including a record of all receipts and disbursements; (c)
deposit all funds and securities of the Corporation in such banks, trust
companies or other depositaries as shall be selected in accordance with these
By-laws; (d) from time to time prepare or cause to be prepared and render
financial statements of the Corporation at the request of the President, the
Chairman of the Board or the Board of Directors; and (e), in general, perform
all duties incident to the office of Chief Financial Officer and such other
duties as from time to time may be prescribed by the Chairman of the Board, the
President or the Board of Directors; provided, however, that in connection with
the election of the Chief Financial Officer, the Board of Directors may limit in
any manner the duties (other than those specified in clauses (a) through (d)
hereof) which may be prescribed to be performed by the Chief Financial Officer
by the Chairman of the Board and/or the President. If required by the Board of
Directors, the Chief Financial Officer shall give a bond for the faithful
discharge of his duties in such sum and with such surety or sureties as the
Board of Directors shall determine.
6.13. THE TREASURER. In the absence of the Chief Financial Officer or in
the event of his or her inability or refusal to act, the Treasurer shall perform
the duties of the Chief Financial Officer, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Chief Financial
Officer. The Treasurer shall perform such other duties and have such other
powers as the Chief Executive Officer or the Board of Directors may from time to
time prescribe.
6.14. THE ASSISTANT SECRETARY. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries shall, in the absence of the secretary or in
the event of his or her inability or refusal to act, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the Chief Executive Officer or the Board of Directors
may from time to time prescribe.
6.15. THE ASSISTANT TREASURER. The Assistant Treasurer, or if there shall
be more than one, the Assistant Treasurers shall, in the absence of the
treasurer or in the event of his or her inability or refusal to act, perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Chairman or the Board of Directors may
from time to time prescribe.
ARTICLE
7.
CERTIFICATES OF STOCK, TRANSFERS AND RECORD DATES
7.1. FORM OF CERTIFICATES. Every holder of stock in the Corporation shall
be entitled to have a certificate, signed by, or in the name of the Corporation
by, the Chairman of the Board or the President and by the Treasurer, an
assistant treasurer, the Secretary or an assistant secretary
13
<PAGE>
of the Corporation, certifying the number of shares owned by him or her in the
Corporation. If the Corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designation,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock; provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth in full or summarized
on the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation will
furnish without charge to each stockholder who so requests, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Subject to the
foregoing, certificates for stock of the Corporation shall be in such form as
the Board of Directors may from time to time prescribe.
7.2. FACSIMILE SIGNATURES. In addition to the provisions for the use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
7.3. LOST CERTIFICATES. The Board of Directors or the Corporation's
executive officers may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the Corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors or the Corporation's executive officers may, in its, his
or her discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or his
or her legal representative, to advertise the same in such manner as it shall
require and/or give the Corporation a bond in such sum as it may direct as
indemnifying against any claim that may be made against the Corporation or its
transfer agent or registrar with respect to the certificate alleged to have been
lost, stolen or destroyed.
7.4. TRANSFERS OF STOCK. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer and evidence of compliance with applicable law, it shall be the duty of
the Corporation to issue a new certificate to the person entitled thereto cancel
the old certificate and record the transaction upon its books.
7.5. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner and to hold liable for
calls and assessments a person registered on its books as the owner of shares,
and shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
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<PAGE>
ARTICLE
8.
GENERAL PROVISIONS
8.1. DIVIDENDS. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock or rights to acquire same, subject to the provisions of the Certificate of
Incorporation. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
8.2. CHECKS. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
8.3. FISCAL YEAR. The fiscal year of the Corporation shall end on the
thirty-first (31st) day of December of each year unless otherwise fixed by
resolution of the Board of Directors.
8.4. SEAL. If adopted by the Board of Directors, the corporate seal shall
have inscribed thereon the name of the Corporation and the words "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise set forth on any document or
instrument.
ARTICLE
9.
AMENDMENTS
Unless otherwise provided in the Certificate of Incorporation, these Bylaws
may be altered, amended or repealed and new bylaws may be adopted by the Board
of Directors or the stockholders.
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<PAGE>
ARTICLE
10.
CONFLICT OF INTERESTS
10.1. GENERAL. No contract or transaction between the Corporation and one
or more of its directors or officers, or between the Corporation and any other
Corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his, her or their votes are counted for such
purpose, if such contract or transaction was in effect prior to the adoption of
these Bylaws, or if:
(a) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the Board
of Directors or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified, by the Board of Directors,
a committee thereof or the stockholders.
10.2. QUORUM. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
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THIS CERTIFICATE IS TRANSFERABLE IN ___________________ OR NEW YORK, NY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP ____________
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT IS THE RECORD HOLDER OF FULLY PAID AND NONASSESSABLE
SHARES OF THE COMMON STOCK, $0.001 PAR VALUE PER SHARE, OF U.S. REALTEL, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers
Dated: ____________
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
La Salle National Bank
TRANSFER AGENT AND REGISTRAR
BY __________________________
AUTHORIZED SIGNATURE
<PAGE>
BACK
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of designation, and the
number of shares constituting each class and series and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Corporation at its principal office.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - _______________________Custodian____________________________
(Cust) (Minor)
under Uniform Gifts to Minors Act _______________________
(State)
UNIF TRF MIN ACT -___________________________ Custodian (until age ________)
(Cust)
________________________ under Uniform Transfers
(Minor)
to Minors Act__________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
- -------------------------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ___________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
- ---------------------------
Signature(s) Guaranteed
By: ________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17
Ad-15. NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT (the "Agreement") is made and entered into
as of the 2nd day of October, 1998 by and among Craig M. Siegler ("Siegler"),
Siegler Corp., an Illinois Corporation ("Siegler Corp."), Stanley Siegler
("Stanley"), Steven Siegler ("Steven"), the Florence Skolnik Siegler Foundation
(the "Foundation") (all of the foregoing parties are herein referred to as the
"Siegler Parties"), Jordan E. Glazov, individually and as joint tenant with
Sheila N. Glazov (in such capacities "Glazov"), Perry H. Ruda ("Ruda"), Jo &
Co., an Indiana general partnership ("Jo & Co."), the Oliver family trusts
identified on the signature pages hereto (the "Oliver Trusts"), Access Financial
Group, Inc. ("Access"), Ross J. Mangano ("Mangano"), James Hart ("Hart"), and
U.S. RealTel, Inc., an Illinois corporation (the "Company"). The Siegler
Parties, Glazov, Ruda, Jo & Co., the Oliver Trusts, Access, Mangano and Hart are
herein referred to collectively as the "Shareholders," and also each referred to
individually as a "Shareholder."
RECITALS:
A. As of the date of execution hereof, (i) the Shareholders are the
record or beneficial owners of that number of shares of common stock, par value
$.001 per share, of the Company as set forth on Schedule A attached hereto, and
(ii) certain of the Shareholders hold warrants to purchase shares of common
stock of the Company, as described on Schedule B attached hereto.
B. The parties hereto believe it is in the best interests of the
Company and the Shareholders to set forth agreements among the parties hereto
regarding certain corporate matters relating to the Company, including, without
limitation, the election of directors of the Company, all on the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing Recitals and the
respective obligations of the parties hereto contained herein, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. MANAGEMENT OF THE COMPANY.
(a) During the term of this Agreement, each Shareholder hereby
agrees to vote all of his or its shares of common stock or other voting
securities of the Company, whether now owned or hereafter acquired
("Shares"), at each annual or special meeting of the shareholders of
the Company, or to execute appropriate consents in lieu of such
meetings, in favor of a Board of Directors comprised of not less than
five members, and in favor of the following persons to serve as
directors of the Company:
(i) one individual designated by Jordan E. Glazov; or
in the event of his death or incapacity, his successor in
interest;
(ii) one individual designated by Perry Ruda or in
the event of his death or incapacity, his successor in
interest;
(iii) one individual designated by Craig M. Siegler;
or in the event of his death or incapacity, his successor in
interest;
<PAGE>
(iv) one individual designated by the Oliver Trusts;
and
(v) one individual designated by Access.
If any vacancy shall occur in the Board of Directors, whether
as a result of the death, disability, or removal of any director or
otherwise, such director's replacement shall be designated by the party
or parties who, pursuant to the preceding paragraph, originally
designated such director. Each party hereto entitled to designate a
director or a replacement of a director pursuant to this Section 1(a)
shall also be entitled to instruct the Shareholders to remove such
director with or without cause and upon such instruction the
Shareholders shall act to remove such director and vote in favor of
such party's designee to fill the vacancy so created. Each shareholder
hereby agrees to vote or cause to be voted all Shares eligible to vote
thereon, and shall use its best efforts to cause its designee as
director (if any) to vote, so as to comply with this Section 1(a).
(b) Each Shareholder hereby agrees that during the Term (as
defined in Section 5) of this Agreement, such Shareholder shall vote
its Shares in support of the inclusion in the Company's By-Laws of a
provision stating that the following matters shall require the approval
of four of the five members of the Board of Directors of the Company
(or, if the Board of Directors is expanded to include more than five
members, 80% of such members):
(i) all compensation determinations (whether
compensation consists of cash or equity or a combination thereof) for
the Company's Chairman, President, Secretary and Treasurer, directors
and consultants except to the extent included in an Approved Plan (as
defined in Section 1(b)(iii) below);
(ii) all financing decisions, including debt and
equity financing;
(iii) incurrence of Company obligations exceeding
$75,000 in the aggregate with the same party and relating to the same
subject matter or having a term exceeding one year, other than (a)
obligations included in a business plan or budget approved by the Board
("Approved Plan"), (b) those leases, agency agreements, landlord
management contracts and other contracts executed in the ordinary
course of the Company's business as to which payment is funded by
subleases, licensees or contracting parties of the properties to which
leases or agreements pertain, and (c) employment agreements included in
an Approved Plan or which provide for total annual compensation of
$100,000 or less that are entered into with persons other than Ruda,
Glazov and any other officer or director of the Company;
(iv) all board decisions concerning any merger,
consolidation, sale or purchase of stock or substantially all of the
assets of the Company or Public Company or of another company by the
Company and any options regarding same; and
(v) adoption of business plans and budgets (which
shall occur not less frequently than annually).
2
<PAGE>
2. RIGHT OF FIRST REFUSAL. The Company hereby agrees that if, during
the Term of this Agreement, it determines to issue or sell any shares
of its common stock, prior to effecting such issuance or sale, the
Company shall provide each of the Shareholders with: (i) fifteen days
prior notice of such proposed issuance or sale (which notice shall
state (a) the number of Shares to be issued or sold, (b) the price (or
other consideration) per share for such shares, and (c) all other terms
and conditions of the proposed issuance or sale); and (ii) an
opportunity to purchase that number of such shares, on the same terms
and conditions as third party purchasers (including, without
limitation, the same price per share), necessary to enable each
Shareholder to maintain his or its proportionate share of all of the
issued and outstanding shares of common stock of the Company on a
fully-diluted basis. Within fifteen days after delivery of such notice,
each Shareholder shall notify the Company whether such Shareholder
desires to exercise its right of first refusal and maintain its
proportionate interest in the issued and outstanding common stock of
the Company. In the event a Shareholder desires to exercise such right
of first refusal, such Shareholder shall be required to pay the
applicable consideration in cash or immediately available funds on the
closing date, which closing date shall not occur prior to the fifteenth
day following delivery to the Shareholders of the written notice
required by this Section 2. Notwithstanding anything herein to the
contrary, the right of first refusal granted pursuant to this Section 2
shall not apply to a sale or issuance of Common Stock:
(a) pursuant to a firm underwritten public offering
registered pursuant to the Securities Act of 1933, as amended;
(b) pursuant to the exercise of any options, warrants or
securities convertible into common stock of the Company currently
outstanding or hereafter issued with the approval of the Board of
Directors of the Company;
(c) to any officer, employee, director, consultant, supplier,
lessor, vendor, joint venture partner, lender or agent as compensation
or any similar purpose pursuant to any agreement approved by the Board
of Directors of the Company;
(d) as a dividend in respect of the outstanding shares
of common stock of the Company; or
(e) as consideration for the acquisition of all or any
substantial portion of the assets or all or any portion of the capital
stock of any other entity which is duly authorized by the Board of
Directors of the Company.
3. TAG-ALONG RIGHTS. In the event any Shareholder other than any of the
Siegler Parties enters into an agreement to sell, transfer or dispose
of any of his or its Shares (a "Proposed Transfer"), at least fifteen
days prior to consummation of the Proposed Transfer, such Shareholder
(the "Transferring Shareholder") shall provide each of the other
Shareholders other than the Siegler Parties: (i) written notice of the
Proposed Transfer (which notice shall state (a) the number of Shares to
be transferred, (b) the name and business address of the proposed
transferee, (c) whether or not the sale is for valuable
3
<PAGE>
consideration, and if so, the amount thereof, and (d) all other terms
and conditions of the Proposed Transfer); and (ii) an opportunity to
sell, transfer or dispose of their Shares, up to the "Maximum Tag-Along
Shares" (as such term is defined below), on comparable terms
(including, without limitation, the same price per share). Within ten
days after delivery of such notice, each Shareholder (other than the
Siegler Parties) shall notify the Transferring Shareholder whether such
Shareholder desires to participate in the Proposed Transfer and if so,
the number of Shares, up the Maximum Tag-Along Shares, which such
Shareholder desires to sell, transfer or dispose of in the Proposed
Transfer. In the event a Shareholder desires to participate in a
Proposed Transfer, such Shareholder shall be required to make, provide
or satisfy all of the same representations, warranties, covenants and
other obligations made, provided or satisfied by the Transferring
Shareholder in connection with the Proposed Transfer. For purposes
hereof, the term "Maximum Tag-Along Shares" shall mean, with respect to
any Shareholder desiring to tag-along and sell Shares with the
Transferring Shareholder (each, a "Tag-Along Shareholder"), the product
of (i) the total number of shares subject to the Proposed Transfer,
multiplied by (ii) the quotient of (a) the number of Shares owned by
the Tag-Along Shareholder, divided by (b) the sum of the number of
Shares owned by (x) the Tag-Along Shareholder and (y) the Transferring
Shareholder. The Transferring Shareholder may not consummate any
Proposed Transfer unless the Tag Along Shareholders are able to sell
the number of Shares (up to the Maximum Tag-Along Shares) which each of
them has elected to sell pursuant to this Section 3 strictly in
accordance with the terms specified in the notice of the Proposed
Transfer. Notwithstanding anything herein to the contrary, the
tag-along rights pursuant to this Section 3 shall not apply to any
transfer of any type which is:
(a) by any Shareholder who is a natural person, to such
Shareholder's Family Members (as defined below);
(b) by any Shareholder which is a trust, to the
beneficiaries of such trust; or
(c) pursuant to a public offering registered pursuant to the
Securities Act of 1933, as amended, or pursuant to Rule 144;
provided that any such transferee (other than pursuant to subsection
3(c) immediately above) shall take any Shares subject to the terms
hereof, and shall be deemed to be a Shareholder hereunder from and
after the acceptance of such Shares by such transferee.
For the purposes hereof, the term "Family Member" shall mean, with
respect to any individual, (i) such individual's parents, spouse,
children, siblings and grandchildren, (ii) any trust created for the
benefit of such individual or any of the persons specified in clause
(i) hereof, or (iii) any family partnership or limited liability
company in which the sole partners or members are such individual,
persons specified in clause (i) and/or trusts specified in clause (ii).
4
<PAGE>
4. REORGANIZATION, MERGER, CONSOLIDATION. This Agreement shall apply
and extend to the voting securities or interests of any corporation or other
entity into which the Company is merged or consolidated without regard to which
corporation or other entity is the survivor.
5. TERM. This Agreement shall become effective on the date hereof, and
shall continue in full force and effect (the "Term") for so long as the
Shareholders (and their permitted transferees) collectively own at least 30% of
the issued and outstanding shares of common stock of the Company or until four
of the five shareholders having the right to designate a director pursuant to
Section 1 hereof otherwise agree in writing; PROVIDED, HOWEVER that (i) the
designee appointed to the Board by Siegler (or his successor in interest) shall
not be entitled to vote on termination of Section 3 hereof, and notwithstanding
anything to the contrary contained herein, such provision shall remain in full
force and effect until specifically terminated by vote of the other four members
of the Board or until this Agreement is terminated in accordance with this
Section 5, (ii) the provisions of Section 1(a) hereof shall terminate and be of
no further force and effect at such time as the Shareholders (and their
permitted transferees) own less than 40% of the issued and outstanding shares of
common stock of the Company, and (iii) the provisions of Section 2 hereof shall
terminate and be of no further force and effect upon a "Qualified Public
Offering" (as such term is hereinafter defined). For purposes hereof, the term
"Qualified Public Offering" means an underwritten, registered public offering of
the common stock of the Company under the Securities Act of 1933, as amended,
which results in aggregate net proceeds to the Company of at least $10,000,000.
Furthermore, the parties hereto agree that to the extent that in connection with
any proposed Qualified Public Offering the underwriter believes that it is
necessary or advisable for the marketing thereof to amend certain of the
provisions hereof, the parties hereto will negotiate in good faith regarding
such proposed changes in order to facilitate such Qualified Public Offering.
6. SUBSEQUENT HOLDERS. Each Shareholder agrees that it will not
transfer any Shares unless the transferee agrees in writing to be bound by the
terms of this Agreement as if, and to the same extent, as an original signatory
hereto; provided, however, that there shall be no such obligation to the extent
that following such transfer the shares transferred would not constitute
Registrable Securities pursuant to and as defined in that certain Registration
Rights Agreement (the "RRA") of even date herewith between the parties hereto.
So long as (a) this Agreement is in effect and (b) any Shares constitute
Registrable Securities pursuant to and as defined in the RRA, all certificates
representing such Shares shall have imprinted on them a restrictive legend in
substantially the following form:
"The securities represented by this certificate are subject to the
terms of a certain Shareholders' Agreement, dated as of October 2,
1998. The Shareholders' Agreement contains certain restrictive
provisions relating to voting, and in certain cases, tag-along rights
in connection with any sale of these securities. A copy of the
Shareholders' Agreement is on file and may be inspected for any proper
purpose at the issuer's principal executive office."
5
<PAGE>
7. TERMINATION OF CERTAIN AGREEMENTS.
(a) The Operational Agreement dated July 28, 1997 by and among
Agile, LLC, an Illinois limited liability company which was a
predecessor to the Company, Siegler Corp., Perry H. Ruda, Glazov and
Siegler is hereby terminated and of no further force and effect.
(b) The terms contained herein supersede the terms set forth
in that certain Shareholders' Agreement dated November 3, 1997 by and
among Siegler, Glazov, the Ruda Trusts and Ruda (the "1997
Shareholders' Agreement"), and the terms of the 1997 Shareholders'
Agreement are hereby terminated and of no further force and effect.
8. BENEFIT. This Agreement shall be binding upon and inure to the
benefit of the Shareholders hereto and their respective successors and permitted
assigns and transferees. This Agreement is not assignable without the unanimous
written consent of all Shareholders.
9. MODIFICATION OR WAIVER. No change, modification or waiver of any
provision of this Agreement shall be valid or binding unless it is in writing
dated subsequent to the date hereof and signed by the Shareholders intended to
be bound. No waiver by the Shareholders hereto shall constitute a subsequent
waiver of the same or any other breach, term or condition.
10. SPECIFIC PERFORMANCE. The Shareholders hereby declare that it is
impossible to measure in money the damages which will accrue to a party hereto
by reason of a failure to perform any of the obligations under this Agreement.
Therefore, if any Shareholder shall institute any action or proceeding to
enforce the provisions hereof, any Shareholder against whom such action or
proceeding is brought hereby waives the claim or defense therein that there is
an adequate remedy at law, and such Shareholder shall not urge in any such
action or proceeding the claim or defense that such remedy at law exists. The
prevailing party in any such action shall be entitled to the payment or
reimbursement by the other party of all reasonable legal fees and costs.
11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been delivered (i)
when actually delivered by hand, (ii) two business days after mailed by first
class mail, postage prepaid, (iii) on the day transmitted by facsimile if
confirmation of transmission has been received, or (iv) one business day after
delivery to a nationally recognized overnight carrier service, as follows: (a)
if to the Holder, at the address of the Holder as shown on the registry books
maintained by the Company or the Company's transfer agent; and (b) if to the
Company, at U.S. RealTel, Inc., 100 South Wacker Drive, Suite 850, Chicago,
Illinois 60606.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
/s/ Craig M. Siegler
-----------------------------------------------
Craig M. Siegler
SIEGLER CORP.,
By:/s/ Craig M. Siegler
--------------------------------------------
Its: President
------------------------------------------
/s/ Stanley Siegler
-----------------------------------------------
Stanley Siegler
/s/ Steven Siegler
-----------------------------------------------
Steven Siegler
FLORENCE SKOLNICK SIEGLER
FOUNDATION
By:/s/ Craig M. Siegler
--------------------------------------------
Its:
-------------------------------------------
/s/ Jordan E. Glazov
-----------------------------------------------
Jordan E. Glazov, individually and as
joint tenant with Sheila N. Glazov
/s/ Sheila N. Glazov
-----------------------------------------------
Sheila N. Glazov, as joint tenant
with Jordan E. Glazov
/s/ Perry H. Ruda
-----------------------------------------------
Perry H. Ruda
7
<PAGE>
JO & CO.
By:/s/ Ross J. Mangano
--------------------------------------------
Its: Partner
------------------------------------------
JOSEPH D. OLIVER TRUST --
GO CUNNINGHAM FUND
By:/s/ Ross J. Mangano
--------------------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST --
JAMES OLIVER II FUND
By:/s/ Ross J. Mangano
--------------------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST --
JOSEPH D. OLIVER JR. FUND
By:/s/ Ross J. Mangano
--------------------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST --
SUSAN C. OLIVER FUND
By:/s/ Ross J. Mangano
--------------------------------------------
Ross J. Mangano, as Trustee
ACCESS FINANCIAL GROUP, INC.
By: /s/ Mark J. Grant
--------------------------------------------
Its: President, Capital Markets
-------------------------------------------
8
<PAGE>
/s/ Ross J. Mangano
----------------------------------------------
Ross J. Mangano
/s/ James Hart
----------------------------------------------
James Hart
U.S. REALTEL, INC.
By: /s/ Jordan E. Glazov
--------------------------------------------
Its: President
-------------------------------------------
9
<PAGE>
EXHIBIT A
COMMON STOCK OWNERSHIP
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
CURRENTLY OWNED PERCENTAGE OF ISSUED
(NOT INCLUDING SHARES AND OUTSTANDING
ISSUABLE UPON EXERCISE COMMON STOCK ON A
NAME OF SHAREHOLDER OF WARRANTS/OPTIONS) FULLY-DILUTED BASIS*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Craig M. Siegler 1,602,630 28.23%**
- ----------------------------------------------------------------------------------------------------------------------
Stanley Siegler 11,000 0.18%
- ----------------------------------------------------------------------------------------------------------------------
Steven Siegler 75,000 1.20%
- ----------------------------------------------------------------------------------------------------------------------
Florence Skolnik Siegler Foundation 20,895 0.33%
- ----------------------------------------------------------------------------------------------------------------------
Jordan E. Glazov and Sheila N. Glazov, as 721,414 12.49%**
joint tenants
- ----------------------------------------------------------------------------------------------------------------------
Perry J. Ruda 742,455 12.83%**
- ----------------------------------------------------------------------------------------------------------------------
Access Financial Group 21,250 3.33%
- ----------------------------------------------------------------------------------------------------------------------
Jo & Co 500,000 12.02%
- ----------------------------------------------------------------------------------------------------------------------
Joseph D. Oliver Trust -GO Cunningham Fund 62,500 1.47%
- ----------------------------------------------------------------------------------------------------------------------
Joseph D. Oliver Trust - James Oliver II Fund 62,500 1.47%
- ----------------------------------------------------------------------------------------------------------------------
Joseph D. Oliver Trust - Joseph D. Oliver 62,500 1.47%
Jr. Fund
- ----------------------------------------------------------------------------------------------------------------------
Joseph D. Oliver Trust - Susan C. Oliver 62,500 1.47%
Trust
- ----------------------------------------------------------------------------------------------------------------------
Ross J. Mangano 75,000 2.16%
- ----------------------------------------------------------------------------------------------------------------------
James Hart 37,500 0.88%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* - Based upon (i) 5,219,895 shares of Common Stock outstanding and (ii)
1,024,826 shares of Common Stock issuable upon exercise of outstanding warrants
and options (which includes the warrants listed on Exhibit B, a warrant for
25,000 shares issued to Mark Grant, a warrant for 1,000 shares issued to Noah
Glazov and additional options, held by employees of the Company, exercisable to
purchase an aggregate of 88,888 shares of Common Stock); individual percentages
include shares owned and shares issuable upon the exercise of outstanding
options and warrants.
** - Includes an allocation of 1/2 of the warrant described in Footnote A to
Exhibit B to Craig Siegler and 1/4 of such warrant to each of Jordan Glazov and
Perry Ruda.
10
<PAGE>
EXHIBIT B
WARRANT OWNERSHIP
<TABLE>
<CAPTION>
Name of Holder Terms of Warrants
- -------------- -----------------
<S> <C>
Craig M. Siegler 1) 43,750 shares @ $4.00 per share, expiring on
October 1, 2003
2) See footnote A, below
Jordan E. Glazov 1) See footnote A, below
Perry A. Ruda 1) See footnote A, below
Jo & Co. 1) 17,543 shares @ $4.00 per share, expiring on
August 28, 2003
2) 233,333.33 shares @ $4.00 per share, expiring
on October 1, 2003
Joseph D. Oliver Trust - 1) 29,166.67 shares @ $4.00 per share, expiring
GO Cunningham Fund on October 1, 2003
Joseph D. Oliver Trust - 1) 29,166.67 shares @ $4.00 per share, expiring
James Oliver II Fund on October 1, 2003
Joseph D. Oliver Trust - 1) 29, 166.67 shares @ $4.00 per share, expiring
Joseph D. Oliver Jr. Fund on October 1, 2003
Joseph D. Oliver Trust - 1) 29,166.67 shares @ $4.00 per share, expiring
Susan C. Oliver Fund on October 1, 2003
Ross J. Mangano 1) 35,000 shares @ $4.00 per share, expiring on
October 1, 2003
2) 25,000 shares @ $4.00 per share, expiring on
October 1, 2003
James Hart 1) 17,500 shares @ $4.00 per share, expiring on
October 1, 2003
Access Financial Group, Inc. 1) 30,667 shares @ $5.25 per share, expiring on
October 1, 2003
2) 9,625 shares @ $4.00 per share, expiring on
October 1, 2003
11
<PAGE>
3) 54,375 shares @ $4.00 per share, expiring on
November 26, 2000
4) 92,262 shares @ $4.75 per share, expiring
on March 5, 2001.
</TABLE>
FOOTNOTE A:
The Company has issued a warrant (the "Founder Warrant") to Craig
Siegler, Perry Ruda and Jordan Glazov, which provides that the three
shareholders can acquire a total of 234,216 shares of Common Stock for an
aggregate exercise price of $450,000. This Warrant expires on August 20, 2000,
although the Company has the option to terminate the warrants at any time upon
forty-five days prior notice.
12
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of the 2nd day of October, 1998 among U.S. RealTel, Inc., an Illinois
Corporation (the "Company"), Craig M. Siegler ("Siegler"), Siegler Corp., an
Illinois Corporation ("Siegler Corp."), Stanley Siegler ("Stanley"), Steven
Siegler ("Steven"), the Florence Skolnik Siegler Foundation (the
"Foundation"), Jordan E. Glazov, individually and as joint tenant with Sheila
N. Glazov (in such capacities "Glazov"), Perry H. Ruda ("Ruda"), Jo & Co., an
Indiana general partnership ("Jo & Co."), the Oliver family trusts identified
on the signature pages hereto (the "Oliver Trusts"), Access Financial Group,
Inc. ("Access"), Ross J. Mangano ("Mangano") and James Hart ("Hart").
Siegler, Siegler Corp., Stanley, Steven, the Foundation, Glazov, Ruda, Jo &
Co., the Oliver Trusts, Access, Mangano and Hart are herein referred to
collectively as the "Shareholders".
RECITALS
A. As of the date of execution hereof, Jo & Co. and the Oliver Trusts
are purchasing shares of the Corporation's Common Stock, $.001 par value (the
"Common Stock").
B. It is a condition to such purchases that the parties hereto enter
into this Agreement.
AGREEMENTS
In consideration of the foregoing recitals, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged,, the parties hereto hereby agree as follows:
1. DEFINITIONS. As used in this Agreement:
(a) "Commission" means the Securities and Exchange Commission and any
successor thereto.
(b) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
(c) "Holders" means the Shareholders and any subsequent holders of
Registrable Shares to whom the rights hereunder accrue pursuant to Section 9
hereof.
(d) "Registrable Securities" shall mean: (i) any shares of Common
Stock held by, or issued to, the parties hereto on the date hereof; (ii) the
Common Stock issued or issuable upon exercise of warrants issued by the
Company to any of the parties hereto; and (iii) any other securities of the
Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, in exchange for or in replacement of such
warrants or the Common Stock referenced in Subsection 1(d)(i) and (ii)
immediately above; PROVIDED, HOWEVER, that Registrable Securities shall not
be deemed to include any shares after such shares have been registered under
the Securities Act and sold pursuant to such registration or any shares sold
without registration under the Securities Act
<PAGE>
in compliance with Rule 144, or pursuant to any other exemption from
registration under the Securities Act, to a Person who is free to resell such
shares without registration or restriction under the Securities Act; and
PROVIDED , that at any time subsequent to the Company having its shares
listed on a national securities exchange, Nasdaq National Market or Nasdaq
Small-Cap Market, Registrable Securities shall not include any shares which
are eligible to be sold without registration under the Securities Act in
compliance with subsection (k) of Rule 144.
(f) "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
2. PIGGY-BACK REGISTRATION RIGHTS. If (but without any obligation to do so)
the Company, at any time during the term of this Agreement, proposes to register
any of its securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration on Form
S-4, Form S-8 or any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, each such
time, promptly give each Holder written notice of such registration (the
"Piggy-Back Notice"). Upon the written request of any Holder, given within
twenty (20) days after such Holder's receipt of such Piggy-Back Notice from the
Company, the Company shall, subject to the provisions of this section, include
in a registration statement filed with the Commission under the Securities Act
all of the Registrable Securities that the Holder has requested to be
registered; PROVIDED, HOWEVER, that if the managing underwriter of the subject
proposed offering objects in writing to the inclusion of any Registrable
Securities in the subject registration statement on the grounds that in its
opinion such inclusion would materially adversely effect the distribution of all
such securities or the price per share paid in such offering, the Company
(subject to any other obligations existing on the date hereof to include shares)
shall include in such registration the number of shares proposed to be
registered by the Company and the Holders before including any other securities
in the registration and, if additional reduction in the number of securities
being registered is necessary, the Company shall include in such registration
first, all shares proposed to be registered by the Company, and second, a pro
rata portion of such shares of the Holders based on the number of shares
originally proposed to be registered by each such Holder.
3. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect the
registration of any of its securities under the Securities Act, the Company
will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period provided in this
Section 3;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all securities covered by such
registration statement whenever the seller or sellers of such securities
shall desire to sell or otherwise dispose of the same;
2
<PAGE>
(c) furnish to the duly authorized underwriter of each seller such
number of copies of a prospectus, including copies of a preliminary
prospectus, prepared in conformity with the requirements of the Securities
Act, and such other documents as such seller may reasonably request in order
to facilitate the public sale or other disposition of the securities to be
sold by such seller;
(d) use every reasonable effort to register or qualify the
securities covered by such registration statement under such state securities
or "Blue Sky" laws of such jurisdictions as each seller shall request, and do
any and all other acts and things which may be necessary under such
securities or "Blue Sky" laws to enable such seller to consummate the public
sale or other disposition in such jurisdictions of the securities to be sold
by such seller, provided that the Company shall not for any such purpose be
required to consent to the general service of process in any such
jurisdiction; and
(e) before filing the registration statement or prospectus or
amendments or supplements thereto, furnish to counsel selected by each Holder
having Registrable Shares included in such registration statement copies of
all such documents proposed to be filed, all of which shall be subject to the
approval of such counsel, which may not be unreasonably withheld; PROVIDED,
HOWEVER, that notwithstanding any other provision of this Agreement, the
Company shall not in any event be required to use its best efforts to
maintain the effectiveness of any such registration statement (other than a
registration statement on Form S-3) for a period in excess of six months
after the effective date thereof; and , that notwithstanding anything herein
to the contrary, the Company may postpone for up to six months the filing or
the effectiveness of any registration statement if the Company's Board of
Directors determines in good faith that such registration might reasonably be
expected to have an adverse effect on any proposal or plan by the Company or
any of its subsidiaries.
4. EXPENSES.
(a) REGISTRATION EXPENSES. All expenses incurred in complying with
this Agreement, including without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company,
"Blue Sky" fees and 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 which shall be paid in any event by the
Company) shall be borne by the Company.
(b) SELLING EXPENSES. All underwriting discounts, underwriters'
expense allowance and selling commissions applicable to the sale of
Registrable Securities by the Holders and all fees and disbursements of any
special counsel (other than the Company's regular counsel) shall be borne by
the Holders of the Registrable Securities so registered pro rata on the basis
of the number of Registrable Securities so registered.
5. INDEMNIFICATION. In the event that any Registrable Securities are
included in a registration statement pursuant hereto:
(i) To the extent permitted by law, the Company will indemnify and
hold harmless the Holders, the officers, directors and partners of the
Holders, any underwriter (as
3
<PAGE>
defined in the Securities Act) for the Holders and each person, if any, who
controls the Holders 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 sate 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": (A) 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; (B) 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 (C) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
applicable state securities law or _ any rule or regulation promulgated under
the Securities Act, the Exchange Act or any applicable state securities law
in connection with the offering pursuant to such registration statement; and
the Company will reimburse the Holders 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 subsection 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 which occurs in reliance
upon and in conformity with written information furnished expressly for use
in connection with such registration by the Holders; and further PROVIDED,
HOWEVER, that the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any untrue statement, alleged untrue
statement, omission or alleged omission made in any preliminary prospectus
but eliminated or remedied in the prospectus, such indemnity agreement shall
not inure to the benefit of any underwriter or broker, if a copy of the
prospectus was not sent or given to such person with or prior to the
confirmation of the sale of such securities to such person.
(ii) To the extent permitted by law, each Holder will indemnify and
hold harmless the Company, its directors, its officers, any person who
controls the Company within the meaning of the Securities Act or the Exchange
Act, any underwriter (within the meaning of the Securities Act) for the
Company and any person who controls such underwriter against any losses,
claims, damages or liabilities (joint or several) to which the Company or any
such director, officer, controlling person, or underwriter or controlling
person 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 expressly for use in connection with such
registration; and each Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, underwriter or controlling person thereof, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
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 such Holder, which consent shall not be unreasonably withheld.
4
<PAGE>
(iii) Promptly after receipt by an indemnified party 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 hereunder, notify the indemnifying party in writing 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 notified, 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 notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party
hereunder, but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party
otherwise than under this subsection.
6. LOCK-UP. If so requested by the underwriter(s) managing a public
offering of the Company's common stock, each Holder of Registrable Securities
shall not effect any public sale or distribution (including pursuant to Rule
144) of securities of the Company, at any time from the effective date of a
registration statement filed by the Company with respect to such underwritten
public offering until 150 days after the closing of such offering, other than
pursuant to such registration.
7. TERMINATION OF REGISTRATION RIGHTS. Notwithstanding the
foregoing provisions of this Agreement, the rights to registration granted
hereunder shall terminate as to any particular Registrable Shares when such
Registrable Shares shall have been effectively registered under the
Securities Act or otherwise sold by the Holder thereof in a public sale in
accordance with applicable law and such shares shall cease to be Registrable
Shares for purposes hereof.
8. COMPLIANCE WITH RULE 144. In the event that the Company (a)
registers a class of securities under Section 12 of the Exchange Act, (b)
issues an offering circular meeting the requirements of Regulation A under
the Securities Act or (b) commences to file reports under Section 13 or 15(d)
of the Exchange Act, then at the request of any Holder who proposes to sell
securities in compliance with Rule 144 of the Commission, the Company shall
(i) forthwith furnish to such Holder a written statement of compliance with
the filing requirements of the Commission as set forth in Rule 144 as such
rule may be amended from time to time and (ii) make available to the public
and such Holder such information as will enable such Holder to make sales
pursuant to such Rule 144.
9. ASSIGNABILITY OF REGISTRATION RIGHTS. Subject to Section 7, the
registration rights set forth in this Agreement shall accrue to each
subsequent holder of Registrable Shares to the extent that they execute and
deliver to the Company a written agreement (in form and substance reasonable
acceptable to the Company) to be bound by the terms hereof, including,
without limitation, Section 6 hereof.
5
<PAGE>
10. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
13. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been delivered (i)
when actually delivered by hand, (ii) two business days after mailed by first
class mail, postage prepaid, (iii) on the day transmitted by facsimile if
confirmation of transmission has been received, or (iv) one business day after
delivery to a nationally recognized overnight carrier service, as follows: (a)
if to the Holder, at the address of the Holder as shown on the registry books
maintained by the Company or the Company's transfer agent; and (b) if to the
Company, at U.S. RealTel, Inc., 100 South Wacker Drive, Suite 850, Chicago,
Illinois 60606.
14. GOVERNING LAW. The validity, meaning and effect of this Agreement
shall be determined in accordance with the laws of the State of Illinois
applicable to contracts made and to be performed in that state.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
by and among the parties hereto with respect to the subject matter hereof, and
any registration rights granted prior to the date hereof pursuant to the terms
of (x) any warrants or options granted to any of the parties hereto and (y)
agreements, whether oral or written, between any such parties and the Company,
shall be, and hereby are, superseded in their entirety by the terms hereof and
shall be of no further force or effect.
16. AMENDMENT. This Agreement may be amended, modified or
supplemented only by a written instrument executed by the Company, Holders of
not less than 75% of the then existing shares of Registrable Stock; provided
that no such amendment shall disproportionately affect the rights or obligations
of any holder or Registrable Stock hereunder (as compared to the rights of other
holders of Registrable Stock) without the consent of such Holder. Any term,
covenant, agreement or conditions in this Agreement may be waived (either
generally or in particular instances and either retroactively or prospectively)
by written instruments signed by the Company and Holders of not less than 75% of
the then existing shares of Registrable Stock. Any such waiver shall be limited
to its express terms and shall not be termed a waiver of any other term,
covenant, agreement or condition.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
U.S. REALTEL, INC.
By: /s/ Jordan E. Glazov
----------------------------------------------
Its: President
---------------------------------------------
/s/ Craig M. Siegler
--------------------------------------------------
Craig M. Siegler
SIEGLER CORP.,
By:/s/ Craig M. Siegler
-----------------------------------------------
Its: President
--------------------------------------------
/s/ Stanley Siegler
--------------------------------------------------
Stanley Siegler
/s/ Steven Siegler
--------------------------------------------------
Steven Siegler
FLORENCE SKOLNICK SIEGLER FOUNDATION
By:/s/ Craig M. Siegler
-----------------------------------------------
Its:
----------------------------------------------
/s/ Jordan E. Glazov
--------------------------------------------------
Jordan E. Glazov, individually and as joint tenant
with Sheila N. Glazov
/s/ Sheila N. Glazov
--------------------------------------------------
Sheila N. Glazov, as joint tenant with Jordan E.
Glazov
7
<PAGE>
/s/ Perry H. Ruda
--------------------------------------------------
Perry H. Ruda
JO & CO.
By:/s/ Ross J. Mangano
-----------------------------------------------
Its: Partner
---------------------------------------------
JOSEPH D. OLIVER TRUST --
GO CUNNINGHAM FUND
By:/s/ Ross J. Mangano
-----------------------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST --
JAMES OLIVER II FUND
By:/s/ Ross J. Mangano
-----------------------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST --
JOSEPH D. OLIVER JR. FUND
By:/s/ Ross J. Mangano,
-----------------------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST --
SUSAN C. OLIVER FUND
By:/s/ Ross J. Mangano,
-----------------------------------------------
Ross J. Mangano, as Trustee
8
<PAGE>
ACCESS FINANCIAL GROUP, INC.
By: /s/ Victor Chigas
----------------------------------------------
Its: C.E.O.
---------------------------------------------
/s/ Ross J. Mangano
--------------------------------------------------
Ross J. Mangano
/s/ James Hart
--------------------------------------------------
James Hart
9
<PAGE>
NEITHER THIS NOTE NOR ANY SECURITIES WHICH MAY BE ISSUED UPON CONVERSION HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED
OR OTHERWISE QUALIFIED UNDER ANY STATE OR OTHER SECURITIES LAW. NEITHER THIS
NOTE NOR ANY SUCH SECURITIES MAY BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND REGISTRATION OR OTHER
QUALIFICATION UNDER ANY APPLICABLE STATE OR OTHER SECURITIES LAWS, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION OR OTHER
QUALIFICATION IS NOT REQUIRED.
U.S. REALTEL, INC.
CONVERTIBLE PROMISSORY NOTE
Principal Amount: $1,500,000 September 24, 1999
U.S. RealTel, Inc., an Illinois corporation (the "Company"), with its
principal office at 100 South Wacker Drive, Suite 850, Chicago, Illinois 60606,
for value received, promises to pay to the order of Troon & Co., and the Oliver
family trusts identified on the signature pages hereto ("Noteholder"), the
Principal Amount set forth above plus interest thereon calculated from the date
of each such advance to the Company until paid at the annual rate of seven
percent (7%), compounded annually. Interest accrued hereunder shall be due and
payable in lawful money of the United States on March 30, 2000 and on the
Maturity Date and principal hereunder will be due and payable in lawful money of
the United States in full on the first anniversary of the date hereof (the
"Maturity Date"), unless this Note shall have been previously converted pursuant
to Section 2 hereof, in which case all outstanding principal under this Note
shall be satisfied in full by virtue of such conversion and the issuance and
delivery of fully paid and non-assessable shares of Conversion Stock to the
Holder of this Note as set forth in Section 2 hereof and all accrued interest
thereon will be due and payable in lawful money of the United States at the time
of such conversion. This Note is not prepayable or redeemable by the Company
prior to the Maturity Date. Principal and interest not paid when due shall bear
interest at twelve percent (12%) per annum as of the due date and shall be
payable on demand. Payments by the Company shall be applied first to any and all
accrued interest through the payment date and second to the principal remaining
due hereunder or upon conversion hereof.
The following is a statement of the rights of the holder of this Note and
the conditions to which this Note is subject, and to which the holder hereof, by
the acceptance of this Note, agrees:
1. DEFINITIONS. As used in this Note, the following terms, unless the
context otherwise requires, have the following meanings:
1.1. "COMPANY" includes any corporation or other entity which shall
succeed to or assume the obligations of the Company under this Note.
<PAGE>
1.2. "COMPANY COMMON STOCK" shall mean the Company's Common Stock, par
value $.001 per share.
1.3. "CONVERSION STOCK" shall mean the Company's Common Stock or
RealTel de Argentina Stock Common Stock, as elected by the Noteholder at the
time of conversion.
1.4. "CONVERSION PRICE" shall mean (a) for the RealTel de Argentina
Common Stock , an amount equal to the principal amount of this Note divided by
the number of shares of RealTel de Argentina Common Stock which shall result in
the Noteholder owning 9% of the total shares of RealTel de Argentina issued and
outstanding at the date of conversion and (b) for the Company Common Stock (i)
the lowest price per share paid for the Company Common Stock or other security
convertible into common stock purchased from and after the date hereof in a
Financing or (ii) if no Financing shall have occurred, the value per share of
the Company Common Stock as determined in good faith by the Company and
Noteholder and, if no such determination is made within ten (10) business days
following Noteholder's request for a valuation, then each of the Company and
Noteholder within forty five (45) days thereafter (the "APPOINTMENT DATE"),
shall designate an independent appraiser, knowledgeable and experienced in
valuing businesses of a type similar to the Company, and each such appraiser,
within twenty (20) days after the Appointment Date shall jointly choose a third
qualified independent appraiser, provided that if either party shall fail to
choose a qualified independent appraiser, within the time prescribed, the
independent appraiser chosen by the other party shall be entitled to designate
itself as the third appraiser. Within thirty (30) days following its
designation, the third appraiser will deliver its determination of the Value of
the Company Common at the Valuation Date. The foregoing determination shall be
final and binding upon the parties hereto and the expenses of the appraisers
will be paid one-half by each party.
1.5. "FINANCING" shall mean the Company's sale, from and after the
date hereof, of common stock or any other security convertible into common stock
for cash capital and/or retirement of debt securities (excluding securities
issued pursuant to option plans, outstanding options, securities issued upon
exercise of outstanding options and this Note and other notes of substantially
identical terms) in one transaction or a series of transactions occurring after
the date hereof.
1.6. "NOTE" shall mean this Convertible Promissory Note.
1.7. "NOTEHOLDER", "HOLDER", or similar terms, when the context refers
to a holder of this Note, shall mean any person who shall at the time be the
registered holder of this Note.
1.8. "REALTEL DE ARGENTINA" shall mean RealTel de Argentina SA.
1.9. "REALTEL DE ARGENTINA COMMON STOCK" shall mean Common Stock,
$1.00 par value per share, of RealTel de Argentina.
1.10. "REALTEL DE ARGENTINA SHAREHOLDERS' AGREEMENT" shall mean that
certain Shareholders' Agreement dated as of July 25, 1999, by and among the
Company, Access Financial Group, Inc., Mark J. Grant, Pablo Hoffmann, Gabriel
Melzi, Raul Melzi, Flavia Melzi and RealTel de Argentina.
2
<PAGE>
2. CONVERSION.
2.1. VOLUNTARY CONVERSION. At any time on or after January 1, 2000
until the date this Note is paid in full, the Noteholder will have the right to
convert all but not less than all of the outstanding principal on this Note into
Conversion Stock at the Conversion Price. Conversion as described in this
Section 2.1 shall occur only upon surrender of this Note for conversion at the
principal office of the Company, accompanied by written notice of election to
convert in the form of EXHIBIT A hereto, which notice shall specify whether the
conversion is for Company Common Stock or RealTel de Argentina Common Stock and
shall be delivered no later than thirty (30) days prior to the Maturity Date.
2.2. NO FRACTIONAL SHARES. No fractional shares will be issued on
conversion of this Note. If on any conversion of this Note a fraction of a share
results, the Company will pay the cash value of that fractional share,
calculated on the basis of the applicable Conversion Price.
2.3. RESERVATION OF STOCK. The Company has taken all necessary
corporate action and obtained all necessary consents and approvals to authorize
the issuance of this Note, and as of the closing of a conversion of this Note
will take all necessary corporate action, will cause RealTel de Argentina to
take and will obtain and will cause RealTel de Argentina to obtain all necessary
consents and approvals to authorize the issuance or transfer of the shares of
Conversion Stock upon the conversion of this Note pursuant to Section 2.1 above.
2.4. FULLY PAID SHARES; CERTIFICATES. All shares of Conversion Stock
issued or transferred upon the conversion of this Note shall be validly issued,
fully paid, non-assessable and free and clear of any claims, liens or
encumbrances. The certificates representing the shares of Conversion Stock
issued upon conversion hereof shall be delivered to the Noteholder against
surrender of this Note.
2.5. CERTAIN REPRESENTATIONS. The Company represents and warrants to
Noteholder that (a) there are no restrictions, either at law or by agreement,
including, without limitation, the RealTel de Argentina Shareholders' Agreement,
preventing the transfer of the RealTel de Argentina Common Stock from the
Company to the Noteholder pursuant to the terms and conditions hereof and (b)
attached hereto is a true and accurate list of the current shareholders of
RealTel de Argentina and their ownership interests.
2.6. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. This Note does not by
itself entitle the Noteholder to any voting rights or other rights as a
shareholder of the Company or RealTel de Argentina. In the absence of conversion
of this Note, no provisions of this Note, and no enumeration herein of the
rights or privileges of the holder shall cause such holder to be a shareholder
of the Company or RealTel de Argentina for any purpose by virtue hereof.
2.7. RIGHTS UPON A FINANCING. The Company shall provide the Noteholder
with prior written notice of a proposed Financing, such notice to set forth in
reasonable detail the parties, the principal terms and the anticipated closing
date thereof.
3. REALTEL DE ARGENTINA SHAREHOLDERS' AGREEMENT. In the event that
Noteholder elects to convert this Note into RealTel de Argentina Common Stock,
the Noteholder agrees to
3
<PAGE>
execute a counterpart copy of and become a "Shareholder" pursuant to the RealTel
de Argentina Shareholders' Agreement.
4. AMENDMENT TO THE REGISTRATION RIGHTS AGREEMENT AND THE SHAREHOLDERS'
AGREEMENT. Contemporaneously herewith, the Company shall deliver to Noteholder
(a) an amendment to that certain Registration Rights Agreement dated October 2,
1998 among the Company and certain of its shareholders so that the shares of the
Company Common Stock issued upon conversion shall become "Registrable Shares"
thereunder when such shares are converted pursuant to the terms of this Note and
(b) an Amendment to that certain Shareholders' Agreement dated October 2, 1998
among the Company and certain of its shareholders which shall add Troon & Co.,
as a "Shareholder" pursuant thereto.
5. WAIVERS. The Company waives presentment, demand for performance,
notice of nonperformance, protest, notice of protest, and notice of dishonor. No
delay on the part of the Noteholder in exercising any right hereunder shall
operate as a waiver of such right under this Note.
6. EVENTS OF DEFAULT. The Company shall be in default under this Note if
any payment of principal or interest is not paid within ten (10) business days
of when the same is due and payable. If an event of default shall occur and be
continuing, the entire principal amount of this Note, together with the accrued
interest, shall become and be immediately due and payable, without presentment,
demand, protest or notice of any kind.
7. COLLECTION. If the indebtedness represented by this Note or any part
thereof is collected at law or in equity or in bankruptcy, receivership or other
judicial proceedings or if this Note is placed in the hands of attorneys for
collection after default, the Company agrees to pay, in addition to the
principal and interest payable hereon, reasonable attorneys' fees and costs
incurred by the Noteholder.
8. USURY SAVINGS CLAUSE. The Company and the Noteholder intend to comply
at all times with applicable usury laws. If at any time such laws would render
usurious any amounts due under this Note under applicable law, then it is the
Company's and the Noteholder's express intention that the Company not be
required to pay interest on this Note at a rate in excess of the maximum lawful
rate, that the provisions of this Section 6 shall control over all other
provisions of this Note which may be in apparent conflict hereunder, that such
excess amount shall be immediately credited to the principal balance of this
Note (or, if this Note has been fully paid, refunded by the Noteholder to the
Company), and the provisions hereof shall be immediately reformed and the
amounts thereafter decreased, so as to comply with the then applicable usury
law, but so as to permit the recovery of the fullest amount otherwise due under
this Note.
9. GENERAL PROVISIONS.
9.1. NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or mailed by certified mail return receipt
requested, postage prepaid, at the respective addresses of the parties as set
forth on the first page hereof. Any party hereto may change such address by
notice hereunder. Notice shall conclusively be deemed to have been given when
4
<PAGE>
personally delivered or when deposited in the mail in the manner set forth above
and shall be deemed to have been received when delivered.
9.2. SEVERABILITY; HEADINGS. In case any provision of this Note shall
be declared by a court to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
effected or impaired thereby, unless to do so would deprive the Noteholder or
the Company of a substantial part of its bargain. Such court may reform such
invalid, illegal or unenforceable provision so as to give the maximum
permissible effect to the intentions of the parties as expressed in this Note.
All headings used herein are used for convenience only and shall not be used to
construe or interpret this Note.
9.3. ENTIRE AGREEMENT; CHANGES. This Note and the Subscription
Agreement between the Company and Noteholder of even date herewith contains the
entire agreement between the parties hereto superseding and replacing any prior
agreement or understanding relating to the subject matter hereof. Neither this
Note nor any term hereof may be changed, waived, discharged or terminated orally
but only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
9.4. LAW GOVERNING. This Note shall be construed and enforced in
accordance with, and governed by, the internal laws of the State of Illinois,
excluding that body of law applicable to conflicts of law.
9.5. LEGAL FEES. The Company shall pay the reasonable legal fees of
the Noteholder in an amount not in excess of $5,000 in connection with the
negotiation and execution of this Note and the related Subscription Agreement
and other documents executed pursuant hereto.
9.6. SPECIFIC PERFORMANCE. The Company and Noteholder agree that it is
impossible to measure in money damages which will accrue to Noteholder by reason
of a failure of the Company to allow a conversion to Conversion Stock pursuant
to the terms hereof. Therefore, if Noteholder shall institute any action or
proceeding to enforce the provisions hereof relating to such conversion, the
Company hereby waives the claim or defense therein that there is an adequate
remedy at law.
9.7. ALLOCATION. The Noteholder shall have the right to allocate among
themselves all or any portion of the Conversion Stock by so designating to the
Company at the time the written notice of election to convert is provided to the
Company pursuant to Section 2.1.
9.8. AGENT. The Noteholder hereby appoints Troon & Co. as agent (the
"Agent") hereunder to act on their behalf for all purposes hereunder. The
Company shall be entitled to rely on the direction of the Agent for all purposes
hereunder, including, without limitation, exercise of the conversion right
pursuant to Section 2 of this Note.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
IN WITNESS WHEREOF, each party has caused this Note to be signed in its name
this 24th day of September, 1999.
THE COMPANY: U.S. REALTEL, INC.
By: /s/ Perry H. Ruda
-------------------------------------
Name: Perry H. Ruda
-----------------------------------
Title: Chairman
----------------------------------
NOTEHOLDER: TROON & CO.
By: /s/ Ross J. Mangano
-------------------------------------
Ross J. Mangano, Trustee & Partner
NOTEHOLDER: JOSEPH D. OLIVER TRUST
GO CUNNINGHAM TRUST
By: /s/ Ross J. Mangano
-------------------------------------
Ross J. Mangano, Trustee
NOTEHOLDER: JOSEPH D. OLIVER TRUST
JAMES OLIVER II TRUST
By: /s/ Ross J. Mangano
-------------------------------------
Ross J. Mangano, Trustee
NOTEHOLDER: JOSEPH D. OLIVER TRUST
JOSEPH D. OLIVER, JR., TRUST
By: /s/ Ross J. Mangano
-------------------------------------
Ross J. Mangano, Trustee
NOTEHOLDER: JOSEPH D. OLIVER TRUST
SUSAN C. OLIVER TRUST
By: /s/ Ross J. Mangano
-------------------------------------
Ross J. Mangano, Trustee
6
<PAGE>
EXHIBIT A
(Form of conversion notice to be executed
by the Noteholder at the time of the conversion)
To U.S. RealTel, Inc.:
The undersigned, holder of that certain Convertible Promissory Note in the
principal amount of $1,500,000 dated September ___, 1999, issued by U.S.
RealTel, Inc. (the "NOTE"), hereby exercises its right to convert all principal
and accrued but unpaid interest of said Note into ______ shares of Common Stock
of [U.S. RealTel, Inc./RealTel de Argentina - specify one or the other] at the
Conversion Price established pursuant to the terms of the Note.
Please issue the certificate for the shares as follows:
- -------------------------------------------------------------------------------
Print or Type Name
- -------------------------------------------------------------------------------
Social Security or Other Identifying Number
- -------------------------------------------------------------------------------
Street Address
- -------------------------------------------------------------------------------
City State Zip Code
and deliver it to the above address, unless a different address is indicated
below.
----------------------------------
By:
-------------------------------
Name:
------------------------
Title:
-----------------------
Dated:______________
(Signature must conform in all
respects to name of holder as
specified on the face of the Note
or, if the Note has been
transferred without reissuance by
the Company, the registered
holder's name as specified in the
Company's records)
<PAGE>
AMENDMENT TO
SHAREHOLDERS' AGREEMENT
This Amendment (the "AMENDMENT") is entered into as of September 24,
1999 and amends that certain Shareholders' Agreement (the "AGREEMENT") made
and entered into as of the 2nd day of October, 1998 among U.S. RealTel, Inc.,
an Illinois Corporation, Craig M. Siegler, Siegler Corp., an Illinois
Corporation, Stanley Siegler, Steven Siegler, the Florence Skolnik Siegler
Foundation, Jordan E. Glazov, individually and as joint tenant with Sheila N.
Glazov, Perry H. Ruda, Jo & Co., an Indiana general partnership, the Oliver
family trusts identified on the signature pages hereto, Access Financial
Group, Inc., Ross J. Mangano and James Hart.
AGREEMENTS
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Upon issuance of any shares of the Company's common stock to Troon
& Co. upon conversion of that certain Convertible Promissory Note dated
September 24, 1999 from the Company payable to Troon & Co., Joseph D. Oliver
Trust GO Cunningham Trust, Joseph D. Oliver Trust James Oliver II Trust,
Joseph D. Oliver Trust Joseph D. Oliver, Jr. Trust and Joseph D. Oliver Trust
Susan C. Oliver Trust, Troon & Co. shall be deemed to be and shall have all
of the rights and obligations of a "Shareholder" pursuant to the Agreement.
2. In all other respects, the Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first set forth above.
U.S. REALTEL, INC.
By: /s/ Perry H. Ruda
-----------------------------
Its: Chairman
-----------------------------
/s/ Craig M. Siegler
---------------------------------
Craig M. Siegler
<PAGE>
SIEGLER CORP.
By: /s/ Craig M. Siegler
-----------------------------
Its: Chairman
-----------------------------
/s/ Stanley Siegler
---------------------------------
Stanley Siegler
/s/ Steven Siegler
---------------------------------
Steven Siegler
FLORENCE SKOLNICK SIEGLER FOUNDATION
By: /s/ Craig M. Siegler
-----------------------------
Its: President
-----------------------------
/s/ Jordan E. Glazov
---------------------------------
Jordan E. Glazov, individually and joint
tenant, with Sheila N. Glazov
/s/ Sheila N. Glazov
---------------------------------
Sheila N. Glazov, as joint tenant with Jordan
E. Glazov
/s/ Perry H. Ruda
---------------------------------
Perry H. Ruda
JO & CO.
By: /s/ Ross J. Mangano
-----------------------------
Its: President
-----------------------------
2
<PAGE>
JOSEPH D. OLIVER TRUST -
GO CUNNINGHAM FUND
By: /s/ Ross J. Mangano
-----------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST -
JAMES OLIVER II FUND
By: /s/ Ross J. Mangano
-----------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST -
JOSEPH D. OLIVER JR. FUND
By: /s/ Ross J. Mangano
-----------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST -
SUSAN C. OLIVER FUND
By: /s/ Ross J. Mangano
-----------------------------------
Ross J. Mangano, as Trustee
ACCESS FINANCIAL GROUP, INC.
By: /s/ Mark J. Grant
-----------------------------------
Its:
-----------------------------------
/s/ Ross J. Mangano
----------------------------------------
Ross J. Mangano
/s/ James Hart
----------------------------------------
James Hart
TROON & CO.
By: /s/ Ross J. Mangano
------------------------------------
Ross J. Mangano, Trustee & Partner
3
<PAGE>
AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
This Amendment (the "AMENDMENT") is entered into as of September 24,
1999 and amends that certain Registration Rights Agreement (the "AGREEMENT")
made and entered into as of the 2nd day of October, 1998 among U.S. RealTel,
Inc., an Illinois Corporation, Craig M. Siegler, Siegler Corp., an Illinois
Corporation, Stanley Siegler, Steven Siegler, the Florence Skolnik Siegler
Foundation, Jordan E. Glazov, individually and as joint tenant with Sheila N.
Glazov, Perry H. Ruda, Jo & Co., an Indiana general partnership, the Oliver
family trusts identified on the signature pages hereto, Access Financial Group,
Inc., Ross J. Mangano and James Hart.
AGREEMENTS
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Section 1(d)(i) of the Agreement is hereby deleted and replaced in
its entirety by the following:
"(i) any shares of Common Stock held by, or issued to, the
parties on the date hereof and any shares of Common Stock issued
to Troon & Co., Joseph D. Oliver Trust GO Cunningham Trust,
Joseph D. Oliver Trust James Oliver II Trust, Joseph D. Oliver
Trust Joseph D. Oliver, Jr. Trust, and Joseph D. Oliver Trust
Susan C. Oliver Trust ("Noteholder") which upon conversion of
that certain Convertible Promissory Note (the "Note") dated
September ___, 1999 from the Company payable to Noteholder;".
2. Upon issuance of any shares of Common Stock to Troon & Co. pursuant
to the Note, Troon & Co. shall be deemed to be and shall have all of the rights
and obligations of a "Shareholder" pursuant to the Agreement.
3. In all other respects, the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first set forth above.
U.S. REALTEL, INC.
By: /s/ Perry H. Ruda
-------------------------------------
Its: Chairman of the Board
-------------------------------------
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/s/ Craig M. Sieger
-----------------------------------------
Craig M. Siegler
Individually and on behalf of
SIEGLER CORP.
By: /s/ Craig M. Siegler
-------------------------------------
Its: President
------------------------------------
/s/ Stanley Siegler
-----------------------------------------
Stanley Siegler
/s/ Steven Siegler
-----------------------------------------
Steven Siegler
FLORENCE SKOLNICK SIEGLER FOUNDATION
By: /s/ Craig M. Siegler
-------------------------------------
Its: President
------------------------------------
/s/ Jordan E. Glazov
-----------------------------------------
Jordan E. Glazov, individually and
joint tenant, with Sheila N. Glazov
/s/ Sheila N. Glazov
-----------------------------------------
Sheila N. Glazov, as joint tenant
with Jordan E. Glazov
/s/ Perry H. Ruda
-----------------------------------------
Perry H. Ruda
JO & CO.
By: /s/ Ross J. Mangano
-------------------------------------
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Its: President
------------------------------------
JOSEPH D. OLIVER TRUST -
GO CUNNINGHAM FUND
By: /s/ Ross J. Mangano
-------------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST -
JAMES OLIVER II FUND
By: /s/ Ross J. Mangano
-------------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST -
JOSEPH D. OLIVER JR. FUND
By: /s/ Ross J. Mangano
-------------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST -
SUSAN C. OLIVER FUND
By: /s/ Ross J. Mangano
-------------------------------------
Ross J. Mangano, as Trustee
ACCESS FINANCIAL GROUP, INC.
By: /s/ Mark J. Grant
-------------------------------------
Its: President, Capital Market
-------------------------------------
/s/ Ross J. Mangano
-----------------------------------------
Ross J. Mangano
/s/ James Hart
-----------------------------------------
James Hart
TROON & CO.
By: /s/ Ross J. Mangano
-------------------------------------
Ross J. Mangano, Trustee & Partner
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NEITHER THIS DEBENTURE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS DEBENTURE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR OTHERWISE QUALIFIED UNDER ANY STATE OR OTHER
SECURITIES LAW, AND NEITHER MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT AND
REGISTERED OR OTHERWISE QUALIFIED UNDER ANY APPLICABLE STATE OR OTHER
SECURITIES LAW OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR
OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED, EXCEPT AS PROVIDED HEREIN.
12% CONVERTIBLE DEBENTURE
$3,000,000 DECEMBER 28,1999
FOR VALUE RECEIVED, U.S. RealTel, Inc., an Illinois corporation having
its principal place of business at 555 West Madison Street, Atrium Level South,
Chicago, Illinois 60661 (the "Company"), hereby promises to pay to the order of
Brandywine Operating Partnership, L.P., a Delaware limited partnership (the
"Holder"), at the place designated by the Holder, the principal amount of Three
Million Dollars ($3,000,000) (or such lesser amount as shall have been loaned to
the Company by the Holder pursuant to the Purchase Agreement defined below) and
to pay interest thereon on the terms set forth below. This 12% Convertible
Debenture (this "Debenture") is being delivered pursuant to the terms of that
certain Securities Purchase Agreement dated December 28, 1999 between the
Company and the Holder (the "Purchase Agreement"). All capitalized terms used
herein but not otherwise defined herein shall have the meanings ascribed to them
in the Purchase Agreement.
1. PAYMENTS OF INTEREST AND PRINCIPAL. Interest shall accrue on the
outstanding principal balance hereof at a rate equal to twelve percent (12%) per
annum, payable quarterly in arrears, on the first day of each January, April,
July and October, commencing April 1, 2000 and continuing until the Maturity
Date (as defined below) at which time the principal balance and all accrued but
unpaid interest shall be paid in full. Interest shall be computed on the basis
of a 360-day year of twelve 30-day months.
The Company agrees to pay interest (computed on the same basis as set
forth above) on overdue principal and on any overdue installment of interest at
the stated rate plus 3% per annum until paid. Notwithstanding the foregoing, the
Company shall not be required to pay interest in excess of the maximum rate
permitted by applicable law, and any payment in excess of such maximum rate
shall be credited against principal or refunded to the Company.
All payments of principal and interest shall be made by the Company in
lawful money of the United States of America by wire transfer to an account
designated by the Holder; provided that the Holder may, from time to time, upon
twenty (20) days prior written notice to the Company, elect to receive one or
more installments of interest payable hereunder in duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock, with each share
valued at $6.50 (subject to proportionate adjustment in the event of a split or
reverse split of the Common Stock or dividend on the Common Stock payable in
shares of Common Stock).
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The term "Maturity Date" shall mean the earlier of (i) July 1, 2001 or
(ii) completion by the Company of an underwritten public offering of Common
Stock registered under the Act which yields net proceeds to the Company of at
least $10,000,000 (a "Qualified Offering"); provided that if the Company has not
completed a qualified Offering by July 1, 2001, it may, by providing the Holder
with written notice no later than 5:00 p.m. on July 1, 2001 (an "Extension
Notice"), extend the Maturity Date to the earlier of (i) October 1, 2001 or (ii)
completion by the Company of a Qualified Offering. If the Company provides the
Holder with an Extension Notice then the per share Exercise Price of the
Warrants issued to the Holder pursuant to the Purchase Agreement shall, as
provided in the Warrants, automatically be reduced by $1.50 from the per share
Exercise Price then in effect (with such $1.50 reduction being subject to
proportionate adjustment in the event of a split or reverse split of the Common
Stock or dividend on the Common Stock payable in shares of Common Stock).
Upon satisfaction of the conditions contained in Section 5(b) hereof,
the Company shall have the right to prepay the principal amount hereof prior to
the Maturity Date.
2. DEFAULT AND REMEDIES. The Company agrees that (a) if any interest is
not paid within five (5) days of the date on which the same is payable, (b)
should there be any breach by the Company in any material respect of any
representation, warranty or covenant set forth in the Purchase Agreement and
such breach remains uncured for a period of ten (10) business days following the
Company's receipt of written notice of such breach or (c) (i) if an event of
default occurs under that certain $1,500,000 Convertible Promissory Note dated
September 24, 1999 (the "September Note") issued by the Company and the holder
thereof accelerates the maturity thereof or (ii) if the principal balance of the
September Note is not repaid or converted into shares of Common Stock on the
terns set forth therein at the maturity date thereof (each an "Event of
Default"), the principal sum of this Debenture, with all accrued interest
thereon, shall, at the option of the Holder, become and be due and payable
immediately.
3. ACCELERATION OPTION. Upon (a) the acquisition by a Person or group
of Persons acting in concert of beneficial ownership (as defined under Rule
13d-3 of the Exchange Act) of more than fifty percent (50%) of the outstanding
shares of Common Stock; (b) a sale, conveyance, exchange or transfer to another
Person not owned or controlled by the Company of all or substantially all of the
assets of the Company; (c) a merger or consolidation of the Company with one or
more other Persons; or (d) the merger or consolidation of one or more Persons
into or with the Company, if, in the case of (c) or (d), the shareholders of the
Company prior to such merger or consolidation do not retain at least a majority
of the voting power of the Company or surviving Person, as the case may be, the
principal sum due hereunder, with all accrued interest thereon, shall, at the
option of the Holder, become and be due and payable immediately. The Holder may
exercise such acceleration right at any time prior to the later of (i)
consummation of any such event and (ii) the Holder's receipt of written notice
from the Company advising the Holder of the pending or completed consummation of
such event.
4. TRANSFER. This Debenture and the rights granted to the Holder are
transferable, in whole or in part, upon surrender of this Debenture, together
with an executed instrument of assignment, at the address of the Company
specified in Section 8 hereof. Until due presentment for registration of
transfer on the books of the Company, the Company may treat the
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registered holder hereof as the owner hereof for all purposes, and the Company
shall not be affected by any notice to the contrary. The Company may require, as
a condition of allowing such transfer, that the Holder or transferee of this
Debenture furnish to the Company a written opinion of counsel, in form,
substance and scope customary to opinions typically delivered in transactions of
this nature, to the effect that such transfer may be made without registration
under the Act and under applicable state securities laws; provided that no such
opinion shall be required if the transferee is a direct or indirect subsidiary
of Brandywine Operating Partnership, LP: or Brandywine Realty Services
Corporation.
5. CONVERSION.
(a) OPTIONAL CONVERSION. The Holder shall have the right, at
the Holder's option, at any time and from time to time prior to repayment of all
amounts due under this Debenture, to convert all or any portion of the
outstanding principal amount of this Debenture into that number of shares (the
"Conversion Shares") of Common Stock equal to the quotient obtained by dividing
the principal amount of this Debenture being converted by a conversion price
equal initially to $7.50 per share (the "Conversion Price"), which Conversion
Price shall be subject to adjustment as set forth in Section 6.
(b) PREPAYMENT. At such time and from time to time as (i) a
public market for the Common Stock exists and (ii) the Market Price (as defined
below) of the Common Stock has equaled or exceeded 120% of the then effective
Conversion Price for twenty (20) out of thirty (30) consecutive Trading Days (as
defined below), the Company shall have the right to prepay this Note without
premium or penalty on not less than thirty (30) days' prior written notice to
the Holder (the last day of such thirty (30) day period being referred to as the
"Prepayment Date"). Upon receipt of such prepayment notice, the Holder shall
have the option, at its sole election, by providing the Company with written
notice thereof prior to the Prepayment Date, to convert all or any portion of
the outstanding principal of this Debenture into Conversion Shares at the
Conversion Price. The term "Market Price" shall mean, for any given Trading Day,
the average of the closing bid and asked prices of the Common Stock quoted in
the Over-The-Counter Market Summary or the last reported sale price of the
Common Stock or the closing price quoted on the NASDAQ National Market System or
on any exchange on which the Common Stock is listed, whichever is applicable, as
published in the Eastern Edition of The WALL STREET JOURNAL or, if not reported
in THE WALL STREET JOURNAL, as reported by Bloomberg. The term "Trading Day"
means a day on which banks in Chicago, Illinois are open and on which at least
1,000 shares of Common Stock are traded between unaffiliated persons or
entities.
(c) CONVERSION PROCEDURE. In order to exercise the conversion
right set forth in Sections 5(a) and 5(b), the Holder shall surrender this
Debenture, duly endorsed (or, in the event that such Debenture has been lost,
stolen or destroyed, the Holder shall execute an agreement reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it resulting from the fact that such Debenture has been lost, stolen or
destroyed) to the Company at its address set forth in Section 8 hereof, together
with written notice that the Holder elects to convert this Debenture or the
portion thereof specified in said notice. As promptly as practicable after the
surrender of this Debenture as aforesaid, in full or in part, and in any event
within ten (10) days thereafter, the Company, at its expense, shall issue and
deliver to
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the Holder a certificate or certificates for the number of full shares of Common
Stock issuable upon the conversion of this Debenture or portion thereof
registered in the name of the Holder and a check or cash in respect of any
fractional interest in respect of a share of Common Stock arising upon such
conversion, as provided below. In case this Debenture shall be surrendered for
partial conversion, the Company shall execute and deliver to the Holder, without
charge, a new Debenture in an aggregate principal amount equal to the
unconverted portion of the surrendered Debenture, provided that, except for the
amount of shares into which the new Debenture may be converted, the new
Debenture shall have all of the same terms and conditions as this Debenture.
(d) EFFECTIVE DATE OF CONVERSION. Each conversion pursuant to
Section 5(a) hereof shall be deemed to have been effected immediately prior to
the close of business on the day on which this Debenture shall have been
surrendered, as aforesaid, and the Holder shall be deemed to have become on said
date the holder of record of the shares of Common Stock issuable upon such
conversion.
(e) FULLY PAID SHARES. All shares of Common Stock issued upon
conversion of all or any portion of this Debenture shall be duly authorized,
validly issued, fully paid, non-assessable, and free and clear of all claims,
liens or encumbrances and, if any other outstanding shares of Common Stock are
then listed on a national or regional securities exchange, will be so listed.
(f) NO FRACTIONAL SHARES. No fractional shares of Common Stock
or scrip representing fractional shares shall be issued upon conversion of this
Debenture. If any fractional share of Common Stock would be issuable upon the
conversion of this Debenture, then the Company shall make an adjustment therefor
in cash at the Conversion Price.
(g) ACCRUED INTEREST. Upon any conversion of this Debenture,
or any portion hereof, appropriate cash adjustment shall be made, for or on
account of any interest accrued hereon on such portion. Such accrued interest
shall be paid in cash or, at the option of the Holder, in shares of Common Stock
valued as provided in Section 1.
6. ADJUSTMENTS. The Conversion Price and the number of shares of Common
Stock purchasable upon conversion of this Debenture are subject to adjustment
from time to time as follows:
(a) INCURRENCE OF CERTAIN INDEBTEDNESS. In the event that the
Company, directly or through a Subsidiary, hereafter incurs, assumes or
guaranties any Indebtedness (as defined below) that does not constitute Eligible
Indebtedness (as defined below), the Conversion Price shall, as of the date of
the incurrence or guaranty, decrease automatically to $1.00 less than the
Conversion Price in effect immediately prior to such incurrence or guaranty
(with such $1.00 decrease being subject to proportionate adjustment in the event
of a split or reverse split or dividend on the Common Stock payable in shares of
Common Stock prior to any such decrease). As used herein, (i) the term
"Indebtedness" means indebtedness for borrowed money and (ii) the term "Eligible
Indebtedness" means Indebtedness which is (a) Indebtedness incurred after the
date hereof to refinance Indebtedness outstanding on the date hereof (provided
that the principal amount of such new Indebtedness does not exceed
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the principal amount of the Indebtedness being refinanced), (b) Indebtedness
which, by its terms and except for scheduled interest, is not entitled to be
repaid (other than by the issuance of the Company's non-redeemable equity
securities or equity securities that are not subject to redemption prior to
payment in full or conversion in full of this Debenture including accrued
interest) prior to payment in full or conversion in full of this Debenture,
including accrued interest, (c) Indebtedness the proceeds of which are used
exclusively to acquire property that secures repayment of such Indebtedness and
which Indebtedness is otherwise non-recourse to the assets and credit of the
Company and it Subsidiaries or (d) Indebtedness incurred, assumed or guaranteed
after the date hereof which, together with all other Indebtedness incurred,
assumed or guaranteed after the date hereof, does not exceed, in the aggregate,
$1,500,000 (exclusive of Indebtedness that falls within any of clauses (a), (b)
or (c)).
(b) STOCK DIVIDEND, SPLIT OR SUBDIVISION OF SHARES. If the
number of shares of Common Stock outstanding at anytime after the date hereof is
increased or deemed increased by a stock dividend payable in shares of Common
Stock or other securities convertible into or exchangeable for shares of Common
Stock ("Equivalents") or by a subdivision or split-up of shares of Common Stock
or Equivalents (other than a change in par value, from par value to no par value
or from no par value to par value), then, following the effective date fixed for
the determination of holders of Common Stock or Equivalents entitled to receive
such stock dividend, subdivision or split-up, the Conversion Price shall be
proportionately decreased (but in no event shall the Conversion Price be
decreased below the par value of the Common Stock issuable upon conversion of
this Debenture).
(c) COMBINATION OF SHARES. If, at any time after the date
hereof, the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock (other than a change in
par value, from par value to no par value or from no par value to par value),
then, following the effective date for such combination, the Conversion Price
shall be proportionately increased.
(d) REORGANIZATIONS. CONSOLIDATIONS, ETC. In the event, at any
time after the date hereof, of any capital reorganization, or any
reclassification of the capital stock of the Company (other than a change in par
value or from par value to no par value or from no par value to par value or as
a result of a stock dividend or subdivision, split-up or combination of shares),
or the consolidation or merger of the Company with or into another Person (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any change in the powers, designations,
preferences and rights, or the qualifications, limitations or restrictions, if
any, of the capital stock of the Company as amended from time to time) or of the
sale or other disposition of all or substantially all the properties and assets
of the Company in its entirety to any other Person (any such transaction, an
"Extraordinary Transaction"), then this Debenture, if not repaid in full at the
time of such Extraordinary Transaction pursuant to Section 3 hereof, shall be
convertible into the kind and number of shares of stock or other securities or
property of the Company, or of the Person resulting from or surviving such
Extraordinary Transaction, that a holder of the number of shares of Common Stock
deliverable (immediately prior to the effectiveness of the Extraordinary
Transaction) upon conversion of this Debenture would have been entitled to
receive upon such Extraordinary Transaction, provided that following any such
Extraordinary Transaction provision is made to
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continue the application of the adjustments contained in this Section 5 as
nearly as reasonably may be.
(e) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 6, the Company at its own
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each the holder hereof a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such holder, furnish or cause to be
furnished to such holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Conversion Price at the time in effect; and (iii)
the number of shares that at the time would be received upon the conversion of
this Debenture.
7. NOTICES. In case at any time:
(a) the Company shall declare any cash dividend upon its
Common Stock;
(b) the Company shall declare any dividend upon its Common
Stock payable in stock or make any special dividend or other distribution (other
than cash dividends) to the holders of Common Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another Person; or
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give the Holder (i) at
least 10 business days prior written notice of the date on which the books of
the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 10 business days prior written notice of the
date when the same shall take place. Such notice in accordance with the
foregoing clause (i) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto, and such notice in accordance with the
foregoing clause (ii) shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be.
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8. COMMUNICATIONS. All notices or requests to be given pursuant to this
Debenture must be in writing and may be given as follows:
The Company:
US RealTel, Inc.
555 West Madison Street
Atrium Level South
Chicago, IL 60661
Attention: Ilene Dobrow Davidson, Esq.
Telephone: 312-775-8900
Telecopier. 312-756-9016
with a copy to:
Sachnoff & Weaver
30 South Wacker Drive
29th Floor
Chicago, IL 60606-7478
Attention: Seth M. Hemming, Esq.
Telephone: 312-207-1000
Telecopier: 312-207-6400
If to the Holder:
Brandywine Realty Trust
14 Campus Boulevard
Suite 100
Newtown Square, PA 19073
Attention: Gerard H. Sweeney
Telephone: 610-325-5600
Telecopier: 610-325-5622
with a copy to:
Brandywine Realty Trust
14 Campus Boulevard
Suite 100
Newtown Square, PA 19073
Attention: Brad A. Molotsky, Esq.
Telephone: 610-325-5600
Telecopier. 610-325-5622
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with an additional copy to:
Pepper Hamilton LLP
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103
Attention: Michael H. Friedman, Esq.
Telephone: 215-981-4563
Telecopier: 215-981-4750
Any notice shall be deemed to have been given if personally delivered
or sent by United States mail or by commercial courier or delivery service or by
telecopier or telegram and shall be deemed received, unless earlier received,
(i) if sent by certified or registered mail, return receipt requested, three
business days after deposit in the mail, postage prepaid (ii) if sent by United
States Express Mail or by commercial courier or delivery services, on business
day after delivery to a United States Post Office or delivery service, postage
prepaid, (iii) if sent by telecopier or telegram, when receipt is acknowledged
by answerback, and (iv) if delivered by hand, on the date of the receipt.
9. COMPANY'S WAIVERS. The Company, to the extent permitted by law,
waives and agrees not to assert or take advantage of any of the following: (a)
acceptance or notice of acceptance of this Debenture by the Company; (b)
presentment and/or demand for payment of this Debenture or any indebtedness or
obligations hereby promised; and (c) protest and notice of dishonor with respect
to this Debenture or any indebtedness or performance of obligations arising
hereunder.
10. GOVERNING LAW. This Debenture shall be governed by and construed in
accordance with the laws of the State of Illinois, without regard to conflicts
of law principles.
11. HEADINGS. The Section headings of this Debenture are inserted for
convenience only and do not constitute a pact of this Debenture.
IN WITNESS WHEREOF, the Company, intending to be legally bound
hereby, has caused this Debenture to be duly executed effective as of the day
and year first above written.
U.S. REALTEL, INC.
By: /s/ Perry H. Ruda
-----------------------------
Name: Perry H. Ruda
Title: Chairman
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AMENDMENT TO
SHAREHOLDERS' AGREEMENT
This Amendment (the "AMENDMENT") is entered into as of December 28,
1999 and amends that certain Shareholders' Agreement (the "AGREEMENT") made
and entered into as of the 2nd day of October, 1998 and amended as of
September 24, 1999 among U.S. RealTel, Inc., an Illinois Corporation, Craig
M. Siegler, Siegler Corp., an Illinois Corporation, Stanley Siegler, Steven
Siegler, the Florence Skolnik Siegler Foundation, Jordan E. Glazov,
individually and as joint tenant with Sheila N. Glazov, Perry H. Ruda, Jo &
Co., an Indiana general partnership, the Oliver family trusts identified on
the signature pages hereto, Access Financial Group, Inc., Ross J. Mangano,
James Hart, Troon & Co. and Brandywine Operating Partnership, L.P.
AGREEMENTS
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Upon issuance of any shares of the Company's common stock to
Brandywine Operating Partnership, L.P. and/or Brandywine Realty
Services Corporation (collectively, "BRANDYWINE") pursuant to the
Securities Purchase Agreement dated December 28, 1999 between the
Company and Brandywine, Brandywine shall be deemed to be and
shall have all of the rights and obligations of a "Shareholder"
pursuant to the Agreement, PROVIDED, HOWEVER, that, neither
Brandywine or any direct or indirect transferee of any securities
of the Company acquired by Brandywine, whether or not pursuant to
the Securities Purchase Agreement (as defined below), shall be
subject to the restrictions contained in Section 3 of the
Agreement.
2. Section 1 of the Agreement shall be amended by replacing the
words "preceding paragraph" in the second paragraph thereof with
the word "foregoing" and by adding the following as a paragraph
in between the first and second paragraphs thereof: "In
addition, pursuant to the Securities Purchase Agreement (the
"SECURITIES PURCHASE AGREEMENT") dated December 28, 1999 between
the Company and Brandywine Operating Partnership, L.P. and
Brandywine Realty Services Corporation (collectively,
"BRANDYWINE"), each Shareholder (on behalf of itself and
transferees as contemplated more fully in Section 6 of the
Agreement) hereby agrees to vote all of his or its Shares, at
each annual or special meeting of the shareholders of the Company
or to execute appropriate consents in lieu of such meetings, in
favor of a Board of Directors comprised of not less than six
members, and in favor of one individual designated by Brandywine
to serve as a director of the Company."
3. In all other respects, the Agreement shall remain in full force
and effect.
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first set forth above.
U.S. REALTEL. INC.
By: /s/ Perry H. Ruda
------------------------------------------
Its: Chairman
------------------------------------------
/s/ Craig M. Siegler
----------------------------------------------
Craig M. Siegler
SIEGLER CORP.
By: /s/ Craig M. Siegler
------------------------------------------
Its: Chairman
------------------------------------------
/s/ Stanley Siegler
----------------------------------------------
Stanley Siegler
/s/ Steven Siegler
----------------------------------------------
Steven Siegler
FLORENCE SKOLNICK SIEGLER
FOUNDATION
By: /s/ Craig M. Siegler
------------------------------------------
Its: President
------------------------------------------
/s/ Jordan E. Glazov
----------------------------------------------
Jordan E. Glazov, individually and joint
tenant, with Sheila N. Glazov
/s/ Sheila N. Glazov
----------------------------------------------
Sheila N. Glazov, as joint tenant with Jordan
E. Glazov
/s/ Perry H. Ruda
----------------------------------------------
Perry H. Ruda
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JO & CO.
By: /s/ Ross J. Mangano
------------------------------------------
Its: President
------------------------------------------
JOSEPH D. OLIVER TRUST-
GO CUNNINGHAM FUND
By: /s/ Ross J. Mangano
------------------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST-
JAMES OLIVER II FUND
By: /s/ Ross J. Mangano
------------------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST-
JOSEPH D. OLIVER JR. FUND
By: /s/ Ross J. Mangano
------------------------------------------
Ross J. Mangano, as Trustee
JOSEPH D. OLIVER TRUST-
SUSAN C. OLIVER FUND
By: /s/ Ross J. Mangano
------------------------------------------
Ross J. Mangano, as Trustee
ACCESS FINANCIAL GROUP, INC.
By: /s/ Mark J. Grant
------------------------------------------
Its: President, Capital Markets
------------------------------------------
/s/ Ross J. Mangano
----------------------------------------------
Ross J. Mangano
3
<PAGE>
/s/ James Hart
----------------------------------------------
James Hart
TROON & CO.
By: /s/ Ross J. Mangano
------------------------------------------
Ross J. Mangano, Trustee & Partner
BRANDYWINE OPERATING
PARTNERSHIP, L.P.
By: Brandywine Realty Trust, its
general partner
By: /s/ Gerard H. Sweeney
------------------------------------
Name: Gerard H. Sweeney
Title: President and Chief
Executive Officer
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<PAGE>
PRESIDENTIAL TOWERS
OFFICE LEASE
U.S. REALTEL, INC.
<PAGE>
<TABLE>
<CAPTION>
1. BASIC LEASE PROVISIONS.
<S> <C>
A. Project and Address: Presidential Towers
555 West Madison Street
Chicago, Illinois 60661
B. Landlord and Address: The Habitat Company, as agent for the
beneficiary of LaSalle National Bank
Trust No. 103200
c/o The Habitat Company
350 West Hubbard Street
Chicago, Illinois 60610
C. Tenant and Current Address: U.S. RealTel, Inc.
100 S. Wacker Drive
Chicago, Illinois 60606
D. Date of Lease: October 6, 1999
E. Lease Term: Five (5) years
F. Commencement Date of Term: The later of October 1, 1999 or the day
after the Landlord's work is completed
and possession of the Premise is
delivered to Tenant.
G. Expiration Date of the Term: September 30, 2004
H. Location and Area of Premises: 9,598 square feet in southwest portion of
Atrium and two (2) parking spaces in the
garage.
I. Extension Options: One - three year option
J. Security Deposit: $13,997 payable as provided in
Paragraph 7
K. Use: General Office Use and as a showroom for
display and sale of Tenant's products and
services and for the operation of
Tenant's telecommunications switching
center.
L. Broker: None
M. Exhibits: Exhibit A - Plan of Premises
Exhibit B - Fixed Rent Schedule
Exhibit C - Landlord Work
</TABLE>
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<PAGE>
2. LEASING AGREEMENT. Landlord leases to Tenant and Tenant leases from Landlord
the premises (the "Premises") shown cross-hatched on Exhibit A which are
contained in Presidential Towers (the "Project" or the "Development"), located
at the address stated in Paragraph lA. In addition, the Premises shall include
two (2) spaces in the garage that is part of the Project. In the event Tenant
requests more than two (2) parking spaces for use by Tenant's employees, such
spaces shall be made available at the then current monthly residential rate. The
term of this Lease (the "Term") shall commence on the date (the "Commencement
Date") stated in Paragraph 1F. The Term shall expire on the date (the
"Expiration Date") stated in Paragraph 1G, unless terminated earlier or extended
as otherwise provided in this Lease.
3. INTENTIONALLY DELETED.
4. CHARGES.
A. HVAC. Landlord shall provide heat and air conditioning
through systems provided by Landlord during all reasonable business hours of
Tenant (Monday through Friday from 8:00 a.m. to 7:00 p.m. and Saturday from 8:00
a.m. to 3:00 p.m.), to the extent reasonably necessary for the comfortable
occupancy and use of the Premises under normal business operations.
B. OTHER SERVICES. Tenant, at its own expense, shall provide
janitor service, cleaning, refuse removal and interior window washing for the
Premises, such services to be performed by contractors or personnel reasonably
satisfactory to Landlord. Provided Tenant bags its garbage and refuse in a
manner intended to reduce odors and brings such bagged garbage and refuse to
Landlord's compactor, Tenant shall subject to rules and regulations regarding
use promulgated by Landlord, have the right to use the compactor. Landlord shall
from time to time bill Tenant and Tenant shall upon receipt of invoices therefor
reimburse Landlord for Tenant's share of scavenger service costs (presently
measured in yards) charged to Landlord for use of the compactor. Tenant's right
to continue to use the compactor is conditioned upon its payment within five
days after receipt of each such invoice for its share of scavenger service costs
for use of the compactor. Tenant shall reimburse Landlord for all costs and
expenses of repair of the Compactor resulting from Tenant's negligent or
improper use thereof. Nothing contained herein shall obligate Landlord to
furnish a compactor at any time during the Term.
C. WATER. Landlord shall furnish Tenant with hot water and cold
water.
D. UTILITY CHARGES. Tenant shall pay for all electric power
furnished for the operation of the Premises. Tenant shall make arrangements
directly with the applicable utility company for providing such service.
E. USE OF PROJECT AREAS. Tenant shall be entitled to reasonable
use for itself and its suppliers of the loading dock, receiving areas and
freight elevators of the Development, provided that such use shall not
unreasonably interfere with the use of said facilities by Landlord and other
tenants of the Development and their respective suppliers, customers and
invitees.
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<PAGE>
F. FAILURE OF SERVICES. If, as a result of the failure of
Landlord to provide any service required to be provided by it under this Lease,
the Premises are rendered untenantable for a period of 24 consecutive hours,
then, commencing upon the expiration of such 24 hours, Rent shall abate for the
duration of such untenantability until Tenant is able to resume occupancy of the
Premises. Tenant agrees that Landlord shall not be liable for damages for
failure to furnish or delay in furnishing any service which failure or delay is
caused, in whole or in part, by war, insurrection, civil disturbance, riots,
acts of God, governmental action, strikes, lockouts or picketing (whether legal
or illegal), inability to obtain electricity , fuel or supplies , accidents,
casualties, or acts directly or indirectly by Tenant (or Tenant's agents,
representatives, employees, licensees or invitees) or any other at or cause
beyond the reasonable control of Landlord; provided, however, that subject to
the conditions set forth in the preceding sentence, Tenant shall be entitled to
abatement of Rent during the period described in the preceding sentence. Any
failure or delay in furnishing any service required under this Lease to be
provided by Landlord shall not be deemed to be an eviction or disturbance in any
manner of Tenant's use and possession of the Premises, relieve Tenant from its
obligation to pay all Rent when due or from any other obligation of Tenant under
this Lease, except for abatement of Rent during the period described in the
first sentence of this Paragraph.
5. USE OF PREMISES.
A. USE. Tenant shall use and occupy the Premises for the use
stated in Paragraph 1K and for no other use or purpose without the express
written consent of Landlord, which consent shall not be unreasonably withheld or
delayed.
B. OPERATION. Tenant shall operate its business in an
efficient, businesslike and reputable manner. Tenant shall promptly comply with
all laws and ordinances and lawful orders and regulations affecting the Premises
and the cleanliness, safety, occupancy and use of same. Tenant, at its expense,
shall obtain all permits and licenses necessary to conduct its business in the
Premises. Tenant agrees that it will conduct such business in a lawful manner in
good faith, and shall not commit any act tending to injure the reputation of the
Project.
C. QUIET ENJOYMENT. So long as Tenant is not in default under
this Lease, Tenant shall be entitled to peaceful and quiet enjoyment of the
Premises, subject to the terms of this Lease and the acts or omissions of
persons or entities other than Landlord, its beneficiary and their respective
agents and employees.
D. SIGNAGE. Tenant shall have the right to have Tenant's logo
and name painted on the entry door to the Premises.
E. PYLON SIGN. Landlord is building a pylon sign at Madison and
Clinton Avenues and Tenant shall have the right to have Tenant's name placed on
the pylon sign.
6. RENT.
A. FIX RENT. Commencing on the Commencement Date of Term,
Tenant shall pay to Landlord fixed rent ("Fixed Rent") during the Term without
any abatement, set off or
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<PAGE>
deduction whatsoever (except as otherwise expressly permitted in this Lease)
in the initial annual amount of $167,965 ($13,997 per month) which amount
shall increase annually as shown on Exhibit B. Fixed Rent shall be payable in
equal monthly installments in advance on the first day of each calendar month
during the Term. Notwithstanding the foregoing No Fixed Rent shall be payable
for the first one and one half (1 1/2) months of the Term.
B. PAYMENT OF RENT. All charges, costs and sums required to be
paid by Tenant under this Lease in addition to Fixed Rent shall be considered
additional rent, and Fixed Rent and additional rent shall be collectively
called "Rent". Rent shall be payable without demand, notice, offset or
deduction, except as otherwise specifically stated in this Lease. All Rent
due under this Lease shall be paid by checks payable to the order of "The
Habitat Company, managing agent", the managing agent ("Manager") of Landlord,
which checks shall be mailed or delivered to Landlord at the office of the
Project or in such other manner or at such other place as Landlord may from
time to time designate to Tenant. Fixed Rent will be prorated for partial
months or years within the Term. Tenant's covenant to pay Rent shall be
independent of every other covenant in this Lease.
7. SECURITY DEPOSIT. As security for the performance of its
obligations under this Lease, Tenant shall pay to Landlord a security deposit
(the "Security Deposit") in the amount stated in Paragraph 1J payable one half
(1/2) upon signing this Lease and one half (1/2) within two (2) business days
after Tenant moves into the Premises. The Security Deposit may be applied by
Landlord to cure any default of Tenant under this Lease, and upon notice by
Landlord of such application, Tenant shall replenish the Security Deposit in
full by promptly paying to Landlord the amount so applied. Landlord shall not
pay interest on the Security Deposit. Within 45 days after the Expiration Date,
Landlord shall return to Tenant the balance, if any, of the Security Deposit.
The Security Deposit shall not be considered an advance payment of Rent or a
measure of damages for any default by Tenant under this Lease, nor shall it be a
bar or defense to any action which Landlord may at any time commence against
Tenant.
8. CONDITION AND CARE OF PREMISES. Tenant's taking possession of the
Premises shall be conclusive evidence against Tenant that the portion of the
Premises taken possession of was then in good order and satisfactory condition
except for those conditions, if any, set forth on a written "punch list" signed
by Tenant and sent to Landlord within thirty (30) days after Tenant takes
possession. Landlord will use reasonable efforts to complete such punch list
items within fifteen (15) days after receipt of the punch list. No promises of
Landlord to alter, remodel, improve, repair, decorate the Premises or any part
thereof have been made, and no representation respecting the condition of the
Premises or the Project has been made to Tenant by or on behalf of Landlord
except to the extent stated in this Lease including, but not limited to,
Paragraph 24 and Exhibit C. Except for any damage resulting from any negligent
or wanton act of Landlord or its employees and agents, and subject to the
provisions of Paragraph 16, Tenant shall at its own expense keep the Premises in
good repair and tenantable condition and shall promptly and adequately repair
all damage to the Premises caused by Tenant or any of its employees,
contractors, agents or invitees, under the supervision and with the approval of
Landlord and within any reasonable period of time specified by Landlord. Tenant
shall, at its expense: (i) keep the entry doors and the interior of the Premises
in same condition and repair as on the Commencement Date ordinary wear, loss or
damage by or other insured of casualty
5
<PAGE>
excepted; (ii) keep in good condition and repair, all of Tenant's equipment,
facilities and fixtures (including hardware and heating, cooling,
ventilating, electrical, plumbing and other mechanical facilities) located in
the Premises; and (iii) replace all window glass and door glass broken in the
Premises. If Tenant does not perform its obligations under this Paragraph
promptly and adequately, Landlord, after notice to Tenant specifically
identifying the acts Landlord believes Tenant is obligated to perform and
giving fifteen (15) days opportunity for Tenant to perform such acts, may,
but need not, perform such obligations on behalf of Tenant, and Tenant shall
pay to Landlord within ten (10) days after Landlord's demand, the reasonable
cost paid or incurred by Landlord in performing such obligations.
9. RETURN OF PREMISES.
A. SURRENDER. At the termination of this Lease by lapse of
time or otherwise or upon termination of Tenant's right to possession of the
Premises without terminating this Lease, Tenant shall surrender possession of
the Premises to Landlord and deliver all keys to the Premises to Landlord and
make known to Landlord the combination of all locks of vaults or safes then
remaining in the Premises, and shall, subject to the following paragraph,
return the Premises and all equipment, furniture, and fixtures of Landlord in
the Premises to Landlord in as good condition as when Tenant originally took
possession, ordinary wear, loss or damage by fire or other insured casualty,
damage resulting from the act of Landlord or its employees and agents, and
any Tenant improvements excepted, failing which Landlord may restore the
Premises and such equipment and fixtures to such condition and Tenant shall
pay the cost of such restoration to Landlord on demand.
B. TITLE TO PROPERTY. All Tenant improvements, installations,
additions, partitions, hardware, light fixtures, nontrade fixtures and
improvements, temporary or permanent, except moveable furniture, trade
fixtures and equipment owned by Tenant, in or upon the Premises, whether
installed by Tenant or Landlord, shall be Landlord's property and shall
remain in the Premises, all. without compensation, allowance or credit to
Tenant. If, however, prior to or within ten (10),,days after such termination
Landlord so directs by notice, Tenant, at Tenant's sole expense, shall
promptly remove such of the installations, additions, partitions, hardware,
light fixtures, non-trade fixtures and improvements placed in the Premises by
Tenant and which Landlord, at the time of installation informed Tenant may
have to be removed at the end of the Term and are designated in such notice
and repair any damage to the Premises caused by such removal, failing which
Landlord may remove the same and repair the Premises and Tenant shall pay the
reasonable cost of such removal and repair to Landlord on demand.
C. TRADE FIXTURES. All moveable furniture, trade fixtures and
equipment placed on the Premises by Tenant shall remain the property of
Tenant and may be removed in whole or in part by Tenant at any time and from
time to time during the Term, provided (i) any such trade fixtures and
equipment removed during the Term shall be replaced with trade fixtures and
equipment of like quality, and (ii) any damage caused by such removal shall
be repaired by Tenant, at Tenant's sole expense. It is further agreed that
all moveable furniture, trade fixtures and equipment owned by Tenant which
are, or may be, installed in the Premises during the Term whether exempt or
not from sale under execution and attachment under the laws of the State of
Illinois, shall at all times be subject to a first lien in favor of Landlord
for all Rent which is due
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<PAGE>
under this Lease; provided that Landlord, at Tenant's request, will
subordinate Landlord's lien as provided herein to any lender who, requires,
as a part of such loan, a lien on Tenant's trade fixtures.
D. RESTORATION. Landlord and Tenant acknowledge that the
Premises are being delivered with carpeting and floor tile in place
throughout the Premises. Tenant shall leave in place any floor covering or
tile flooring on the Premises at the end of the Term without compensation to
Tenant. Tenant shall remove Tenant's furniture, machinery, safes, trade
fixtures and other items of moveable personal property of every kind and
description from the Premises and restore any damage to the Premises caused
by such removal, such removal and restoration to be performed prior to or
within ten days after the expiration or termination of this Lease, or
termination of Tenant's right to possession of the Premises, failing which
Landlord may perform same, in which event the provisions of Paragraph 13G
shall apply.
E. SURVIVAL. All obligations of Tenant under this Paragraph 9
shall expressly survive the expiration or earlier termination of this Lease.
10. ALTERATIONS.
A. APPROVALS. Without Landlord's prior written consent (which
consent shall not be unreasonably withheld), Tenant shall not make or cause
to be made any alterations, improvements, additions, changes or repairs (an
"alteration", collectively) in or to the Premises; provided that alterations
in any year costing less than $10,000 shall not require Landlord consent; and
further provided that any wiring within existing conduit or inside the drop
ceiling shall not be considered as an alteration provided Tenant notifies
Landlord of any such wiring and such wiring shall not interfere with the
operation of the Development. As a condition to granting its consent to any
alteration, Landlord may impose reasonable requirements, including, without
limitation, requirements as to the manner and time for the performance of
such alteration and the type and amount of insurance and bonds Tenant must
acquire and maintain during the course of performance of such alteration. In
addition, Landlord shall have the right to: approve the contractors
performing the alteration; approve all plans and specifications for the
alteration; review the work of Tenant's architects, engineers, contractors or
mechanics and control any construction or other activities being undertaken
within the Premises; and order reasonable changes in such alteration in
instances in which materials or workmanship is defective or not in accordance
with plans or specifications previously approved by Landlord. Tenant shall
pay the entire cost of any alteration, and if requested by Landlord, shall
deposit with Landlord prior to commencement of such alteration, funds or
other security acceptable to Landlord covering the full cost of such
alteration. Each alteration shall become the property of Landlord when made
and shall be surrendered with the Premises upon the expiration or termination
of this Lease. All approval and reviews under this paragraph shall not be
unreasonably withheld or delayed.
B. COMPLIANCE WITH LAWS. Each alteration shall be performed in
a good and workmanlike manner using new grades of materials; in full
compliance with all applicable laws, ordinances and governmental regulations,
rules and requirements; and in full compliance with all insurance rules,
orders, directions, regulations and requirements.
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<PAGE>
C. NO LIENS. Before any alteration is commenced, Tenant shall
give Landlord at least fifteen (15) days' prior written notice of same.
During the course of performance of such alteration Tenant shall, upon
Landlord's request, furnish Landlord with sworn contractor's statements and
lien waivers covering all work previously performed. Any mechanic's liens for
work claimed to have been performed for, or materials claimed to have been
furnished to, Landlord or Tenant shall be discharged by Tenant, by bond or
otherwise, within ten (10) days after the filing of such lien, at Tenant's
sole expense. Nothing herein shall be deemed to prevent Tenant from
contesting, in good faith, any lien claim filed against Tenant. Tenant agrees
to indemnify, hold harmless and defend Landlord, its managing agent and their
respective officers, partners and employees from any liability, loss, cost,
damage or expense (including attorney's fees), arising out of any such lien
claim or out of any other claim relating to work done or materials supplied
to the Premises at Tenant's request or on Tenant's behalf.
11. ASSIGNMENT AND SUBLETTING.
A. CONSENT. Tenant shall not without the prior written consent
of Landlord in each instance, which consent shall not be unreasonably
withheld or delayed,
(1) assign, mortgage, pledge, hypothecate or otherwise
transfer or permit the transfer of this Lease or the interest of
Tenant in this Lease, in whole or in part, by operation of law or
otherwise;
(2) sublet all or any part of the Premises; or
(3) permit the use or occupancy of all or any part of the
Premises for any purpose not permitted under Paragraph 1K or
by anyone other than Tenant and Tenant's employees and
customers.
For purposes of this Paragraph 11A an "assignment" shall not be considered to
include a change in the majority ownership or control of Tenant, provided the
new controlling ownership has a net worth equal to or greater than current
controlling ownership and any assignment or other transfer to an affiliate,
subsidiary or parent of Tenant.
B. CONDITIONS FOR CONSENT. If Tenant enters into an assignment
or sublease it shall submit an executed copy of the sublease or assignment to
Landlord for consent not less than thirty days prior to the proposed
effective date of assignment or the proposed commencement date of the term of
the sublease, as the case may be. In the case of a sublease, the instrument
shall expressly state that it is and shall remain at all times subject and
subordinate to this Lease and all of the terms, covenants and agreements
contained in this Lease. No such assignment or sublease instrument shall
expressly or by implication impose upon Landlord any duties or obligations or
alter the provisions of this Lease. Tenant agrees that the withholding by
Landlord of its consent to such proposed assignment or proposed sublease will
not be deemed "unreasonable" if, among other reasonable criteria to be
examined by Landlord:
(1) the net worth of the proposed subtenant or assignee
is less than that of Tenant;
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<PAGE>
(2) the intended use of the Premises by the proposed
subtenant or assignee is not for general office or retail use;
(3) the use of the Premises by the proposed subtenant
or assignee would violate or create a potential violation of
any laws, ordinances or governmental regulations;
(4) the use of the Premises by the proposed subtenant
or assignee would violate any other agreements affecting the
Premises, the Project, Landlord or any tenants of the Project;
(5) the assignment is for less than all of the
Premises; or
(6) Tenant is in default under this Lease.
Tenant may not submit to Landlord for consent any assignment or sublease on
terms or conditions or with parties different from those stated in the Tenant's
notice for such assignment or sublease.
C. NO WAIVER. Consent by Landlord to any assignment,
subletting, transfer, lien, charge, use or occupancy, shall not operate as a
waiver by Landlord of, or to release or discharge Tenant from, any liability
under this Lease, whether past, present or future (including liability arising
during any renewal term of this Lease or with respect to any expansion space
included in the Premises), or be considered to be a consent to or relieve Tenant
from obtaining Landlord's consent to any subsequent assignment, subletting,
transfer, lien, charge, use or occupancy.
D. BANKRUPTCY. Without limiting any of the provisions of this
Paragraph 11, if pursuant to the Federal Bankruptcy Code Tenant is permitted to
assign this Lease notwithstanding the restrictions contained in this Paragraph
11, "adequate assurance of future performance" by an assignee which is expressly
permitted under such Code shall, to the extent permitted by law, be considered
to be the deposit with Landlord of cash security in an amount equal to two (2)
months Fixed Rent payable under this Lease as of the effective date of such
assignment, which deposit shall be considered an additional security deposit by
Tenant and held and applied by Landlord as provided in Paragraph 7.
12. WAIVER AND INDEMNITY.
A. WAIVER. To the extent permitted by law, Tenant waives all
claims against Landlord, the Manager and their respective officers, partners,
agents and employees, for injury or damage to person or property sustained by
Tenant and resulting directly or indirectly from fire or other casualty, cause
or any existing or future condition, defect, matter or thing in or about the
Premises or the Project, or from any equipment or appurtenance in the Project,
or from any accident in or about the Project, or from any act or neglect of any
tenant or other occupant of the Project or of any other person. This Paragraph
12A shall apply especially, but not exclusively, to
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damage caused by water, snow, frost, steam, excessive heat or cold, sewerage,
gas, odors or noise, or the bursting or leaking of pipes or plumbing fixtures,
broken glass, sprinkling or air conditioning devices or equipment, or flooding,
and shall apply without distinction as to the person whose act or neglect was
responsible for the damage and whether the damage was due to any of the acts
specifically enumerated above, or from any other thing or circumstance, whether
of a like nature or of a wholly different nature.
B. INDEMNITY. Tenant agrees to indemnify and hold harmless
Landlord, the Manager and their respective officers, partners, agents, and
employees, from and against any and all claims,, demands, actions, liabilities,
damages, costs and expenses (including attorneys' fees), for injuries to all
persons and damage to or theft or misappropriation or loss of property occurring
in or about the Premises and arising from Tenant's occupancy of the Premises or
the conduct of its business or from any activity, work, or thing done, permitted
or suffered by Tenant in or about the Premises or from any breach or default on
the part of Tenant in the performance of any covenant or agreement on the part
of Tenant to be performed under this Lease or due to any other act or omission
of Tenant, its agents or employees. If any such proceeding is filed against
Landlord or any such indemnified party, Tenant agrees to defend such proceeding
at its sole cost by legal counsel reasonably satisfactory to Landlord, if
requested by Landlord.
13. LANDLORD'S REMEDIES.
A. EVENTS OF DEFAULT. Each of the following shall constitute
an event of default by Tenant under this Lease:
(1) Tenant fails to pay any installment of Rent when due and
fails to cure such default within five days after written notice to
Tenant (which 5-day period shall run concurrently with and not be in
addition to the statutory Landlord's 5-day notice required under
Illinois law in dispossession proceedings);
(2) Tenant fails to observe or perform any of the other
covenants or provisions of this Lease to be observed or performed by
Tenant and fails to cure such default within 15 days after written
notice to Tenant; provided, that if such default is not susceptible to
being cured within such 15-day period but Tenant promptly commences
such cure, said 15-day period shall be extended so long as Tenant is
actively, diligently and continuously attempting to effectuate such
cure (and furnishing Landlord with weekly written status reports on
such efforts) but in no event shall said 15-day period be extended by
more than 60 days;
(3) the interest of Tenant in this Lease is levied upon under
execution or other legal process;
(4) a petition is filed by or against Tenant to declare Tenant
bankrupt or seeking a plan of reorganization or arrangement under any
Chapter of the Bankruptcy Code, or any amendment, replacement or
substitution for such Code; or
(5) a receiver is appointed for Tenant or Tenant's property.
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B. LANDLORD'S REMEDIES. Upon the occurrence of an event of
default by Tenant under this Lease, Landlord, at its option, without further
notice or demand to Tenant, may:
(1) Terminate this Lease by giving written notice thereof to
Tenant, in which event this Lease and all right, title and interest of
Tenant under this Lease shall terminate on the date stated in such
notice;
(2) Terminate the right of Tenant to possession of the
Premises without terminating this Lease by giving written notice
thereof to Tenant, in which event the right of Tenant to possession of
the Premises shall cease on the date stated in such notice; and
(3) Enforce the provisions of this Lease and enforce and
protect the rights of Landlord by a suit or suits in equity or at law
for the specific performance of any covenant or agreement contained
under this Lease, or for the enforcement of any other appropriate legal
or equitable remedy, including recovery of all monies due or to become
due from Tenant under this Lease.
The foregoing rights and remedies shall be distinct, separate and cumulative and
shall not operate to exclude or deprive Landlord of any other right or remedy
allowed to it by law or in equity.
C. SURRENDER. If Landlord exercises either remedy provided for
in Paragraph 13B(1) or 13B(2), Tenant shall surrender possession and vacate the
Premises immediately and deliver possession thereof to Landlord, and Landlord
may then or at any time thereafter re-enter and take complete and peaceful
possession of the Premises, with or without process of law, full and complete
license so to do being hereby granted to Landlord, and Landlord may remove all
occupants and property therefrom, using such force as may be necessary, without
being deemed in any manner guilty of trespass, eviction or forcible entry and
detainer and without relinquishing Landlord's right to rent or any other right
given to Landlord hereunder or by operation of law.
D. TERMINATION OF POSSESSION. In the event of the termination
of Tenant's right to possession of the Premises without termination of this
Lease under Paragraph 13B(2), such termination of possession shall not release
Tenant, in whole or in part, from Tenant's obligation to pay the Rent hereunder
for the full Term, and Landlord shall have the right, from time to time, to
recover from Tenant, and Tenant shall remain liable for, all Rent and any other
sums thereafter accruing as they become due under this Lease during the period
from the date of such notice of termination of possession to the stated end of
the Term. In any such case, Landlord shall, if and to the extent required by
law, relet the Premises or any part thereof for the account of Tenant for such
rent, for such time (which may be for a term extending beyond the Term of this
Lease) and upon such terms as Landlord, in Landlord's sole discretion, shall
determine, and Landlord shall not be required to accept any tenant offered by
Tenant or to observe any instructions given by Tenant relative to such
reletting, subject however, to Landlord's duty to mitigate damages as required
by law. Also, in any such case, Landlord may make repairs, alterations and
additions in or to the Premises and redecorate the same to the extent
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<PAGE>
reasonably necessary or desirable and in connection therewith change the locks
to the Premises, and Tenant shall upon demand pay the reasonable cost thereof.
Landlord may collect the rents from any such reletting and apply the same first
to the payment of the reasonable expenses of re-entry, redecoration, repair and
alterations and second to the payment of Rent herein provided to be paid by
Tenant, and any excess or residue shall operate only as an offsetting credit
against the amount of Rent as the same thereafter becomes due and payable
hereunder, but the use of such offsetting credit to reduce the amount of rent
due Landlord, if any, shall not be deemed to give Tenant any right, title or
interest in or to such excess or residue and any such excess or residue shall
belong to Landlord solely; provided that in no event shall Tenant be entitled to
a credit on its indebtedness to Landlord in excess of the aggregate sum which
would have been paid by Tenant for the period for which the credit to Tenant is
being determined, had no event of default occurred. No such re-entry or
repossession, repairs, alterations and additions, or reletting shall be
construed as an eviction or ouster of Tenant or as an election on Landlord's
part to terminate this Lease unless a written notice of such intention be given
to Tenant or shall operate to release Tenant in whole or in part from any of
Tenant's obligations hereunder, and Landlord. may, at any time and from time to
time, sue and recover judgment for any deficiencies from time to time remaining
after the application from time to time of the proceeds of any such reletting.
E. TERMINATION OF LEASE. In the event of the termination of
this Lease under Paragraph 13B(1), Landlord shall be entitled to recover from
Tenant all the fixed dollar amounts of Rent accrued and unpaid for the period up
to and including the termination date, as well as all other additional sums
payable by Tenant, or for which Tenant is liable or in respect of which Tenant
has agreed to indemnify Landlord under any of the provisions of this Lease,
which may be then owing and unpaid, and all costs and expenses, including court
costs and attorneys, fees incurred by Landlord in the enforcement of its rights
and remedies hereunder.
F. INTENTIONALLY DELETED.
G. REMOVAL OF PROPERTY. All property removed from the Premises
by Landlord pursuant to any provisions of this Lease or of law may be handled,
removed or stored by Landlord, at the cost and expense of Tenant, and Landlord
shall in no event be responsible for the value, preservation or safekeeping
thereof. Tenant shall pay Landlord for all reasonable expenses incurred by
Landlord in such removal and storage charges against such property so long as
the same shall be in Landlord's possession or under Landlord's control. All
property not removed from the Premises or retaken from storage by Tenant within
thirty (30) days after the termination of this Lease shall be conclusively
deemed to have been conveyed by Tenant to Landlord as by bill of sale without
further payment or credit by Landlord to Tenant.
H. BANKRUPTCY. In the event a petition is filed by or against
Tenant seeking a plan of reorganization or arrangement under the Bankruptcy
Code, Landlord and Tenant agree, to the extent permitted by law, that the
trustee in bankruptcy shall determine within 60 days after commencement of the
case, whether to assume or reject this Lease.
I. ATTORNEY`S FEES. In any action to enforce any provision of
this Lease, the unsuccessful party shall pay all reasonable costs and expenses,
including attorneys' fees and
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court costs paid or incurred by the successful party in connection with such
action or proceeding (including appeals) to enforce its rights under this
Agreement.
14. HOLDING OVER. Tenant shall pay Landlord 175 % of the Fixed Rent
then applicable for each month or partial month during which Tenant retains
possession of all or any part of the Premises after the expiration or
termination of this Lease. Tenant shall indemnify, defend and hold harmless
Landlord, the Manager and their respective officers, partners and employees from
and against any and all claims, liabilities, actions, losses, damages and
expenses (including attorney's fees) asserted against or sustained by any such
party and arising from or by reason of such retention of possession. The
provisions of this Paragraph 14 shall not constitute a waiver by Landlord of any
re-entry rights of Landlord available under this Lease or by law. If Tenant
retains possession of all or any part of the Premises for 30 days after the
expiration or termination of this Lease, then at the sole option of Landlord
expressed by written notice to Tenant, but not otherwise, such holding over
shall constitute a renewal of this Lease for a period of one year commencing on
the date such notice is given by Landlord and upon the same terms and conditions
as are contained in this Lease, provided, however, that Tenant shall pay Rent
for such one-year renewal term at a rate equal to the prevailing market rental
rate for comparable office space in the Development as of the commencement date
of such one-year renewal term.
15. RULES AND REGULATIONS. Tenant shall abide by all reasonable rules
and regulations adopted by Landlord from time to time for the operation and
management of the Project provided such rules and regulations do not materially
interfere with Tenant's use, possession and quiet enjoyment of the Premises. If
any rules and regulations are contrary to the provisions of this Lease, the
provisions of this Lease shall govern. Landlord shall not be responsible for the
violation of any rules or regulations of the Project by other tenants of the
Project.
16. FIRE AND OTHER CASUALTY. If all or a substantial part of the
Premises are rendered untenantable by reason of fire or other casualty, or if
the Project is damaged by fire or other casualty in such a manner as materially
adversely affects access to or use of the Premises, Landlord shall with
reasonable diligence take such action as is necessary to repair and restore the
Premises and the Project, provided, however, that if a registered architect
selected by Landlord licensed to do business in the State of Illinois should
certify that such repairs and restorations to the Premises and the Project
cannot be completed by using standard working methods and procedures so as to
make the Premises tenantable (or accessible) within six months from the date
such repairs and restorations are commenced, either party shall have the right
to terminate this Lease by giving to the other party written notice of such
election within ten days after receipt of the architect's certificate. If said
fire or other casualty results in the total destruction of the Project, this
Lease shall automatically terminate as of the date of said fire or other
casualty. Fixed Rent shall abate for that part of the Premises which are
untenantable on a per diem and proportionate area basis from the date of the
fire or other casualty until Landlord has substantially completed the repair and
restoration work; provided, that Tenant does not occupy such part of the
Premises which are untenantable during such period.
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17. SUBROGATION AND INSURANCE.
A. SUBROGATION. Landlord and Tenant agree to have all fire and
extended coverage and material damage insurance which may be carried by either
of them endorsed with a clause providing that any release from liability of or
waiver of claim for recovery from the other party entered into in writing by the
insured thereunder prior to any loss or damage shall not affect the validity of
said policy or the right of the insured to recover thereunder and providing
further that the insurer waives all rights of subrogation which such insurer
might have against the other party. Without limiting any release or waiver of
liability or recovery contained in any other paragraph of this Lease but rather
in confirmation and furtherance thereof, each of the parties hereto waive all
claims for recovery from the other party for any loss or damage to any of its
property insured under valid and collectible insurance policies to the extent of
any recovery collectible under such insurance policies. Notwithstanding the
foregoing or anything contained in this Lease to the contrary, any release or
any waiver of claims shall not be operative, nor shall the foregoing
endorsements be required, in any case where the effect of such release or waiver
is to invalidate insurance coverage or the right of the insured to recover
thereunder or increase the cost thereof (provided that in the case of increased
cost the other party shall have the right, within ten [10] days following
written notice, to pay such increased cost keeping such release or waiver in
full force and effect).
B. INSURANCE. Tenant shall carry insurance during the entire
Term hereof insuring Tenant, Landlord, the Manager, and their respective agents
and employees, as their interests may appear, with terms (including deductible
amounts), coverages and with such increases in limits as Landlord may from time
to time reasonably request, but initially Tenant shall maintain the following
coverages in the following amounts:
(1) Comprehensive general public liability insurance,
including contractual liability, an amount not less than $2,000,000.00
combined single limit per occurrence.
(2) Insurance against fire, sprinkler leakage, vandalism, and
the extended coverage perils for the full replacement cost of all the
Tenant improvements and all subsequent additions, improvements and
alterations owned or made by Tenant, if any, to the Premises and of all
furniture, trade fixtures, equipment, merchandise and all other items
of Tenant's property on the Premises.
(3) Insurance against loss or damage to plate glass in or on
the Premises.
(4) Worker's compensation and occupational diseases insurance
in the statutory limits prescribed therefor, plus $500,000 employers'
liability coverage.
Each insurance carrier shall be a responsible insurance carrier authorized to
issue the relevant insurance, authorized to do business in Illinois and having a
policyholder's rating of no less than "A" in the most current edition of Best's
Insurance Reports.
C. CERTIFICATES. Tenant shall, prior to the commencement of
the Term, furnish to Landlord policies or certificates evidencing such coverage,
which policies or certificates shall
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state that such insurance coverage may not be reduced, cancelled or not renewed
without at least thirty (30) days' prior written notice to Landlord and Tenant
(unless such cancellation is due to non-payment of premium, and in that case
only, ten (10) days' prior notice shall be sufficient).
18. LANDLORD'S RIGHTS. Landlord shall have the following rights
exercisable without notice (except as expressly provided to the contrary) and
without being deemed an eviction or disturbance of Tenant's use or possession of
the Premises or giving rise to any claim for set-off or abatement of Rent: (1)
To change the name or street address of the Project upon 30 days' prior written
notice to Tenant; (2) To install, affix and maintain signs on the exterior
and/or interior of the Project; (3) to designate and/or approve prior to
installation, all types of signs, window shades, blinds, drapes, awnings or
other similar items, and all internal lighting that may be visible from the
exterior of the Premises; (4) To display the Premises to prospective tenants at
reasonable hours during the last 12 months of the Term; (5) To change the
arrangement of entrances, doors, corridors, elevators and stairs in the Project,
provided that no such change shall materially adversely affect access to the
Premises; (6) To grant to any party the exclusive right to conduct any business
or render any service in or to the Project, provided such exclusive right shall
not operate to prohibit Tenant from using the Premises for the purposes
permitted under this Lease; (7) To close the Project after normal business
hours, except that Tenant and its employees and invitees shall be entitled to
admission at all times under such regulations as Landlord prescribes for
security purposes; (8) To take any and all reasonable measures, including
inspections and repairs to the Premises or to the Project, as may be necessary
or desirable in the operation or protection of the Project; (9) To retain at all
times master keys or pass keys to the Premises; (10) To install, operate and
maintain security systems which monitor, by closed circuit television or
otherwise, all persons entering and leaving the Project; (11) To install and
maintain pipes, ducts, conduits, wires and structural elements located in the
Premises which serve other parts or other tenants of the Project; (12) To make
alterations, improvements, repairs and replacements to the Project or any
systems, equipment or machinery located in, on or under the Project; and (13) to
convert the Project or any portions thereof to condominiums.
19. ESTOPPEL CERTIFICATE. Tenant shall within ten (10) days after each
prior written request from Landlord, execute and deliver in form and substance
satisfactory to Landlord, an estoppel letter signed by an officer or partner of
Tenant and certifying the status of the following: the Commencement Date and the
Expiration Date; the date to which Rent has been paid; the amount of Rent then
being paid; the amount of any security deposit; Tenant acceptance of the
Premises; if this Lease is in full force and effect and if it has been modified,
amended or assigned (or, if modified, stating the nature of such modification
and certifying that this Lease, as so modified, is in full force and effect); if
all improvements have been fully completed; if there are defaults of Landlord
under this Lease or any existing condition upon which the giving of notice or
lapse of time would constitute a default; if Tenant has received any concession;
if there are offsets to the payment of Rent; if Tenant has received notice from
any insurance company of any defects or inadequacies of the Premises; if Tenant
has options or rights other than as set forth in this Lease; and such other
matters which Landlord may reasonably request. If the letter is to be delivered
to a purchaser or other subsequent owner of the Project, it shall further
include the agreement of Tenant to recognize such purchaser or other subsequent
owner as Landlord under this Lease and to pay Rent to the purchaser or other
subsequent owner or its designee in accordance with the terms of this Lease. It
is expressly
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understood and agreed that any such statement may be relied upon by any
prospective purchaser, mortgagee or ground lessor of all or any portion of
the Project. Tenant's failure to deliver such statement within said 10-day
period shall be an event of default under this Lease.
20. MORTGAGE BY LANDLORD. This Lease is expressly subject and
subordinate at all times to (1) any ground, underlying or operating lease of the
Project or the land on which the Project is located (the "Land") now or
hereafter existing and all amendments, renewals and modifications to any such
lease, and (2) the lien of any mortgage or trust deed encumbering fee title to
the Project, the Land and/or the leasehold estate under any such ground,
underlying or operating lease, and to all advances made or to be made upon the
security of such lien.
Tenant agrees: ,
(a) if requested by any mortgagee, trustee or lessor, Tenant
shall subordinate its interest in this Lease to any such mortgage,
trust deed or lease and will execute such subordination agreement or
agreements as may be reasonably required by any said mortgagee, trustee
or lessor, provided such mortgagee, trustee or lessor executes a
non-disturbance agreement, and
(b) in the event of any default by Landlord under this Lease
which would give Tenant the right to terminate this Lease or to claim a
partial or total eviction, Tenant will not exercise any such right
until (I) it has notified in writing the mortgagee, holder of such
trust deed or lessor, as the case may be (if the name and address of
such mortgagee, holder or lessor shall have previously been furnished
by written notice to Tenant) of such default, and (ii) such mortgagee,
holder or lessor, as the case may be, fails within a reasonable time
(not to exceed 30 days) after receipt of such notice to cause such
default to be cured, and
(c) if any such mortgage or trust deed is foreclosed (or a
deed given in lieu of foreclosure), or if any such lease is terminated,
upon request of the mortgagee, holder or lessor, as the case may be,
Tenant will attorn to the purchaser at foreclosure sale (or grantee of
deed in lieu of foreclosure) or the lessor under the lease, as the case
may be, and will execute such instruments as may be necessary or
appropriate to evidence such attornment, provided such mortgagee,
holder or lessor executes a non-disturbance agreement with Tenant.
21. NOTICES. All notices and approvals to be given by one party to the
other party under this Lease shall be given in writing, mailed or delivered as
follows:
(a) To Landlord c/o The Habitat Company, 555 W. Madison,
Chicago, Illinois 60661, or to such other person or persons or at such
other address or addresses designated by notice to Tenant.
(b) To Tenant at the Premises. Prior to the Commencement date
notices to Tenant shall be sent to 100 South Wacker Drive, Suite 850,
Chicago, Illinois 60606, Attention: Jordan Glazov.
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Notices shall be delivered by hand or by United States certified or registered
mail, postage prepaid, return receipt requested. Notices shall be considered to
have been given upon personal delivery or upon posting in the United States
mail.
22. MISCELLANEOUS.
A. BINDING EFFECT. This Lease shall be binding upon and inure
to the benefit of Landlord and Tenant and their respective heirs, legal
representatives, successors and permitted assigns.
B. DEFAULT INTEREST. All amounts owing to Landlord under this
Lease for which the date of payment is not expressly fixed, shall be paid within
ten (10) days after the date Landlord renders appropriate statements of account.
Tenant shall pay Landlord interest on any delinquent Rent owing under this Lease
at a rate equal to five percent (5 %) plus the prime rate of interest from time
to time announced by Bank One N.A., at its principal office in Chicago,
Illinois, as its prime rate, but in no event less than twelve percent (12 %) per
annum from the date due until paid. In the event in Landlord's sole judgment,
the rate of interest so announced should cease to be an effective reference rate
for determining default interest under this Lease, Landlord may by written
notice to Tenant, substitute any other floating rate of interest utilized by
major Chicago banks as a floating interest rate for pricing commercial loans.
C. EMINENT DOMAIN. In the event that all or a substantial part
of the Premises or the Project are taken by eminent domain (or by a deed given
in lieu of condemnation) so that the Premises cannot be reasonably used by
Tenant for the purposes for which they are leased, then either party may
terminate this Lease by giving written notice of termination to the other party
within thirty (30) days after such taking. In the event of any taking by eminent
domain (or deed given in lieu of condemnation) the entire award shall be paid to
and retained by Landlord excepting, however, that Tenant may receive from such
award any portion paid on account of trade fixtures and unamortized improvements
in the Premises paid for by Tenant and moving costs.
D. EXHIBITS. All Exhibits attached to this Lease are made a
part of this Lease and incorporated by this reference into this Lease.
E. ENTIRE AGREEMENT. This Lease and the Exhibits and Rider (if
any) attached to this Lease set forth all the covenants, promises, assurances,
agreements, representations, conditions, warranties, statements and
understandings (the "Representations" collectively) between Landlord and Tenant
concerning the Premises and the Project, and there are no Representations,
either oral or written, between them other than those in this Lease. This Lease
supersedes and revokes all previous negotiations, arrangements, letters of
intent, offers to lease, reservations of space, lease proposals, brochures,
Representations and information conveyed, whether oral or in writing, between
the parties or their respective representatives or any other person purporting
to represent Landlord or Tenant. Tenant acknowledges that it has not been
induced to enter into this Lease by any Representations not set forth in this
Lease, it has not relied on any such Representations, no such Representations
shall be used in the interpretation or construction of this Lease and Landlord
shall have no liability for any consequences arising as a
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result of any such Representations. No subsequent alteration, amendment, change
or addition to this Lease shall be binding upon Landlord or Tenant unless in
writing signed by both parties.
F. SIGNING. The signing of this Lease by Tenant and delivery
of this Lease to Landlord or its agent does not constitute a reservation of or
option for the Premises or an agreement to enter into a Lease and this Lease
shall become effective only if and when Landlord signs and delivers same to
Tenant; provided, however, the signing and delivery by Tenant of this Lease to
Landlord or its agent shall constitute an irrevocable offer by Tenant to lease
the Premises on the terms and conditions contained in this Lease, which offer
may not be withdrawn or revoked for thirty (30) days after such signing and
delivery. If Tenant is a corporation, it shall deliver to Landlord concurrently
with the delivery to Landlord of a signed Lease, certified resolutions of
Tenant's directors authorizing the signing and delivery of this Lease and the
performance by Tenant of its obligations under this Lease.
G. NO ACCORD. No payment by Tenant or receipt by Landlord of
a lesser amount than any installment or payment of Rent due shall be deemed to
be other than on account of the amount due, and no endorsement or statement on
any check or any letter accompanying any check or payment of Rent shall be
considered an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
installment or payment of Rent or pursue any other remedies available to
Landlord. No receipt of money by Landlord from Tenant after the termination of
this Lease or Tenant's right to possession of the Premises shall reinstate,
continue or extend the Term.
H. BROKER. Tenant represents to Landlord that other than
Edward Gerstein Tenant has not dealt directly with anyone as broker in
connection with this Lease and that insofar as Tenant knows, no other broker
negotiated this Lease or is entitled to any commission in connection with this
Lease. Tenant indemnifies and holds Landlord and its agents and employees
harmless from all claims of any broker or brokers other than Edward Gerstein,
who claim to have dealt with Tenant in connection with this Lease. Landlord
represents to Tenant that Landlord has not dealt directly with anyone as broker
in connection with this Lease and that insofar as Landlord knows, no other
broker negotiated this Lease or is entitled to any commission in connection with
this Lease. All fees, commissions or compensation to Edward Gerstein and
Mesirow/Stein Real Estate Inc., shall be paid by CCN.
I. FORCE MAJEURE. Landlord shall not be considered in default
of any of the terms, covenants and conditions of this Lease on Landlord's part
to be performed, if Landlord fails to timely perform same and such failure is
due in whole or in part to any strike, lockout, labor trouble (whether legal or
illegal), civil disorder, inability to procure materials, failure of power,
restrictive governmental laws and regulations, riots, insurrections, war, fuel
shortages, accidents, casualties, Acts of God, acts caused directly or
indirectly by Tenant (or Tenant's agents, employees or invitees) or any other
cause beyond the reasonable control of Landlord.
J. NO PARTNERSHIP. Neither any one or more agreements herein
contained is intended nor shall the same be deemed or construed to create a
partnership between Landlord and Tenant, to make them joint venturers, nor to
make Landlord in any way responsible or liable for the debts or losses of
Tenant.
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K. PARAGRAPHS. Paragraph captions in this Lease are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of such Paragraphs.
L. APPLICABLE LAW. This Lease shall be construed in accordance
with the laws of the State of Illinois.
M. TIME. Time is of the essence of this Lease and the
performance of all obligations under this Lease.
N. LANDLORD'S PERFORMANCE. If Tenant fails timely to perform
any of its duties under this Lease, Landlord shall have the right (but not the
obligation) after the expiration of any applicable notice and cure period, to
itself perform such duty on behalf and at the expense of Tenant, without further
notice to Tenant, and all sums reasonably incurred by Landlord in performing
such duty shall be considered additional rent under this Lease and shall be due
and payable upon demand by Landlord.
O. RECORDING. Tenant shall not record this Lease or a
memorandum of this Lease without Landlord's consent.
P. SEVERABILITY. If any clause, phrase, provision or portion
of this Lease or the application of same to any person or circumstance shall be
invalid or unenforceable under applicable law, such event shall not affect,
impair or render invalid or unenforceable the remainder of this Lease, nor any
other clause, phrase, provision or portion of this Lease, nor shall it affect
the application of any clause, phrase, provision or portion of this Lease to
other persons or circumstances.
Q. TENANT. The word "Tenant" whenever used herein shall be
construed to mean Tenants or any one or more of them in all cases where there is
more than one Tenant; and the necessary grammatical changes required to make the
provisions hereof apply either to corporations or other organizations,
partnerships or other entities, or individuals, shall in all cases be assumed as
though in each case fully expressed. In all cases where there is more than one
Tenant, the liability of each shall be joint and several.
23. CORPORATE AUTHORITY. Tenant represents and warrants to Landlord
that:
(a) Tenant is a corporation validly organized and in good
standing and qualified to do business in the State of Illinois;
(b) The persons executing this Lease on behalf of Tenant have
been duly authorized to execute and deliver this Lease; and
(c) This Lease, when executed and delivered to Landlord, will
be binding on and enforceable against Tenant.
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24. LANDLORD WORK. Landlord agrees to repair the bathrooms and all
bathroom fixtures in the Premises so that the same are in good working order and
condition and that the entire Premises will be carpeted or have floor tile
installed. In addition, Landlord agrees, at its cost and expense, to cause to be
promptly performed the work on the Premises as set forth on Exhibit C attached
hereto, provided, however, that to the extent the cost of the Landlord Work
described on Exhibit C exceeds $98,810 the Tenant shall be obligated to promptly
pay such excess and Landlord shall not be obligated to continue with the
performance of Landlord Work until such payment has been made.
25. HUD PROVISIONS.
The effectiveness of this Lease and the obligations of either party
hereunder are subject to the prior written approval of the Secretary of Housing
and Urban Development ("HUD"). This Lease may be cancelled at the option of HUD
in the event HUD becomes the mortgagee or owner of the Project, except that this
provision shall not be applicable so long as a non-disturbance agreement has
been entered into between Landlord, Tenant and the mortgagee of the Project and
approved by HUD. This Lease shall not be modified or amended without the prior
written consent of HUD. This Lease may not be assigned nor may the Premises be
sublet without the prior written consent of HUD. The use of the Premises as
approved by HUD shall not be changed without the written consent of HUD. This
Lease may not be terminated except for breach of a covenant herein without the
prior written consent of HUD. There shall be no assignment or subleasing of any
portion of the Premises without the prior written consent of HUD.
26. OPTION TO EXTEND TERM.
A. Tenant shall have the option (the "Extension Option") to
extend the original Term for one additional period of three (3) years (the
"Extension Term") commencing upon the day immediately following the Expiration
Date of the original Term, upon the following terms and conditions:
(1)Tenant delivers to Landlord on or before the date
which is one (1) year prior to the Expiration Date of the
original Term written notice signed by Tenant stating that Tenant
has elected to exercise the Extension Option; and
(2)Tenant is not in default under this Lease on the date
Tenant delivers to Landlord the notice required under the
preceding clause (1).
B. If Tenant properly exercises the Extension Option, the Term
shall be automatically extended for the Extension Term and all of the provisions
of this Lease shall be applicable during the Extension Term, except that (1) the
Fixed Rent for the Extension Term shall be at the then current market net
effective rate for comparable office space in the Development*, (2) Landlord
shall not be obligated to improve the Premises and Tenant shall not be entitled
to receive any allowance or credit from Landlord for the improvement thereof for
or
- ---------------------------
*"(if there is no comparable office space in the Development, current market net
effective rate shall be determined by an experienced real estate broker
acceptable to Landlord and Tenant)"
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during the Extension Term, and (3) Tenant shall not have any right or Option
to further extend the original Term beyond the expiration date of the Extension
Term.
C. In the event the Extension Option is exercised, Landlord
and Tenant agree to promptly enter into a written amendment of this Lease
reflecting the extension of the original Term for the Extension Term, upon the
terms and provisions herein provided.
D. The Extension Option shall automatically terminate and be
of no further force or effect from and after the earlier to occur of (1) the
expiration of the Term of this Lease, (2) the termination of the Term of this
Lease, (3) the termination by Landlord of Tenant's right to possession of the
Premises, (4) the assignment of this Lease by Tenant, in whole or in part, (5)
the sublease by Tenant of the Premises or any part thereof, or (6) the failure
of Tenant to timely or properly exercise the Extension Option.
27. LANDLORD. The term "Landlord" as used in this Lease means only the
owner or owners at the time being of the Project and the Land so that in the
event of any assignment, conveyance or sale, once or successively, of said Land
and Project, or any assignment of this Lease by Landlord, said Landlord making
such sale, conveyance or assignment shall be and hereby is entirely freed and
relieved of all covenants and obligations of Landlord hereunder accruing after
such conveyance, sale or assignment, and Tenant agrees to look solely to such
purchaser, grantee or assignee with respect thereto. This Lease shall not be
affected by any such conveyance, assignment or sale, and Tenant agrees to attorn
to the purchaser, grantee or assignee.
28. EXCULPATORY PROVISIONS. It is expressly understood and agreed by
and between the parties hereto, anything herein to the contrary notwithstanding,
that each and all of the representations, warranties, covenants, undertakings
and agreements herein made on the part of Landlord while in form purporting to
be the representations, warranties, covenants, undertakings and agreements of
Landlord are nevertheless each and every one of them made and intended, not as
personal representations, warranties, covenants undertakings and agreements by
Landlord or for the purpose of with the intention of binding Landlord
personally, but are made and intended for the purpose only of subjecting the
beneficial owner's and Landlord's interest in the Project, the Land and the
Premises to the terms of this Lease and for no other purpose whatsoever, and in
case of default hereunder by the beneficial owner or Landlord (or default
through, under or by any of its beneficiaries, or agents or representatives of
said beneficiaries), Tenant shall look solely to the interests of the beneficial
owner and Landlord in the Project and Land.
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IN WITNESS WHEREOF, this Lease is executed as of the day and year
aforesaid.
LANDLORD: TENANT:
THE HABITAT COMPANY, as Managing U.S. REALTEL, INC.
Agent for Presidential Towers, Ltd.,
beneficiary under a Trust Agreement
with LaSalle Bank As Trustee under
Trust Number 103200
By: /s/ Janice M. Stewart By: /s/ Jordan E. Glazov
----------------------------- -----------------------------
Title: Sr. Vice President Title: President
-------------------------- --------------------------
22
<PAGE>
EXHIBIT A
Plan of Premises
----------------
[FLOOR PLAN]
23
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
Rent Schedule
-------------
YEAR PER MONTH PER ANNUM
<S> <C> <C>
2 $15,269 $183,223
3 $16,603 $199,244
4 $18,005 $216,066
5 $19,477 $233,729
</TABLE>
24
<PAGE>
EXHIBIT C
May 24, 1999
Mr. Sergio Polo
PRESIDENTIAL TOWERS
555 W. Madison Street
Chicago, Illinois 60681
Re: Mesirow-Stein Space Renovation
Dear Mr. Polo:
SIGNATURE CONSTRUCTION TEAM, INC. will provide the necessary labor,
material and equipment to perform the following:
I. Carpentry:
A. Supply and install approximately 380 lineal feet of new
drywall, floor to ceiling with insulation per proposed new
layout.
B. Supply and install eighteen (18) new doors, frames and
hardware to match existing.
C. Install new V.C.T. in coat rooms.
D. Supply and Install vinyl base on new walls.
E. Rework ceiling to accommodate new lighting.
F. Install new counter.
II. Painting:
A, Paint new walls two (2) coats.
B. Paint existing walls one (1) coat.
C. Paint new frames and doors.
D. Paint existing frames and doors. .
III. H.V.A.C:
A. Install diffusers to accommodate new lay out.
B. Rework ductwork with flexduct to each office.
C. Balance space.
IV. Sprinkler.
A. Rework sprinkler heads to accommodate new lay out.
V. Electrical:
A. Install twenty-six. switches.
B. Install twenty (20) quads.
C. Relocate forty (40) light fixtures.
D. Install twenty (20) voice/data hookups.
25
<PAGE>
Mr. Sergio Polo
PRESIDENTIAL TOWERS
May 24, 1999
Page 2
V. Electrical, cont'd:
E. Install power to east general office cubicles.
F. Rework switching,
G. Install three (3) exit signs.
H. Install two (2) battery packs.
VI. General Conditions:
Including: supervision
Insurance
Clean-up
NOTE:
PLEASE NOTE THAT NO CARPET WORK IS INCLUDED
NO PERMITS ARE INCLUDED.
All of the above for the amount of $98,610 (Ninety-eight thousand, eight
hundred tan dollars).
Thank you for giving us the opportunity to be of service to your company.
Sincerely,
SIGNATURE CONSTRUCTION TEAM, INC.
/s/ Fernando Tello
Fernando Tello
President
ACCEPTED: DATE:
------------------------------------- ---------------------------
26
<PAGE>
MESIROW-STEIN RENOVATION
<TABLE>
<CAPTION>
COST BREAKDOWN
<S> <C>
Carpentry $40,565
Painting $ 8,298
HVAC $10,500
Sprinkler $ 4,850
Electrical $20,500
General Conditions $ 6,777
-------
Direct Cost: $91,490
Overhead and profit: $ 7,320
-------
TOTAL.: $98,810
</TABLE>
27
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is executed and made as of January 15, 1997,
by and between AGILE, L.L.C., an Illinois limited liability company (hereinafter
referred to as "Company"), and PERRY H. RUDA, an Illinois resident (hereinafter
referred to as "Employee").
WITNESSETH:
WHEREAS, Company is engaged in the business of acquiring, owning,
leasing, licensing or otherwise controlling wireless communication devices'
sites and antennae and leasing, subleasing, licensing or otherwise granting
usage right to such sites and antennae to wireless communications licensees and
users; and
WHEREAS, Company desires to employ Employee, and Employee desires to
accept such employment on the terms hereinafter set forth.
NOW, THEREFORE, in consideration of these premises and the mutual
promises set forth in this Employment Agreement, the parties do hereby agree as
follows:
1. TERMS AND DUTIES
1.1. TERM OF EMPLOYMENT. Subject to the provisions for earlier termination
as hereinafter provided, the initial term of this Agreement shall be for five
(5) years, beginning on January 1, 1997 and ending on December 31, 2001 (the
"Initial Term"); provided, however, that this Agreement shall automatically
renew for consecutive one (1) year terms (each such one-year term to be
hereinafter referred to as a "Renewal Term"). Each Renewal Term shall begin on
the first day of January of each year after the Initial Term, unless, at least
sixty (60) days prior to the end of the Initial Term or any such Renewal Term,
either Company or Employee gives written notice to the other that such party
wishes this Agreement to terminate at the end of such term and not to be
renewed.
1.2. DUTIES. Employee shall devote substantially all of his business time,
attention and energies to the business of Company during normal working hours
and his duties as a Manager (so long as the Company is a limited liability
company) or as an executive officer as the Board of Directors of the Company
shall designate (if the Company is in the form of a corporation) of the Company
as shall be necessary to promote the business of Company and to perform
Employee's obligations hereunder to the best of his abilities.) The Company
acknowledges that Employee may engage in private business activities and such
activities shall be permitted hereunder so long as they do not interfere with
the performance of Employee's obligations hereunder, are engaged in on
Employee's own time and do not involve any activity competition with the
business of the Company. The Company further acknowledges that (a) Employee is a
director of Cellular Realty Advisors, Inc. and his position as such director is
not in competition with the Company based on CRA's agreement not to compete with
the Company, and (b) Employee is a shareholder of CRA Wireless Realty L.L.C., a
corporation which owns a subsidiary that owns and erects towers on which
communication devices may be installed for lease to or use by telecommunications
businesses.
<PAGE>
2. COMPENSATION AND BENEFITS
2.1. EMPLOYEE COMPENSATION. As full consideration for the services to be
rendered pursuant to this Agreement, and provided Employee maintains and
performs all obligations hereunder, Company shall pay to Employee an annual
salary of $160,000.00 ("Base Salary") for each calendar year during the Initial
Term and each Renewal Term, provided that the sum of $53,333.00 representing
Employee's Base Salary for the period from January 1, 1997 through April 30,
1998, shall be deferred and shall be paid as soon as the Company has cash flow
available for this purpose, meaning after the Company has paid its operating
expenses including, without limitation, Employee's non-deferred salary and
benefits. It is projected that the Company will commence paying such deferred
salary in the fourth quarter of 1997.
2.2. FRINGE BENEFITS. Employee shall be eligible to participate in or
receive benefits offered to Company executives in accordance with established
Company policies as they may be revised from time to time including, without
limitation, any Company bonus plans as may be established from time to time by
the Managers or the Board of Directors, as applicable, and the Company shall
furnish Employee with an automobile for Employee's use and insurance,
maintenance, fuel, oil and other expenses in connection therewith on such terms
as approved by Board of Directors.
2.3. VACATION AND SICK LEAVE. In addition to the fringe benefits set forth
in Section 2.2 above, Employee shall be entitled to such annual paid vacation
days and sick days as may be offered to Company executives in accordance with
Company policies established by the Managers or the Board of Directors, as
applicable, as they may be revised from time to time. Employee shall not be
required to work on New Year's Day, Memorial Day, the Fourth of July, Labor Day,
Rosh Hashanah, Yom Kipper, Thanksgiving, Christmas Eve or Christmas Day.
2.4. EXPENSES. Employee is authorized to incur reasonable expenses for
promoting the business of Company including, without limitation, expenses for
entertainment, travel, and similar items, which expenses Company will reimburse
upon presentation by Employee, from time to time, of an itemized account of and
appropriate receipts for such expenditures and consistent with the Company's
policies as in effect from time to time.
3. TERMINATION
3.1. TERMINATION. Unless earlier terminated in accordance with the
following provisions of this Section 3.1, the Company shall continue to employ
Employee during the Initial Term and Renewal Term, subject to the provisions of
Section 1.1 hereof.
(a) DEATH OR DISABILITY. This Agreement shall terminate immediately as
of the Date of Termination in the event of Employee's death or in the event
Employee becomes disabled; but in the event Employee becomes disabled, he
shall thereafter remain an employee of the Company and receive such
benefits as he shall be entitled to under the terms of applicable plans,
programs and arrangements. Employee will be deemed to be disabled upon the
end of a one hundred eighty (180) consecutive day period during which, by
reason of physical or mental injury or disease, Employee has been unable to
perform substantially all of Employee's usual and customary duties under
this
2
<PAGE>
Agreement. If any question arises as to whether Employee is disabled,
upon reasonable request therefor by the Managers or the Board of Directors,
Employee shall submit to reasonable medical examination for the purpose of
determining the existence, nature and extent of any such disability. If the
Managers or the Board of Directors, as applicable, or Employee or his legal
representative are unable to agree upon the selection of a physician, each
shall elect a physician and the physicians so selected shall select a third
physician who shall make the determination of disability. In accordance
with Section 7.1, the Company shall promptly give Employee written notice
of any determination of Employee's disability and of the decision of the
Managers or the Board, as applicable, to terminate this Agreement by reason
thereof.
(b) DISCHARGE FOR CAUSE. The Company may discharge Employee for
"Cause," in which case this Agreement shall terminate immediately as of the
Date of Termination. Any discharge of Employee for Cause shall be
communicated by a Notice of Termination to Employee given in accordance
with Section 7.1 of this Agreement. For purposes of this Section, a "Notice
of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Employee's employment under the provision so indicated
and (iii) if the Date of Termination is to be other than the date of
receipt of such notice, specifies the termination date.
(c) TERMINATION FOR OTHER REASONS. The Company may discharge Employee
without Cause by giving written notice to Employee in accordance with
Section 7.1 at least thirty (30) days prior to the Date of Termination.
Employee may resign from his employment by giving written notice to the
Company in accordance with Section 7.1 at least thirty (30) days prior to
the Date of Termination. Except to the extent otherwise provided in Section
3.2 hereof with respect to certain post-Date of Termination obligations of
the Company, this Agreement shall terminate immediately as of Date of
Termination in the event Employee is discharged without Cause or resigns.
(d) DEFINITIONS. For purposes of this Article III, the following
capitalized terms shall have the meanings set forth below:
(i) "CAUSE" shall mean any of the following: (A) an act of
willful misconduct or gross negligence by Employee in the performance
of his duties or obligations to the Company which is materially
detrimental to the goodwill of the Company or materially damaging to
the relationships of the Company with its customers, suppliers or
employees; (B) conviction (including please of guilty and NOLO
CONTENDERE) of Employee of any felony, whether or not related to the
performance of duties under this Agreement; (C) conviction (including
pleas of guilty and NOLO CONTENDERE) of any crime related to the
performance of Employee's duties under this Agreement; and (D) a
material act of dishonesty or breach of fiduciary duty to the Company
on the part of Employee resulting or intended to result directly or
indirectly in personal gain or enrichment at the expense of the
Company.
3
<PAGE>
(ii) "DATE OF TERMINATION" shall mean (A) in the event of a
discharge of Employee for Cause, the date Employee receives a Notice
of Termination, or any later date specified in such Notice of
Termination, as the case may be; (B) in the event of a discharge
without Cause or a resignation by Employee, the date specified in the
written notice to Employee (in the case of discharge) or the Company
(in the case of resignation), which date shall be no less than thirty
(30) days from the date of such written notice; (C) in the event of
Employee's death, the date of death; and (D) in the event of
termination of this Agreement by reason of disability, the date
Employee receives written notice of such termination (or, if later,
one hundred eighty (180) days from the date Employee's disability
began).
3.2. OBLIGATIONS OF THE COMPANY UPON TERMINATION. The following provisions
describe the obligations of the Company to Employee upon termination of his
employment.
(a) DEATH, DISABILITY, DISCHARGE FOR CAUSE OR RESIGNATION. In the
event this Agreement terminates pursuant to and in accordance with Section
3.1(a), by the Company in accordance with Section 3.1(b) or resignation by
Employee pursuant to Section 3.1(c), Employee shall be entitled to receive
and the Company shall be obligated to pay Employee's Base Salary earned,
accrued but unpaid through the Date of Termination.
(b) DISCHARGE WITHOUT CHARGE. In the event this Agreement is
terminated by the Company other than for Cause in accordance with Section
3.1(c), the Company shall pay Employee the present value of his total
compensation, including without limitation, Base Salary, any bonus (based
on the last bonus paid, earned or accrued) and the value of any benefits
then received or entitled to be received by Employee for the longer of (i)
the balance of the Initial Term (if termination occurs prior to expiration
of the Initial Term) and (ii) twenty-four (24) months commencing on the
Date of Termination discounted at the per annum rate equal to the prime or
base rate published in THE WALL STREET JOURNAL on the date of Notice of
Termination plus two percent (2%). Payment shall be made on the Date of
Termination and with such deductions as are in accordance with the
Company's regular payroll practices in effect from time to time while such
payments are required to be made.
4. NON-DISCLOSURE
4.1. DEFINITIONS. For purposes of Article IV and Article V, these
terms shall have the following meanings:
(a) "Confidential Information" means information: (i) disclosed
to or known by Employee as a consequence of or through his employment
with Company, (ii) not generally known outside Company, and (iii)
which relates to Company's business. "Confidential Information" is
intended to include information which has been identified as
"proprietary" or "confidential" such as the following: a) lists of
clients; b) clientele; c) proprietary information; d) Company's
business plan; and e) trade secrets. "Trade secrets" shall be deemed
to include, but not be limited to, Company's business plan, any
formula, pattern, device or compilation of information which is used
in Company's
4
<PAGE>
business, and which gives Company an opportunity to obtain an
advantage over competitors who do not know or use it. The trade
secret may be a formula for a chemical compound, a process of
manufacturing, treating or preserving materials, a list of customers
or a communications technology or device. A trade secret may also be
any information, including a formula, pattern, compilation, program,
device, method, technique or process that: (i) derives independent
economic value, actual or potential, from not being generally known
to, and not being ascertainable by proper means by other persons who
can obtain economic value from its disclosure or use; and (ii) is the
subject of efforts that are reasonable under the circumstances to
maintain its secrecy.
(b) "Company Business" shall mean any products or services
relating to the services then offered or dealt in by Company.
4.2. COMPANY'S OWNERSHIP OF CONFIDENTIAL INFORMATION. All Confidential
Information shall be the property of Company.
4.3. RETURNING DOCUMENTS. All writings, records and other documents and
things containing any Confidential Information in Employee's custody or
possession shall be the exclusive property of Company and shall be delivered to
Company, without retaining any copies, upon the termination of Employee's
employment or at any time requested by Company. Except for Confidential
Information in Employee's possession as a Member or shareholder, as applicable,
of Company, upon termination of Employee's employment, whether voluntarily or
involuntarily, Employee shall promptly deliver to Company all property, customer
lists, sales information, financial statements, memoranda, documents containing
Confidential Information, and all other property belonging to Company.
4.4. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Employee agrees not to
disclose any Confidential Information or proprietary information of Company,
including information received in confidence by Company from others, either
during or after Employee's employment with Company, except upon written consent
of Company. Such Confidential Information and proprietary information of Company
include matters that Employee conceives or develops, as well as matters Employee
learns from other employees of Company. Employee will not, except as Company may
otherwise consent or direct in writing, reveal or disclose, sell, use, lecture
upon, or publish any Confidential Information or proprietary information of
Company, or authorize anyone else to do those things at any time, either during
or after Employee's employment with Company. This clause shall continue in full
force and effect after termination of Employee's employment. Employee's
obligations under this clause of this Agreement with respect to any specific
Confidential Information and proprietary information become publicly known or
shall become known to Employee through a third party not under a confidentiality
obligation to Company. Should any time period associated with this clause be
deemed too long to be enforceable, the clause shall be considered amended to run
for the longest time period found to be enforceable.
5. NON-COMPETITION
5.1. COVENANT NOT TO COMPETE. During Employee's employment hereunder and
for two (2) years thereafter, Employee will not, except on behalf of the
Company:
5
<PAGE>
(a) Call upon or communicate with any person or entity which is or was
a customer of Company at any time within the one (1) year immediately
preceding such call or communication for the purpose of soliciting or
obtaining for Employee's own account or for any employer, partner,
co-venturer or principal of Employee other than Company any business,
customer, order or contract for the sale to such person or entity of any
products or services relating to the servicing then offered or dealt in by
Company (the "Company Business") or for the purpose of diverting from
Company any such business, customer, order or contract; or
(b) Solicit or attempt to induce any persons employed by Company or
acting as independent contractors of Company at any time during Employee's
period of employment to leave their employment or terminate their contracts
with Company; or
(c) Engage in any business activity either alone or with or on behalf
of any other individual, corporation, partnership or other entity which is
in the same business as Company whether or not such business activity is
pursued for gain, profit or other pecuniary advantage, and whether engaged
in such activity individually or as an officer, director, employee,
partner, independent contractor, joint venture, shareholder, agent,
consultant or otherwise.
5.2. UNRESTRICTED ACTIVITIES. Employee represents and warrants to Company
that Employee has the skill, expertise, and ability to earn a living in the
unrestricted activities that remain open to Employee.
6. REMEDIES
6.1. INDEPENDENT COVENANTS. Each of the covenants of Employee set forth in
Articles IV and V are separate and independent covenants. If any one of said
covenants shall be declared unenforceable, such declaration shall not affect the
enforceability or validity of any other such covenant and the existence of any
claim, demand or cause of action of Employee against Company, whether predicated
upon this Agreement or otherwise, shall not constitute a defense to the
enforcement by Company of the covenants contained therein.
6.2. CONSENT TO INJUNCTION. In addition, Employee acknowledges that any
breach of Articles IV or V of this Agreement by Employee may result in
irreparable injury to Company, and therefore, in addition to all other remedies
provided by law, Company shall be entitled to an injunction to prevent a breach
or contemplated breach of any of the covenants contained herein. If Company is
required to post a bond to obtain any injunction or other relief, Employee
agrees that the bond shall not exceed $1,000.00.
7. NOTICE AND ASSIGNMENTS
7.1. NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed duly given or served
when delivered personally to the party intended, or sent by registered or
certified mail, postage prepaid, effective as of the date sent, addressed to
Company at its principal office and to Employee at his address then appearing on
the books of Company.
6
<PAGE>
7.2. ASSIGNMENTS. No rights of Employee under this Agreement are
assignable. This Agreement may be assigned by Company without consent of
Employee to any affiliate, subsidiary or successor of Company.
8. GENERAL PROVISIONS
8.1. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of the
parties relating to the subject matter hereof. No amendment or modification of
this Agreement shall be valid or binding upon Company unless made in writing,
approved by the Managers or the Board, as applicable, of Company, and signed by
a Manager or executive officer, as applicable, of Company, or upon Employee made
in writing and signed by him.
8.2. APPLICABLE LAW. This Agreement shall be construed and the legal
relations between the parties determined in accordance with the laws of the
State of Illinois.
8.3. SECTION HEADINGS. Section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.4. SEVERABILITY. Should any part, term or provision of this Agreement be
declared to be illegal, unenforceable, or in conflict with any law, rule or
regulation, the validity of the remaining portions, terms or provisions shall
not be affected thereby.
[SIGNATURES ON FOLLOWING PAGE]
7
<PAGE>
IN WITNESS WHEREOF, Employee and Company's authorized representative
have executed this Agreement on the date above written.
EMPLOYEE: COMPANY:
AGILE, L.L.C.
/s/ Perry H. Ruda By: /s/ Jordan E. Glazov
- ---------------------------------- --------------------------------
Perry H. Ruda One of its Managers
Address: Address:
474 North Lake Shore Drive, #1808 118 N. Clinton Street, Suite 100
Chicago, Illinois 60610 Chicago, Illinois 60661
8
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is executed and made as of January 15, 1997,
by and between AGILE, L.L.C., an Illinois limited liability company (hereinafter
referred to as "Company"), and JORDAN E. GLAZOV, an Illinois resident
(hereinafter referred to as "Employee").
WITNESSETH:
WHEREAS, Company is engaged in the business of acquiring, owning,
leasing, licensing or otherwise controlling wireless communication devices'
sites and antennae and leasing, subleasing, licensing or otherwise granting
usage right to such sites and antennae to wireless communications licensees and
users; and
WHEREAS, Company desires to employ Employee, and Employee desires to
accept such employment on the terms hereinafter set forth.
NOW, THEREFORE, in consideration of these premises and the mutual
promises set forth in this Employment Agreement, the parties do hereby agree as
follows:
I. TERMS AND DUTIES
1.1 TERM OF EMPLOYMENT. Subject to the provisions for earlier termination
as hereinafter provided, the initial term of this Agreement shall be for five
(5) years, beginning on January 1, 1997 and ending on December 31, 2001 (the
"Initial Term"); provided, however, that this Agreement shall automatically
renew for consecutive one (1) year terms (each such one-year term to be
hereinafter referred to as a "Renewal Term"). Each Renewal Term shall begin on
the first day of January of each year after the Initial Term, unless, at least
sixty (60) days prior to the end of the Initial Term or any such Renewal Term,
either Company or Employee gives written notice to the other that such party
wishes this Agreement to terminate at the end of such term and not to be
renewed.
1.2 DUTIES. Employee shall devote substantially all of his business time,
attention and energies to the business of Company during normal working hours
and his duties as a Manager (so long as the Company is a limited liability
company) or as an executive officer as the Board of Directors of the Company
shall designate (if the Company is in the form of a corporation) of the Company
as shall be necessary to promote the business of Company and to perform
Employee's obligations hereunder to the best of his abilities. The Company
acknowledges that Employee may engage in private business activities and such
activities shall be permitted hereunder so long as they do not interfere with
the performance of Employee's obligations hereunder, are engaged in on
Employee's own time and do not involve any activity competition with the
business of the Company.
II. COMPENSATION AND BENEFITS
2.1 EMPLOYEE COMPENSATION. As full consideration for the services to be
rendered pursuant to this Agreement, and provided Employee maintains and
performs all obligations hereunder, Company shall pay to Employee an annual
salary of $160,000.00 ("Base Salary") for
<PAGE>
each calendar year during the Initial Term and each Renewal Term, provided
that the sum of $53,333.00 representing Employee's Base Salary for the period
from January 1, 1997 through April 30, 1998, shall be deferred and shall be
paid as soon as the Company has cash flow available for this purpose, meaning
after the Company has paid its operating expenses including, without
limitation, Employee's non-deferred salary and benefits. It is projected that
the Company will commence paying such deferred salary in the fourth quarter
of 1997.
2.2 FRINGE BENEFITS. Employee shall be eligible to participate in or
receive benefits offered to Company executives in accordance with established
Company policies as they may be revised from time to time including, without
limitation, any Company bonus plans as may be established from time to time by
the Managers or the Board of Directors, as applicable, and the Company shall
furnish Employee with an automobile for Employee's use and insurance,
maintenance, fuel, oil and other expenses in connection therewith on such terms
as approved by Board of Directors.
2.3 VACATION AND SICK LEAVE. In addition to the fringe benefits set forth
in Section 2.2 above, Employee shall be entitled to such annual paid vacation
days and sick days as may be offered to Company executives in accordance with
Company policies established by the Managers or the Board of Directors, as
applicable, as they may be revised from time to time. Employee shall not be
required to work on New Year's Day, Memorial Day, the Fourth of July, Labor Day,
Rosh Hashanah, Yom Kippur, Thanksgiving, Christmas Eve or Christmas Day.
2.4 EXPENSES. Employee is authorized to incur reasonable expenses for
promoting the business of Company including, without limitation, expenses for
entertainment, travel, and similar items, which expenses Company will reimburse
upon presentation by Employee, from time to time, of an itemized account of and
appropriate receipts for such expenditures and consistent with the Company's
policies as in effect from time to time.
III. TERMINATION
3.1 TERMINATION. Unless earlier terminated in accordance with the following
provisions of this Section 3.1, the Company shall continue to employ Employee
during the Initial Term and Renewal Term, subject to the provision's of Section
1.1 hereof.
(a) DEATH OR DISABILITY. This Agreement shall terminate immediately as
of the Date of Termination in the event of Employee's death or in the event
Employee becomes disabled; but in the event Employee becomes disabled, he
shall thereafter remain an employee of the Company and receive such
benefits as he shall be entitled to under the terms of applicable plans,
programs and arrangements. Employee will be deemed to be disabled upon the
end of a one hundred eighty (180) consecutive day period during which, by
reason of physical or mental injury or disease, Employee has been unable to
perform substantially all of Employee's usual and customary duties under
this Agreement. If any question arises as to whether Employee is disabled,
upon reasonable request therefor by the Managers or the Board of Directors,
Employee shall submit to reasonable medical examination for the purpose of
determining the existence, nature and extent of any such disability. If the
Managers or the Board of Directors, as applicable, or Employee or his legal
representative are unable to agree upon the selection of a
2
<PAGE>
physician, each shall select a physician and the physicians so selected
shall select a third physician who shall make the determination of
disability. In accordance with Section 7.1, the Company shall promptly
give Employee written notice of any determination of Employee's disability
and of the decision of the Managers or the Board, as applicable, to
terminate this Agreement by reason thereof.
(b) DISCHARGE FOR CAUSE. The Company may discharge Employee for
"Cause," in which case this Agreement shall terminate immediately as of the
Date of Termination. Any discharge of Employee for Cause shall be
communicated by a Notice of Termination to Employee given in accordance
with Section 7.1 of this Agreement. For purposes of this Section, a "Notice
of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Employee's employment under the provision so indicated
and (iii) if the Date of Termination is to be other than the date of
receipt of such notice, specifies the termination date.
(c) TERMINATION FOR OTHER REASONS. The Company may discharge Employee
without Cause by giving written notice to Employee in accordance with
Section 7.1 at least thirty (30) days prior to the Date of Termination.
Employee may resign from his employment by giving written notice to the
Company in accordance with Section 7.1 at least thirty (30) days prior to
the Date of Termination. Except to the extent otherwise provided in Section
3.2 hereof with respect to certain post-Date of Termination obligations of
the Company, this Agreement shall terminate immediately as of Date of
Termination in the event Employee is discharged without Cause or resigns.
(d) DEFINITIONS. For purposes of this Article III, the following
capitalized terms shall have the meanings set forth below:
(i) "CAUSE" shall mean any of the following: (A) an act of
willful misconduct or gross negligence by Employee in the performance
of his duties or obligations to the Company which is materially
detrimental to the goodwill of the Company or materially damaging to
the relationships of the Company with its customers, suppliers or
employees; (B) conviction (including pleas of guilty and NOLO
CONTENDERE) of Employee of any felony, whether or not related to the
performance of duties under this Agreement; (C) conviction (including
pleas of guilty and NOLO CONTENDERE) of any crime related to the
performance of Employee's duties under this Agreement; and (D) a
material act of dishonesty or breach of fiduciary duty to the Company
on the part of Employee resulting or intended to result directly or
indirectly in personal gain or enrichment at the expense of the
Company.
(ii) "DATE OF TERMINATION" shall mean (A) in the event of a
discharge of Employee for Cause, the date Employee receives a Notice
of Termination, or any later date specified in such Notice of
Termination, as the case may be; (B) in the event of a discharge
without Cause or a
3
<PAGE>
resignation by Employee, the date specified in the written notice to
Employee (in the case of discharge) or the Company (in the case of
resignation), which date shall be no less than thirty (30) days from
the date of such written notice; (C) in the event of Employee's death,
the date of death; and (D) in the event of termination of this
Agreement by reason of disability, the date Employee receives written
notice of such termination (or, if later, one hundred eighty (180)
days from the date Employee's disability began).
3.2 OBLIGATIONS OF THE COMPANY UPON TERMINATION. The following provisions
describe the obligations of the Company to Employee upon termination of his
employment.
(a) DEATH, DISABILITY, DISCHARGE FOR CAUSE OR RESIGNATION. In the
event this Agreement terminates pursuant to and in accordance with Section
3.1(a), by the Company in accordance with Section 3.1(b) or resignation by
Employee pursuant to Section 3.1(c), Employee shall be entitled to receive
and the Company shall be obligated to pay Employee's Base Salary earned,
accrued but unpaid through the Date of Termination.
(b) DISCHARGE WITHOUT CAUSE. In the event this Agreement is terminated
by the Company other than for Cause in accordance with Section 3.1(c), the
Company shall pay Employee the present value of his total compensation,
including without limitation, Base Salary, any bonus (based on the last
bonus paid, earned or accrued) and the value of any benefits then received
or entitled to be received by Employee for the longer of (i) the balance of
the Initial Term (if termination occurs prior to expiration of the Initial
Term) and (ii) twenty-four (24) months commencing on the Date of
Termination discounted at the per annum rate equal to the prime or base
rate published in THE WALL STREET JOURNAL on the date of Notice of
Termination plus two percent (2%). Payment shall be made on the Date of
Termination and with such deductions as are in accordance with the
Company's regular payroll practices in effect from time to time while such
payments are required to be made.
IV. NON-DISCLOSURE
4.1 DEFINITIONS. For purposes of Article IV and Article V, these terms
shall have the following meanings:
(a) "Confidential Information" means information: (i) disclosed to
or known by Employee as a consequence of or through his employment with
Company, (ii) not generally known outside Company, and (iii) which relates to
Company's business. "Confidential Information" is intended to include
information which has been identified as "proprietary" or "confidential" such
as the following: a) lists of clients; b) clientele; c) proprietary
information; d) Company's business plan; and e) trade secrets. "Trade
secrets" shall be deemed to include, but not be limited to, Company's
business plan, any formula, pattern, device or compilation of information
which is used in Company's business, and which gives Company an opportunity
to obtain an advantage over competitors who do not know or use it. The trade
secret may be a formula for a chemical compound, a process of manufacturing,
treating or preserving materials, a
4
<PAGE>
list of customers or a communications technology or device. A trade secret
may also be any information, including a formula, pattern, compilation,
program, device, method, technique or process that: (i) derives independent
economic value, actual or potential, from not being generally known to, and
not being readily ascertainable by proper means by other persons who can
obtain economic value from its disclosure or use; and (ii) is the subject of
efforts that are reasonable under the circumstances to maintain its secrecy.
(b) "Company Business" shall mean any products or services relating
to the services then offered or dealt in by Company.
4.2 COMPANY'S OWNERSHIP OF CONFIDENTIAL INFORMATION. All Confidential
Information shall be the property of Company.
4.3 RETURNING DOCUMENTS. All writings, records and other documents and
things containing any Confidential Information in Employee's custody or
possession shall be the exclusive property of Company and shall be delivered to
Company, without retaining any copies, upon the termination of Employee's
employment or at any time requested by Company. Except for Confidential
Information in Employee's possession as a Member or shareholder, as applicable;
of Company, upon termination of Employee's employment, whether voluntarily or
involuntarily, Employee shall promptly deliver to Company all property, customer
lists, sales information, financial statements, memoranda, documents containing
Confidential Information, and all other property belonging to Company.
4.4 NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Employee agrees not to
disclose any Confidential Information or proprietary information of Company,
including information received in confidence by Company from others, either
during or after Employee's employment with Company, except upon written consent
of Company. Such Confidential Information and proprietary information of Company
include matters that Employee conceives or develops, as well as matters Employee
learns from other employees of Company. Employee will not, except as Company may
otherwise consent or direct in writing, reveal or disclose, sell, use, lecture
upon, or publish any Confidential Information or proprietary information of
Company, or authorize anyone else to do those things at any time, either during
or after Employee's employment with Company. This clause shall continue in full
force and effect after termination of Employee's employment. Employee's
obligations under this clause of this Agreement with respect to any specific
Confidential Information and proprietary information become publicly known or
shall become known to Employee through a third party not under a confidentiality
obligation to Company. Should any time period associated with this clause be
deemed too long to be enforceable, the clause shall be considered amended to run
for the longest time period found to be enforceable.
V. NON-COMPETITION
5.1 COVENANT NOT TO COMPETE. During Employee's employment hereunder and for
two (2) years thereafter, Employee will not, except on behalf of Company:
(a) Call upon or communicate with any person or entity which is or
was a customer of Company at any time within the one (1) year immediately
preceding such call or
5
<PAGE>
communication for the purpose of soliciting or obtaining for Employee's own
account or for any employer, partner, co-venturer or principal of Employee
other than Company any business, customer, order or contract for the sale to
such person or entity of any products or services relating to the services
then offered or dealt in by Company (the "Company Business") or for the
purpose of diverting from Company any such business, customer, order or
contract; or
(b) Solicit or attempt to induce any persons employed by Company or
acting as independent contractors of Company at any time during Employee's
period of employment to leave their employment or terminate their contracts
with Company; or
(c) Engage in any business activity either alone or with or on
behalf of any other individual, corporation, partnership or other entity
which is in the same business as Company whether or not such business
activity is pursued for gain, profit or other pecuniary advantage, and
whether engaged in such activity individually or as an officer, director,
employee, partner, independent contractor, joint venture, shareholder, agent,
consultant or otherwise.
5.2 UNRESTRICTED ACTIVITIES. Employee represents and warrants to
Company that Employee has the skill, expertise, and ability to earn a
living in the unrestricted activities that remain open to Employee.
VI. REMEDIES
6.1 INDEPENDENT COVENANTS. Each of the covenants of Employee set forth in
Articles IV and V are separate and independent covenants. If any one of said
covenants shall be declared unenforceable, such declaration shall not affect the
enforceability or validity of any other such covenant and the existence of any
claim, demand or cause of action of Employee against Company, whether predicated
upon this Agreement or otherwise, shall not constitute a defense to the
enforcement by Company of the covenants contained therein.
6.2 CONSENT TO INJUNCTION. In addition, Employee acknowledges that any
breach of Articles IV or V of this Agreement by Employee may result in
irreparable injury to Company, and therefore, in addition to all other remedies
provided by law, Company shall be entitled to an injunction to prevent a breach
or contemplated breach of any of the covenants contained herein. If Company is
required to post a bond to obtain any injunction or other relief, Employee
agrees that the bond shall not exceed $1,000.00.
VII. NOTICE AND ASSIGNMENTS
7.1 NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed duly given or served
when delivered personally to the party intended, or sent by registered or
certified mail, postage prepaid, effective as of the date sent, addressed to
Company at its principal office and to Employee at his address then appearing on
the books of Company.
7.2 ASSIGNMENTS. No rights of Employee under this Agreement are assignable.
This Agreement may be assigned by Company without consent of Employee to any
affiliate, subsidiary or successor of Company.
6
<PAGE>
VIII. GENERAL PROVISIONS
8.1 ENTIRE AGREEMENT. This Agreement embodies the entire agreement of the
parties relating to the subject matter hereof. No amendment or modification of
this Agreement shall be valid or binding upon Company unless made in writing,
approved by the Managers or the Board, as applicable, of Company, and signed by
a Manager or executive officer, as applicable, of Company, or upon Employee
unless made in writing and signed by him.
8.2 APPLICABLE LAW. This Agreement shall be construed and the legal
relations between the parties determined in accordance with the laws of the
State of Illinois.
8.3 SECTION HEADINGS. Section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.4 SEVERABILITY. Should any part, term or provision of this Agreement be
declared to be illegal, unenforceable, or in conflict with any law, rule or
regulation, the validity of the remaining portions, terms or provisions shall
not be affected thereby.
IN WITNESS WHEREOF, Employee and Company's authorized representative have
executed this Agreement on the date above written.
EMPLOYEE: COMPANY:
AGILE, L.L.C.
/s/ Jordan E. Glazov By:/s/ Perry H. Ruda
- ---------------------------------- ----------------------------------
Jordan E. Glazov One of its Managers
Address: Address:
24714 Nodding Flower Court 118 N. Clinton Street, Suite 100
Barrington, Illinois 60010-1501 Chicago, Illinois 60661
7
<PAGE>
AMENDMENT
TO EMPLOYMENT AGREEMENT
OF PERRY H. RUDA
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is entered
into as of the 20th day of April, 1999 by and between U.S. REALTEL, INC., an
Illinois corporation and successor to AGILE, L.L.C., an Illinois limited
liability company (the "Company") and PERRY H. RUDA ("Employee").
RECITALS:
A. The Company and Employee previously entered into an Employment
Agreement (the "Agreement") dated January 15, 1997.
B. The Company is the successor in interest to the business,
assets and obligations of Agile, L.L.C., including the benefits accruing to
and obligations of Agile, L.L.C.
C. The parties hereto desire to amend the Agreement as herein
provided and agree that this Amendment shall supercede any conflicting
provisions in the Agreement.
D. All terms used in this Amendment not otherwise defined shall
have the meanings ascribed to them in the Agreement.
E. The terms of this Amendment shall be retroactive to April 1,
1999.
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual promises herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Company and Employee agree as follows:
1. Section 1.1 of the Agreement is hereby amended and restated in
its entirety as follows:
1.1 TERM OF EMPLOYMENT. Subject to the provisions for earlier
termination as hereinafter provided, the initial term of the Agreement
shall be deemed to be for fifty-one (51) months beginning on January 1,
1997 and ending on March 31, 2002 (the "Initial Term"); provided,
however, that this Agreement shall automatically renew on a three-year
rolling basis. Therefore, beginning on April 1, 2000, and for each year
thereafter, the term shall automatically be extended for consecutive
one (1) year periods (each such additional extension period shall be
referred to collectively herein as the "Renewal Term"). The foregoing
notwithstanding, the Board of Directors shall have the right upon
written notice delivered to Employee not later than February 1 of any
year, to terminate this Agreement as of April 1 of such year, in which
event, such termination shall be considered a "discharge without cause"
and shall be subject to the provisions of Section 3.2 (b) hereof.
2. Section 2.1 of the Agreement is hereby amended and restated in
its entirety as follows:
2.1 EMPLOYEE COMPENSATION. As full consideration for the services
to be rendered pursuant to this Agreement, and provided employee
maintains and performs all obligations hereunder, beginning on April
1, 1999, the Company shall pay to Employee
<PAGE>
an annual salary of $200,000.00 ("Base Salary") for each calendar
year during the Initial and Renewal Terms.
3. Section 2.5, entitled "Bonuses" is hereby added to the
Agreement and provides as follows:
2.5 BONUSES. Employee shall be entitled to the following bonuses,
subject to any conditions precedent specified therein.
a. $25,000.00 bonus, payable on April 1, 1999; and
b. $50,000.00 bonus, payable upon the occurrence of
two out of the following three events:
1) A public equity offering is made,
2) Debt or equity financing is closed on terms
acceptable to the Board, or
3) The Apex acquisition is closed.
This bonus shall be paid to Employee within 60 days of the
date the second event occurs.
4. Section 3.2(b) of the Agreement is hereby amended and restated
in its entirety as follows:
(b) DISCHARGE WITHOUT CAUSE. In the event this Agreement is
terminated by the Company other than for Cause in accordance
with Section 3.1(c), the Company shall pay Employee the
present value of his total compensation, including without
limitation, Base Salary, any bonus (based on the last bonus
paid, earned, or accrued) and the value of any benefits then
received or entitled to be received by Employee for the
balance of the Initial Term together with any Renewal Term in
place pursuant to the three year rolling basis referred to in
Section 1.1 above, discounted at the per annum rate equal to
the prime or base rate published in THE WALL STREET JOURNAL on
the date of Notice of Termination plus two percent (2%).
Payment shall be made on the Date of Termination and with such
deductions as are in accordance with the Company's regular
payroll practices in effect from time to time while such
payments are required to be made.
IN WITNESS WHEREOF, Employee and Company's authorized representative
have executed this Amendment on the date above written.
EMPLOYEE: COMPANY:
U.S. REALTEL, INC.
/s/ Perry H. Ruda By: /s/ Ross J. Mangano
- ---------------------------- --------------------------------
Perry H. Ruda Ross J. Mangano
Chairman of the Finance Committee
2
<PAGE>
AMENDMENT
TO EMPLOYMENT AGREEMENT
OF JORDAN E. GLAZOV
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is
entered into as of the 20th day of April, 1999 by and between U.S. REALTEL,
INC., an .Illinois corporation and successor to AGILE, L.L.C., an Illinois
limited liability company (the "Company") and JORDAN E. GLAZOV ("Employee").
RECITALS:
A. The Company and Employee previously entered into an Employment
Agreement (the "Agreement") dated January 15, 1997.
B. The Company is the successor in interest to the business,
assets and obligations of Agile, L.L.C., including the benefits accruing to
and obligations of Agile, L.L.C.
C. The parties hereto desire to amend the Agreement as herein
provided and agree that this Amendment shall supercede any conflicting
provisions in the Agreement.
D. All terms used in this Amendment not otherwise defined shall
have the meanings ascribed to them in the Agreement.
E. The terms of this Amendment shall be retroactive to April 1,
1999.
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual promises herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Company and Employee agree as follows:
1. Section 1.1 of the Agreement is hereby amended and restated in
its entirety as follows:
1.1 TERM OF EMPLOYMENT. Subject to the provisions for earlier
termination as hereinafter provided, the initial term of the Agreement
shall be deemed to be for fifty-one (51) months beginning on January
1, 1997 and ending on March 31, 2002 (the "Initial Term"); provided,
however, that this Agreement shall automatically renew on a three-year
rolling basis. Therefore, beginning on April 1, 2000, and for each
year thereafter, the term shall automatically be extended for
consecutive one (1) year periods (each such additional extension
period shall be referred to collectively herein as the "Renewal
Term"). The foregoing notwithstanding, the Board of Directors shall
have the right upon written notice delivered to Employee not later
than February 1 of any year, to terminate this Agreement as of April 1
of such year, in which event, such termination shall be considered a
"discharge without cause" and shall be subject to the provisions of
Section 3.2 (b) hereof.
2. Section 2.1 of the Agreement is hereby amended and restated in
its entirety as follows:
2.1 EMPLOYEE COMPENSATION. As full consideration for the services
to be rendered pursuant to this Agreement, and provided employee
maintains and performs all obligations hereunder, beginning on April
1, 1999, the Company shall pay to Employee
<PAGE>
an annual salary of $200,000.00 ("Base Salary") for each calendar
year during the Initial and Renewal Terms.
3. Section 2.5, entitled "Bonuses" is hereby added to the
Agreement and provides as follows:
2.5 BONUSES. Employee shall be entitled to the following bonuses,
subject to any conditions precedent specified therein.
a. $25,000.00 bonus, payable on April 1, 1999; and
b. $50,000.00 bonus, payable upon the occurrence of two
out of the following three events:
1) A public equity offering is made,
2) Debt or equity financing is closed on terms
acceptable to the Board, or
3) The Apex acquisition is closed.
This bonus shall be paid to Employee within 60 days of the
date the second event occurs.
4. Section 3.2(b) of the Agreement is hereby amended and restated in
its entirety as follows:
(b) DISCHARGE WITHOUT CAUSE. In the event this Agreement is
terminated by the Company other than for Cause in accordance
with Section 3.1(c), the Company shall pay Employee the
present value of his total compensation, including without
limitation, Base Salary, any bonus (based on the last bonus
paid, earned, or accrued) and the value of any benefits then
received or entitled to be received by Employee for the
balance of the Initial Term together with any Renewal Term in
place pursuant to the three year rolling basis referred to in
Section 1.1 above, discounted at the per annum rate equal to
the prime or base rate published in THE WALL STREET JOURNAL on
the date of Notice of Termination plus two percent (2%).
Payment shall be made on the Date of Termination and with such
deductions as are in accordance with the Company's regular
payroll practices in effect from time to time while such
payments are required to be made.
IN WITNESS WHEREOF, Employee and Company's authorized representative
have executed this Amendment on the date above written.
EMPLOYEE: COMPANY:
U.S. REALTEL, INC.
/s/ Jordan E. Glazov By: /s/ Ross J. Mangano
- --------------------------------- ------------------------------------
Jordan E. Glazov Ross J. Mangano
Chairman of the Finance Committee
2
<PAGE>
U.S. REALTEL, INC.
1999 EMPLOYEE EQUITY INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Purpose..................................................................................................1
2. Definitions..............................................................................................1
3. Scope of the Plan........................................................................................5
4. Administration...........................................................................................5
5. Eligibility..............................................................................................7
6. Conditions to grants.....................................................................................7
(a) General conditions..............................................................................7
(b) Grant of options and option price...............................................................8
(c) Grant of incentive stock options................................................................8
(d) Grant of reload options........................................................................10
(e) Grant of Restricted Stock......................................................................10
(f) Grant of stock appreciation rights.............................................................11
(g) Grant of performance units and performance shares..............................................12
(h) Grant of stock bonuses.........................................................................13
7. Grantee's agreement to serve............................................................................13
8. Non-transferability.....................................................................................13
9. Exercise................................................................................................13
(a) Exercise of options............................................................................13
(b) Exercise of stock appreciation rights..........................................................14
(c) Exercise of performance units..................................................................14
(d) Payment of Performance Shares..................................................................16
(e) Notification of Change of Control..............................................................16
(f) Full vesting upon Change of Control............................................................16
(g) Special rules for Section 16 Grantees..........................................................16
(h) Pooling Considerations.........................................................................16
10. Loans and guarantees....................................................................................16
11. Notification under Section 83(b)........................................................................17
12. Mandatory withholding taxes.............................................................................17
13. Elective share withholding..............................................................................18
14. Vesting and termination of employment...................................................................18
(a) Vesting........................................................................................18
(b) For Cause......................................................................................18
(c) On account of death............................................................................18
(d) On account of Retirement or Disability.........................................................19
(e) Any other reason...............................................................................19
15. Shareholder approval....................................................................................20
16. Equity incentive plans of foreign subsidiaries..........................................................20
17. Substituted awards......................................................................................20
18. Securities law matters..................................................................................21
19. Funding.................................................................................................21
20. No employment rights....................................................................................21
21. Rights as a shareholder.................................................................................21
i
<PAGE>
22. Nature of payments......................................................................................21
23. Non-uniform determinations..............................................................................22
24. Adjustments.............................................................................................22
25. Amendment of the Plan...................................................................................22
26. Termination of the Plan.................................................................................22
27. No illegal transactions.................................................................................22
28. Controlling law.........................................................................................23
29. Severibility............................................................................................23
</TABLE>
ii
<PAGE>
INTRODUCTION. U.S. RealTel, Inc., an Illinois corporation
(the "Company"), establishes the U.S. RealTel, Inc. 1999 Employee Equity
Incentive Plan (the "Plan"), as set forth herein. The Plan was adopted by
the Company, effective April 20, 1999, subject to the approval of its
shareholders. On the Effective Date of the Plan, the Company was not
subject to the 1934 Act.
1. PURPOSE.
The Plan is intended to allow those employees, officers, directors and
consultants upon whose judgment and efforts the Company is largely dependent for
the successful conduct of its operations to acquire or increase equity ownership
in the Company, thereby:
(a) better aligning shareholder and management interests;
(b) creating incentives for management to achieve growth;
(c) further focusing management attention on long-term results; and
(d) helping to assure competitive compensation is available to
attract and retain an outstanding executive team (including outside
consultants).
2. DEFINITIONS.
As used in the Plan, terms defined parenthetically immediately after
their use shall have the respective meanings provided by such definitions and
the terms set forth below shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
(a) "Award" means options, shares of Restricted Stock, stock
appreciation rights, performance units, performance shares, or stock bonuses
granted under the Plan.
(b) "Award Agreement" has the meaning specified in Section 4(c)(v).
(c) "BCA" means the Illinois Business Corporation Act of 1983, as
amended.
(d) "Board" means the Board of Directors of the Company.
(e) "Cause" means, except as otherwise provided in any Award
Agreement, an action or failure to act by a Grantee which is, in the opinion
of the Committee, likely to result in injury of a material nature to the
Company or a Subsidiary; the material violation by the Grantee of written
policies of the Company or a Subsidiary; the gross and habitual negligence by
the Grantee in the performance of the Grantee's duties to the Company or its
Subsidiaries; or the willful and intentional action or omission to act in
connection with the Grantee's duties to the Company or a Subsidiary
resulting, in the opinion of the Committee, in injury of a material nature to
the Company or a Subsidiary.
(f) "Change of Control" means any of the following:
<PAGE>
(i) the acquisition or holding (other than by the Company) by any
person, entity or "group" within the meaning of Section 13(d)(3) or
14(d)(2) of the 1934 Act, (excluding, for this purpose, the Company or its
Subsidiaries) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of 50% or more of either the
then-outstanding Stock or the combined voting power of the Company's
then-outstanding voting securities entitled to vote generally in the
election of directors ("Voting Power"); except that no Change of Control
shall be deemed to have occurred solely by reason of any such acquisition
by a corporation with respect to which, after such acquisition, more than
50% of both the then-outstanding common shares of such corporation and the
Voting Power of such corporation are then beneficially owned, directly or
indirectly, by the persons who were the beneficial owners of the Stock and
voting securities of the Company immediately before such acquisition in
substantially the same proportion as their ownership, immediately before
such acquisition, of the then outstanding Stock or the Voting Power of the
Company, as the case may be;
(ii) individuals who, as of the Effective Date, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided that any individual who becomes a director
after the Effective Date whose election or nomination for election by the
Company's stockholders was (i) pursuant to that certain Shareholders
Agreement, dated as of October 2, 1998 or (ii) approved by at least a
majority of the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the
directors of the Company (as such terms are used in Rule 14a-11 under the
1934 Act)) shall be deemed for the purposes of this Section 2(f)(ii) to
constitute part of the Incumbent Board; or
(iii) approval by the stockholders of the Company of (A) a merger,
reorganization or consolidation with respect to which persons who were the
respective beneficial owners of the Stock and Voting Power of the Company
immediately before such merger, reorganization or consolidation do not,
immediately thereafter, beneficially own, directly or indirectly, more 50%
of, respectively, the then outstanding common shares and the Voting Power
of the corporation resulting from such merger, reorganization or
consolidation, (B) a liquidation or dissolution of the Company or (C) the
sale or other disposition of all or substantially all of the assets of the
Company; PROVIDED, HOWEVER, that for the purposes of this Section 2(f)(iii)
the votes of all Section 16 Grantees shall be disregarded
in determining whether stockholder approval has been obtained.
Notwithstanding the foregoing, (a) a Change of Control shall be deemed not
to have occurred with respect to any Section 16 Grantee if such Section 16
Grantee is, by agreement (written or otherwise), a participant on such Section
16 Grantee's own behalf in a transaction which causes the Change of Control to
occur and (b) an IPO shall not be deemed to be a Change of Control. For the
purposes hereof, the parties to that certain Shareholders' Agreement dated as of
October 2, 1998 shall not be deemed a group solely as a result of being parties
thereto and bound thereby.
2
<PAGE>
(g) "Code" means the Internal Revenue Code of 1986, as amended, and
regulations and rulings thereunder. References to a particular section of the
Code shall include references to successor provisions.
(h) "Committee" means Board, or, if a committee of the Board has
been appointed pursuant to Section 4, such committee.
(i) "Company" has the meaning set forth in the introductory
paragraph.
(j) "Disability" means, as relates to the exercise of an incentive
stock option after termination of employment, a disability within the meaning
of Section 22(e)(3) of the Code, and for all other purposes, a mental or
physical condition which, in the opinion of the Committee, renders a Grantee
unable or incompetent to carry out the job responsibilities which such
Grantee held or the tasks to which such Grantee was assigned at the time the
disability was incurred, and which, in the reasonable judgment of the
Committee is expected to be permanent or for an indefinite duration exceeding
one year.
(k) "Effective Date" means April 20, 1999 which is the date this
Plan is adopted by the Board.
(l) "Fair Market Value" means, as of any applicable date (other than
on the IPO Date with respect to the Stock):
(i) if the security is listed for trading on a national
securities exchange or the Nasdaq National Market, the closing price,
regular way, of the security as reported on the consolidated
transaction reporting system applicable to such security, or if no such
reported sale of the security shall have occurred on such date, on the
next preceding date on which there was such a reported sale, or
(ii) if the security is not so listed, but is listed on the
Nasdaq SmallCap Market, the average of the closing bid and asked
prices, regular way, on the Nasdaq SmallCap Market or, if no such
prices shall have been so reported for such date, on the last preceding
date for which such prices were so reported, or
(iii) if the security is not listed for trading on a national
securities exchange or is not authorized for quotation on a national
securities exchange, the Nasdaq National Market or Nasdaq SmallCap
Market, the fair market value of the security as determined in good
faith by the Committee; provided, that in making such determinations,
the Committee may, but shall not be required to, consider the
prevailing bid and ask prices of the Stock on any over-the-counter
market or bulletin board trading.
Solely as of the IPO Date, Fair Market Value of the Stock means the
price to the public pursuant to the form of final prospectus used in connection
with the IPO, as indicated on the cover page of such prospectus or otherwise.
3
<PAGE>
(m) "Grant Date" means the date on which an Award shall be duly
granted, as determined in accordance with Section 6(a)(i).
(n) "Grantee" means an individual who has been granted an Award.
(o) "including" or "includes" means "including, without limitation,"
or "includes, without limitation."
(p) "IPO" means the first public offering of Stock pursuant to a
registration statement on Form S-1 or SB-2 filed by the Company with the
Securities and Exchange Commission.
(q) "IPO Date" means the effective date of the underwriting
agreement between the Company and the underwriters of the IPO.
(r) "Measuring Period" has the meaning specified in Section
6(g)(i)(B).
(s) "1934 Act" means the Securities Exchange Act of 1934. References
to a particular section of, or rule under, the 1934 Act shall include
references to successor provisions.
(t) "Option Price" means the per share purchase price of Stock
subject to an option.
(u) "Plan" has the meaning set forth in the introductory paragraph.
(v) "Retirement" means a termination of employment with the Company
and its Subsidiaries other than for Cause at any time after attaining age 65.
(w) "Restricted Stock" means shares of Common Stock granted as
Awards pursuant to Section 6(e) of this Plan.
(x) "SEC" means the Securities and Exchange Commission.
(y) "Section 16 Grantee" means a person subject to potential
liability under Section 16(b) of the 1934 Act with respect to transactions
involving equity securities of the Company.
(z) "Stock" means the common stock, $0.001 par value, of the Company.
(aa) "Subsidiary" means, for purposes of grants of incentive stock
options, a corporation as defined in Section 424(f) of the Code with the
Company being treated as the employer corporation for purposes of this
definition and, for all other purposes, a United States or foreign
corporation, partnership, limited liability company or other entity in which
the Company owns, directly or indirectly, at the time of determination 50% or
more the then-outstanding stock or other ownership interests having ordinary
voting power then outstanding or existing.
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(bb) "10% Owner" means a person who owns stock (including stock
treated as owned under Section 424(d) of the Code) possessing more than 10%
of the total combined voting power of all classes of stock of the Company.
3. SCOPE OF THE PLAN.
(a) 484,655 shares of Stock are hereby made available and are
reserved for delivery on account of the exercise of Awards (including stock
appreciation rights) and payment of benefits in connection with Awards under
the Plan. Stock appreciation rights may be granted under the Plan with
respect to 484,655 shares of Stock. Performance Units may be granted under
the Plan based on 484,655 shares of Stock. No more than 484,655 shares shall
be cumulatively available for the grant of Bonus Shares and Restricted Stock
under the Plan. Such shares may be treasury shares or newly issued shares, as
may be determined from time to time by the Board or the Committee.
(b) If and to the extent an Award shall expire or terminate for any
reason without having been exercised in full (including a cancellation and
regrant of an option pursuant to Section 17), or shall be forfeited, without,
in either case, the Grantee having enjoyed any of the benefits of stock
ownership (other than dividends that are likewise forfeited or voting
rights), the shares of Stock (including Restricted Stock) associated with
such Award shall become available for other Awards. Notwithstanding the
foregoing, if and to the extent tandem stock appreciation rights are
exercised, the shares of Stock subject to the option or stock appreciation
right related to such tandem stock appreciation right shall not again become
available for issuance under this Plan.
4. ADMINISTRATION.
(a) Subject to Section 4(b), the Plan shall be administered (i) by
the Board until such time as the Company has any class of its capital stock
registered pursuant to Section 12 of the Exchange Act and (ii) thereafter, by
a committee which shall consist of not less than two persons who are
directors of the Company. After an IPO (or at such other time (x) as holders
of the Company's Common Stock shall become subject to Section 16 of the
Exchange Act or (y) Code Section 162(m) or the regulations thereunder become
applicable to the Company), to be a member of the Committee, an individual
must qualify as an "outside director" as defined for purposes of the
regulations under Code Section 162(m) and as a "non-employee director" under
Rule 16b-3 in respect of the exemption of grants to Section 16 Grantees from
potential liability under Section 16(b) of the 1934 Act. The number of
members of the Committee shall from time to time be increased or decreased,
and shall be subject to such conditions, in each case as the Board deems
appropriate to permit transactions in Shares pursuant to the Plan to satisfy
such conditions of Rule 16b-3 as are then in effect, and to permit Awards
under the Plan to satisfy the conditions for exemption from the limitations
of Code Section 162(m). In the absence of the appointment of a separate
committee for the Plan, the Board shall be the Committee.
(b) The Board may reserve to itself or delegate to another committee
of the Board any or all of the authority and responsibility of the Committee
with respect to Awards to Grantees who are not Section 16 Grantees at the
time any such delegated authority or responsibility is
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exercised. Such other committee may consist of two or more directors who may,
but need not be, officers or employees of the Company or of any of its
Subsidiaries. To the extent that the Board has reserved to itself or
delegated to such other committee the authority and responsibility of the
Committee, all references to the Committee in the Plan shall be to the Board
or such other committee.
(c) The Committee shall have full and final authority, in its
discretion, but subject to the express provisions of the Plan, as follows:
(i) subject to Section 15 hereof, to determine (A) when and
to whom Awards may be granted and the terms and conditions applicable
to each Award, including the benefit payable under any stock
appreciation right, and (B) whether or not specific Awards shall be
identified with other specific Awards, and if so whether they shall be
exercisable cumulatively with or alternatively to such other specific
Awards;
(ii) to determine the amount, if any, that a Grantee shall
pay for Restricted Stock, to determine whether to permit or require the
payment of cash dividends on any such Restricted Stock to be deferred
and the terms related to any such deferral to determine when Restricted
Stock (including Restricted Stock acquired upon the exercise of an
option) shall vest, and to determine whether such Restricted Stock
shall be held in escrow;
(iii) to interpret the Plan and to make all determinations
necessary or advisable for the administration of the Plan;
(iv) to make, amend, and rescind rules and regulations
relating to the Plan, including rules with respect to the
exercisability and nonforfeitability of Awards upon the termination
of employment of a Grantee;
(v) to determine the terms and provisions and any
restrictions or conditions (including specifying such performance
criteria as the Committee deems appropriate, and imposing restrictions
with respect to stock acquired upon exercise of an option, which
restrictions may continue beyond the Grantee's termination of
employment) of the written agreements by which all Awards shall be
evidenced ("Award Agreements") which need not be identical;
(vi) to cancel, with the consent of the Grantee, outstanding
Awards and to grant new Awards in substitution therefor;
(vii) to authorize foreign Subsidiaries to adopt plans as
provided in Section 16;
(viii) to accelerate the exercisability of, and to accelerate
or waive any or all of the restrictions and conditions applicable to,
any Award, or any group of Awards for any reason;
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(ix) subject to Section 6(a)(ii) and 6(c)(ii), to extend the
time during which any Award or group of Awards may be exercised;
(x) to make such adjustments or modifications to Awards to
Grantees working outside the United States as are necessary and
advisable to fulfill the purposes of the Plan;
(xi) to amend Award Agreements with the consent of the
Grantee; provided that the consent of the Grantee shall not be required
for any amendment which (A) does not adversely affect the rights of the
Grantee, or (B) is necessary or advisable (as determined by the
Committee) to carry out the purpose of the Award as a result of any
new or change in existing applicable law, regulation, ruling or
judicial decision; provided that any such change shall be applicable
only to Awards which have not been exercised;
(xii) to impose such additional conditions, restrictions, and
limitations upon the grant, exercise or retention of Awards as the
Committee may, before or concurrently with the grant thereof, deem
appropriate, including requiring simultaneous exercise of related
identified Awards, and limiting the percentage of Awards which may
from time to time be exercised by a Grantee; and
(xiii) to certify in writing before the payment of any
performance based Awards (except for a payment that is attributable
solely to the increase in the price of the Stock of the Company) that
the underlying performance goals and any other material terms have
been satisfied.
The determination of the Committee on all matters relating to the Plan or any
Award Agreement shall be conclusive and final. No member of the Committee shall
be liable for any action or determination made in good faith with respect to the
Plan or any Award.
5. ELIGIBILITY. Awards may be granted to any director, officer
or full-time employee (including any officer) of or any consultant to the
Company or any of its domestic or foreign Subsidiaries, including, without
limitation, any such person who is on an approved leave of absence, layoff or
has been subject to a physical or mental injury or disease which does not
qualify as a Disability. In selecting the individuals to whom Awards may be
granted, as well as in determining the number of shares of Stock subject to,
and the other terms and conditions applicable to, each Award, the Committee
shall take into consideration such factors as it deems relevant in promoting
the purposes of the Plan; provided that Awards to consultants shall be made
solely for compensatory purposes.
6. CONDITIONS TO GRANTS.
(a) GENERAL CONDITIONS.
(i) The Grant Date of an Award shall be the date on
which the Committee grants the Award or such later date as
specified in advance by the Committee.
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(ii) The term of each Award shall be a period of not more than
10 years from the Grant Date, and shall be subject to earlier
termination as herein provided.
(iii) A Grantee may, if otherwise eligible, be granted
additional Awards in any combination.
(iv) No Grantee may receive, upon the exercise of options or
incentive stock options, the lapse of restrictions on
Restricted Stock, the payment of performance units in stock,
or the grant of a stock bonus, or any combination thereof, an
aggregate number of shares of Stock under the Plan that
exceeds 1,000,000 shares over the life of the Plan. In any
twelve month period, no Grantee may receive stock appreciation
rights relating to more than 100,000 shares of Stock, or
performance units relating to more than 100,000 shares of
Stock under the Plan. If a previously granted option,
incentive stock option, stock appreciation right, or
performance unit is canceled or repriced, the canceled or
repriced option, incentive stock option, stock appreciation
right or performance unit, as the case may be, shall continue
to be counted against the maximum number of shares, stock
appreciation rights or performance units that may be
delivered to any Grantee over the life of the Plan.
(b) GRANT OF OPTIONS AND OPTION PRICE. No later than the
Grant Date of any option, the Committee shall determine the Option Price of
such option. The Option Price of an option shall not be less than 100% of the
Fair Market Value of the Stock on the Grant Date. The Award Agreement may
provide that the option shall be exercisable for Restricted Stock.
(c) GRANT OF INCENTIVE STOCK OPTIONS. At the time of the
grant of any option to an employee, the Committee may designate that such
option shall be made subject to additional restrictions to permit it to
qualify as an "incentive stock option" under the requirements of Section 422
of the Code. Any option designated as an incentive stock option:
(i) shall be granted only to employees of the Company or its
Subsidiaries (including (i) officers and (ii) directors who are employees);
(ii) shall not be granted to a 10% Owner;
(iii) shall be for a period of not more than 10 years from the Grant
Date, and shall be subject to earlier termination as provided herein or in
the applicable Award Agreement;
(iv) shall not have an aggregate Fair Market Value (determined for
each incentive stock option at its Grant Date) of Stock with respect to
which incentive stock options are exercisable for the first time by such
Grantee during any calendar year (under the Plan and any other employee
stock option plan of the Grantee's employer or any
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parent or Subsidiary thereof ("Other Plans")), determined in accordance
with the provisions of Section 422 of the Code, which exceeds $100,000
(the "$100,000 Limit");
(v) shall, if the aggregate Fair Market Value of Stock
(determined on the Grant Date) with respect to the portion of such grant
which is exercisable for the first time during any calendar year
("Current Grant") and all incentive stock options previously granted
under the Plan and any Other Plans which are exercisable for the first
time during a calendar year ("Prior Grants") would exceed the $100,000
Limit, be exercisable as follows:
(A) the portion of the Current Grant which would, when added to any
Prior Grants, be exercisable with respect to Stock which would have an
aggregate Fair Market Value (determined as of the respective Grant Date
for such options) in excess of the $100,000 Limit shall, notwithstanding
the terms of the Current Grant, be exercisable for the first time by the
Grantee in the first subsequent calendar year or years in which it could
be exercisable for the first time by the Grantee when added to all Prior
Grants without exceeding the $100,000 Limit; and
(B) if, viewed as of the date of the Current Grant, any portion of a
Current Grant could not be exercised under the preceding provisions of this
Section 6(c)(iv) during any calendar year commencing with the calendar year
in which it is first exercisable through and including the last calendar
year in which it may by its terms be exercised, such portion of the Current
Grant shall not be an incentive stock option, but shall be exercisable as
a separate option at such date or dates as are provided in the Current
Grant;
(vi) shall be granted within 10 years from the earlier of the
date the Plan is adopted or the date the Plan is approved by the
stockholders of the Company;
(vii) shall require the Grantee to notify the Committee of any
disposition of any Stock issued pursuant to the exercise of the incentive
stock option under the circumstances described in Section 421(b) of the
Code (relating to certain disqualifying dispositions), within 10 days of
such disposition; and
(viii) shall by its terms not be assignable or transferable other
than by will or the laws of descent and distribution and may be
exercised, during the Grantee's lifetime, only by the Grantee; provided,
however, that the Grantee may, to the extent provided in the Plan in any
manner specified by the Committee, designate in writing a beneficiary to
exercise his incentive stock option after the Grantee's death.
Notwithstanding the foregoing and Section 4(c)(v), the Committee may, without
the consent of the Grantee, at any time before the exercise of an option
(whether or not an incentive stock option), take any action necessary to prevent
such option from being treated as an incentive stock option.
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(d) GRANT OF RELOAD OPTIONS. The Committee may provide in an Award Agreement
that a Grantee who exercises an option for shares of Stock which have a Fair
Market Value equal to not less than 100% of the Option Price for such options
("Exercised Options") and pays the Option Price with shares of Stock shall be
granted, subject to Section 3, additional options ("Reload Options") in an
amount equal to the sum ("Reload Number") of the number of shares of Stock
tendered to exercise the Exercised Options plus, if so provided by the
Committee, the number of shares of Stock, if any, retained by the Company in
connection with the exercise of the Exercised Options to satisfy any federal,
state or local tax withholding requirements.
Reload Options shall be subject to the following terms and conditions:
(i) the Grant Date for each Reload Option shall be the date of
exercise of the Exercised Option to which it relates;
(ii) subject to Section 6(d)(iii) below, the Reload Option may be
exercised at any time during the unexpired term of the Exercised Options
(subject to earlier termination thereof as provided in the Plan and in the
applicable Award Agreement); and
(iii) the terms of the Reload Option shall be the same as the
terms of the Exercised Option to which it relates, except that (A) the
Option Price shall be the Fair Market Value of the Stock on the Grant
Date of the Reload Option and (B) no Reload Option may be exercised
within one year after the Grant Date thereof.
(e) GRANT OF RESTRICTED STOCK.
(i) The Committee shall determine the amount, if any, that a Grantee
shall pay for shares of Restricted Stock. In the discretion of the
Committee and to the extent permitted by law, payment may also be made in
accordance with Section 10.
(ii) The Committee may, but need not, provide that all or any portion
of a Grantee's Award of Restricted Stock, or Restricted Stock acquired upon
exercise of an option shall be forfeited:
(A) except as otherwise specified in the Award Agreement,
upon the Grantee's termination of employment for reasons other
than death, disability or any other reason specified in the Award
Agreement within a specified time period after the Grant Date, or
(B) if the Company or the Grantee does not achieve specified
performance goals (if any) within a specified time period after
the Grant Date and before the Grantee's termination of
employment, or
(C) upon failure to satisfy such other restrictions as the
Committee may specify in the Award Agreement.
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(iii) If a share of Restricted Stock is forfeited, then if the
Grantee was required to pay for such share or acquired such Restricted
Stock upon the exercise of an option, the Grantee shall be deemed to
have resold such share of Restricted Stock to the Company at the lesser
of (1) the amount paid or, if the Restricted Stock was acquired on
exercise of an option, the Option Price paid by the Grantee for such
share of Restricted Stock, or (2) the Fair Market Value of a share of
Stock on the date of such forfeiture. The Company shall pay to the
Grantee the required amount as soon as is administratively practical.
Such share of Restricted Stock shall cease to be outstanding, and shall
no longer confer on the Grantee thereof any rights as a stockholder of
the Company, from and after the later of the date the event causing the
forfeiture occurred or the date of the Company's tender of the payment
specified above whether or not such tender is accepted by the Grantee.
(iv) The Committee may provide that any share of Restricted Stock
shall be held (together with a stock power executed in blank by the
Grantee) in escrow by the Secretary of the Company until such shares become
nonforfeitable or are forfeited. Any share of Restricted Stock shall bear
an appropriate legend specifying that such share is non-transferable and
subject to the restrictions set forth in the Plan and the Award Agreement.
If any shares of Restricted Stock become nonforfeitable, the Company shall
cause certificates for such shares to be issued or reissued without such
legend.
(v) The Committee may require the payment of cash dividends on
Restricted Shares to be deferred and, if the Committee so determines,
reinvested in additional Restricted Shares. Stock dividends and deferred
cash dividends issued with respect to Restricted Shares shall be subject to
the same restrictions and other terms as apply to the Restricted Shares
with respect to which such dividends are issued. The Committee may provide
for payment of interest on deferred cash dividends.
(f) GRANT OF STOCK APPRECIATION RIGHTS.
(i) When granted, stock appreciation rights may, but need not, be
identified with shares of Stock subject to a specific option, specific
shares of Restricted Stock, or specific performance units of the Grantee
(including any option, shares of Restricted Stock, or performance units
granted on or before the Grant Date of the stock appreciation rights) in a
number equal to or different from the number of stock appreciation rights
so granted. If stock appreciation rights are identified with shares of
Stock subject to an option, with shares of Restricted Stock, or with
performance units, then, unless otherwise provided in the applicable Award
Agreement, the Grantee's associated stock appreciation rights shall
terminate upon (i) the expiration, termination, forfeiture or cancellation
of such option, shares of Restricted Stock, or performance units, (ii) the
exercise of such option or performance units, or (iii) the date such shares
of Restricted Stock become nonforfeitable.
(ii) The strike price ("Strike Price") of any stock appreciation
right shall equal, for any stock appreciation right that is identified
with an option, the Option Price of such option, or for any other stock
appreciation right, 100% of the Fair Market Value of a
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share of Common Stock on the Grant Date of such stock appreciation
right; PROVIDED that the Committee may (x) specify a higher Strike Price
in the Award Agreement, or (y) provide that the benefit payable upon
exercise of any stock appreciation right shall not exceed such
percentage of the Fair Market Value of a share of Common Stock on such
Grant Date as the Committee shall specify.
(g) GRANT OF PERFORMANCE UNITS AND PERFORMANCE SHARES.
(i) Before the grant of any performance unit or performance shares,
the Committee shall:
(A) determine objective performance goals and the amount of
compensation under the goals applicable to such grant, which must
be set forth in a written document prior to the commencement of
the Grantee's services to which the performance goals relate and
while the outcome is still substantially uncertain;
(B) designate a period, of not less than one year nor more
than seven years, for the measurement of the extent to which
performance goals are attained, which period may begin prior to
the Grant Date (the "Measuring Period"); and
(C) assign a "Performance Percentage" to each level of
attainment of performance goals during the Measuring Period, with
the percentage applicable to minimum attainment being zero
percent (0%) and the percentage applicable to maximum attainment
to be determined by the Committee from time to time.
(ii) In establishing performance goals, the Committee may
consider any performance factor or factors it deems appropriate,
including stock price, market share, sales, earning per share, return on
equity, costs, or any other business criteria as contemplated in Section
162(m) of the Code. If a Grantee is promoted, demoted or transferred to
a different business unit of the Company during a Measuring Period,
then, to the extent the Committee determines the performance goals or
Measuring Period are no longer appropriate, the Committee may adjust,
change or eliminate the performance goals or the applicable Measuring
Period as it deems appropriate in order to make them appropriate and
comparable to the initial performance goals or Measuring Period.
(iii) When granted, performance units or performance shares may, but
need not, be identified with shares of Stock subject to a specific option,
specific shares of Restricted Stock or specific stock appreciation rights
of the Grantee granted under the Plan in a number equal to or different
from the number of the performance units or performance shares so granted.
If performance units or performance shares are identified with shares of
Stock subject to an option, shares of Restricted Stock or stock
appreciation rights, then, unless otherwise provided in the applicable
Award Agreement, the Grantee's associated performance units shall terminate
upon (A) the expiration, termination, forfeiture or cancellation of such
option, shares of Restricted Stock or stock appreciation rights, (B) the
exercise of such option or stock appreciation rights or (C) the date such
shares of Restricted Stock become nonforfeitable.
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(iv) Notwithstanding anything herein to the contrary, the maximum
compensation payable to any Grantee with respect to any performance units
for any Measuring Period shall not exceed $100,000.
(h) GRANT OF STOCK BONUSES. The Committee may grant shares of Stock to any
individual eligible under Section 5 to receive Awards, other than directors and
executive officers of the Company.
7. GRANTEE'S AGREEMENT TO SERVE. Each Grantee who is granted an Award
shall, by executing such Grantee's Award Agreement, agree that such Grantee
will remain in the employ of the Company or any of its Subsidiaries (or as a
director or consultant thereto) for at least one year after the Grant Date.
No obligation of the Company or any of its Subsidiaries as to the length of
any Grantee's employment shall be implied by the terms of the Plan, any grant
of an Award hereunder or any Award Agreement. The Company and its
Subsidiaries reserve the same rights to terminate employment of any Grantee
as existed before the Effective Date.
8. NON-TRANSFERABILITY. Each Award (other than Restricted Stock)
granted hereunder shall not be assignable or transferable other than by will
or the laws of descent and distribution; provided, however, that a Grantee
may in a manner specified by the Committee and to the extent provided in the
Plan (a) designate in writing a beneficiary to exercise his Award after the
Grantee's death and (b) transfer an option (other than an incentive stock
option), stock appreciation right, or performance unit to (I) a revocable,
inter vivos trust as to which the Grantee is both the settlor and trustee or
(II) Grantee's spouse, children, grandchildren or parents. Each share of
Restricted Stock shall be non-transferable until such share becomes
nonforfeitable.
9. EXERCISE.
(a) EXERCISE OF OPTIONS. Subject to Sections 4(c)(viii) and such terms
and conditions as the Committee may impose, each option shall be exercisable
in one or more installments commencing not earlier than the first anniversary
of the Grant Date of such option.
Each option shall be exercised by delivery to the Company of written
notice of intent to purchase a specific number of shares of Stock subject to
the option. The Option Price of any shares of Stock or shares of Restricted
Stock as to which an option shall be exercised shall be paid in full at the
time of the exercise. Payment may, at the election of the Grantee, be made in
any one or any combination of the following:
(i) cash;
(ii) Stock held by the Grantee for at least 6 months prior to
exercise of the option, valued at its Fair Market Value on the date of
exercise;
(iii) with the approval of the Committee, shares of Restricted
Stock held by the Grantee for at least 6 months prior to exercise of
the option, each valued at the Fair Market Value of a share of Stock on
the date of exercise; or
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(iv) through simultaneous sale through a broker of shares acquired on
exercise, as permitted under Regulation T of the Federal Reserve Board.
In the discretion of the Committee and to the extent permitted by law, payment
may also be made in accordance with Section 10.
If Restricted Stock ("Tendered Restricted Stock") is used to pay the Option
Price for Stock subject to an option, then the Committee may, but need not,
specify that (i) all the shares of Stock acquired on exercise of the option
shall be subject to the same restrictions as the Tendered Restricted Stock,
determined as of the date of exercise of the option, or (ii) a number of shares
of Stock acquired on exercise of the option equal to the number of shares of
Tendered Restricted Stock shall, unless the Committee provides otherwise, be
subject to the same restrictions as the Tendered Restricted Stock, determined as
of the date of exercise of the option.
(b) EXERCISE OF STOCK APPRECIATION RIGHTS. Subject to Section 4(c)(viii)
and such terms and conditions as the Committee may impose, each stock
appreciation right shall be exercisable not earlier than the first anniversary
of the Grant Date of such stock appreciation right, to the extent the option
with which it is identified, if any, may be exercised to the extent the
Restricted Stock with which it is identified, if any, is nonforfeitable, or to
the extent the performance unit with which it is identified, if any, may be
exercised unless otherwise provided by the Committee. Stock appreciation rights
shall be exercised by delivery to the Company of written notice of intent to
exercise a specific number of stock appreciation rights. Unless otherwise
provided in the applicable Award Agreement, the exercise of stock appreciation
rights which are identified with shares of Stock subject to an option, shares of
Restricted Stock or performance units shall result in the cancellation or
forfeiture of such option, shares of Restricted Stock or performance units, as
the case may be, to the extent of such exercise.
The benefit for each stock appreciation right exercised shall be equal to the
Fair Market Value of a share of Stock on the date of such exercise minus the
Strike Price of such stock appreciation right. The benefit upon the exercise of
a stock appreciation right shall be payable in cash, except that the Committee,
may provide in the Award Agreement that benefits, with respect to any particular
exercise, may be paid wholly or partly in Stock.
(c) EXERCISE OF PERFORMANCE UNITS.
(i) Subject to Section 4(c)(viii) and such terms and conditions as the
Committee may impose, if, with respect to any performance unit, the minimum
performance goals have been achieved during the applicable Measuring
Period, then such performance unit shall be exercisable commencing on the
later of (A) the first anniversary of the Grant Date or (B) the first day
after the end of the applicable Measuring Period. Performance units shall
be exercised by delivery to the Company of written notice of intent to
exercise a specific number of performance units; provided, however, that
performance units not identified with shares of Stock subject to an option,
shares of Restricted Stock or stock appreciation rights shall be deemed
exercised on the date on which they first become exercisable. Unless
otherwise provided in the applicable
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Award Agreement, the exercise of performance units which are identified
with shares of Stock subject to an option, shares of Restricted Stock or
stock appreciation rights shall result in the cancellation or forfeiture of
such shares of Stock subject to option, shares of Restricted Stock or stock
appreciation rights, as the case may be, to the extent of such exercise.
(ii) The benefit for each performance unit exercised shall be an
amount equal to the product of:
(A) the Unit Value (as defined below)
multiplied by
(B) the Performance Percentage attained during the Measuring
Period for such performance unit.
(iii) The Unit Value shall be, as specified by the Committee,
(A) a dollar amount,
(B) an amount equal to the Fair Market Value of a share of Stock
on the Grant Date,
(C) an amount equal to the Fair Market Value of a share of Stock
on the exercise date of the performance unit, including, if so
provided in the Award Agreement, an amount ("Dividend Equivalent
Amount") equal to the value that would result if dividends paid on a
share of Stock on or after the Grant Date and on or before the
exercise date were invested in shares of Stock as of each respective
dividend payment date, or
(D) an amount equal to the Fair Market Value of a share of Stock
on the exercise date of the performance unit (plus, if so specified in
the Award Agreement, a Dividend Equivalent Amount), reduced by the
Fair Market Value of a share of Stock on the Grant Date of the
performance unit.
(iv) The benefit upon the exercise of a performance unit shall be
payable as soon as is administratively practicable after the later of (A)
the date the Grantee exercises or is deemed to exercise such performance
unit, or (B) the date (or dates in the event of installment payments) as
provided in the applicable Award Agreement. Such benefit shall be payable
in cash, except that the Committee may provide in the Award Agreement that
benefits, with respect to any particular exercise, may be paid wholly or
partly in Stock. In the event the Award Agreement provides that the benefit
may be paid wholly in Stock unless the Committee specifies at the time of
exercise that the benefit shall be paid partly or wholly in cash, the
number of shares of Stock payable in lieu of cash shall be determined by
valuing the Stock at its Fair Market Value on the date such benefit is to
be paid.
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(d) PAYMENT OF PERFORMANCE SHARES. Subject to Articles 4(c)(viii), 14 and
18 and such terms and conditions as the Committee may impose, if the minimum
performance goals specified by the Committee with respect to an Award of
performance shares have been achieved during the applicable Measuring Period,
then the Company shall pay to the Grantee of such Award shares of Stock equal in
number to the product of the number of performance shares specified in the
applicable Award Agreement multiplied by the Performance Percentage achieved
during such Measuring Period, except to the extent that the Committee in its
discretion determines that cash be paid in lieu of some or all of such shares of
Stock. The amount of cash payable in lieu of a share of Stock shall be
determined by valuing such share at its Fair Market Value on the business day
next preceding the date such cash is to be paid. Payments pursuant to this
Article 9(d) shall be made as soon as administratively practical after the end
of the applicable Measuring Period. Any performance shares with respect to which
the performance goals have not been achieved by the end of the applicable
Measuring Period shall expire.
(e) NOTIFICATION OF CHANGE OF CONTROL. The Company shall notify all
Grantees of the occurrence of a Change of Control promptly after its occurrence,
but any failure of the Company so to notify shall not deprive any Grantee of any
rights accruing hereunder by virtue of a Change of Control.
(f) FULL VESTING UPON CHANGE OF CONTROL. In the event of a Change of
Control, all unvested Awards shall become immediately vested and exercisable.
(g) SPECIAL RULES FOR SECTION 16 GRANTEES. No option, stock appreciation
right, or performance unit (if the benefit payable with respect to such
performance unit is to be determined by reference to the Fair Market Value of
the Stock on the date the performance unit is exercised) shall be exercisable by
a Section 16 Grantee during the first six months after its Grant Date, unless
the grant is otherwise exempt from Section 16 of the 1934 Act.
(h) POOLING CONSIDERATIONS. Any provision of the Plan to the contrary
notwithstanding, if the Committee determines, in its discretion exercised prior
to a sale or merger of the Company that in the Committee's judgment is
reasonably likely to occur, that the exercise of stock appreciation rights or
performance units would preclude the use of pooling-of-interests accounting
("pooling") after the consummation of such sale or merger and that such
preclusion of pooling would have a material adverse effect on such sale or
merger, the Committee may either unilaterally cancel such stock appreciation
rights or performance units prior to the consummation of such sale or merger or
cause the Company to pay the benefit attributable to such stock appreciation
right or performance unit in the form of Stock if the Committee determines that
such payment would not cause the transaction to become ineligible for pooling.
10. LOANS AND GUARANTEES. The Committee may
(a) allow a Grantee to defer payment to the Company of all or any portion
of (i) the Option Price of an option, (ii) the purchase price of a share of
Restricted Stock, or (iii) any taxes associated with a benefit hereunder which
is not a cash benefit at the time such benefit is so taxable, or
16
<PAGE>
(b) cause the Company to guarantee a loan from a third party to the
Grantee, in an amount equal to all or any portion of such Option Price, purchase
price, or any related taxes.
Any such payment deferral or guarantee by the Company pursuant to this Section
10 shall be on such terms and conditions as the Committee may determine;
provided that the interest rate applicable to any such payment deferral shall
not be more favorable to the Grantee than the terms applicable to funds borrowed
by the Company. Notwithstanding the foregoing, a Grantee shall not be entitled
to defer the payment of such Option Price, purchase price or any related taxes
unless the Grantee enters into a binding obligation to pay the deferred amount.
If the Committee has permitted a payment deferral or caused the Company to
guarantee a loan pursuant to this Section 10, then the Committee may require the
immediate payment of such deferred amount or the immediate release of such
guarantee upon the Grantee's termination of employment or if the Grantee sells
or otherwise transfers the Grantee's shares of Stock purchased pursuant to such
deferral or guarantee.
11. NOTIFICATION UNDER SECTION 83(b). The Committee may, on the Grant Date
or any later date, prohibit a Grantee from making the election described below.
If the Committee has not prohibited such Grantee from making such election, and
the Grantee, in connection with the exercise of any option, or the grant of any
share of Restricted Stock, makes the election permitted under Section 83(b) of
the Code (i.e., an election to include in such Grantee's gross income in the
year of transfer the amounts specified in Section 83(b) of the Code), such
Grantee shall notify the Company of such election within 10 days of filing
notice of the election with the Internal Revenue Service, in addition to any
filing and notification required pursuant to regulations issued under the
authority of Section 83(b) of the Code.
12. MANDATORY WITHHOLDING TAXES.
(a) Whenever under the Plan, cash or shares of Stock are to be delivered
upon exercise or payment of an Award or upon a share of Restricted Stock
becoming nonforfeitable, or any other event with respect to rights and benefits
hereunder, the Company shall be entitled to require as a condition of delivery
(i) that the Grantee remit an amount sufficient to satisfy all federal, state,
and local withholding tax requirements related thereto, (ii) the withholding of
such sums from compensation otherwise due to the Grantee or from any shares of
Stock due to the Grantee under the Plan or (iii) any combination of the
foregoing.
(b) If any disqualifying disposition described in Section 6(c)(vi) is made
with respect to shares of Stock acquired under an incentive stock option granted
pursuant to the Plan or any election described in Section 11 is made, then the
person making such disqualifying disposition or election shall remit to the
Company an amount sufficient to satisfy all federal, state, and local
withholding taxes thereby incurred; provided that, in lieu of or in addition to
the foregoing, the Company shall have the right to withhold such sums from
compensation otherwise due to the Grantee or from any shares of Stock due to the
Grantee under the Plan.
17
<PAGE>
13. ELECTIVE SHARE WITHHOLDING.
(a) Subject to Section 13(b), the Committee may provide in any grant that
the Grantee may elect the withholding ("Share Withholding") by the Company of a
portion of the shares of Stock otherwise deliverable to such Grantee upon the
exercise or payment of an Award or upon a share of Restricted Stock becoming
non-forfeitable (each a "Taxable Event") having a Fair Market Value equal to:
(i) the minimum amount necessary to satisfy required federal, state,
or local withholding tax liability attributable to the Taxable Event; or
(ii) such greater amount, not to exceed the estimated total amount of
such Grantee's tax liability with respect to the Taxable Event.
(b) Each Share Withholding election by a Grantee shall be subject to the
following restrictions:
(i) any Grantee's election shall be subject to the Committee's right
to revoke such election of Share Withholding by such Grantee at any time
before the Grantee's election if the Committee has reserved the right to do
so in the Award Agreement;
(ii) the Grantee's election must be made before the date (the "Tax
Date") on which the amount of tax to be withheld is determined; and
(iii) the Grantee's election shall be irrevocable.
14. VESTING AND TERMINATION OF EMPLOYMENT. Except as otherwise provided in
the Award Agreement,
(a) VESTING. Awards shall vest and become exercisable in [four]
installments, with a 25% of the Award cumulatively vesting and becoming
exercisable on each of the first [four] anniversaries of the Grant Date with
respect to the Award.
(b) FOR CAUSE. If a Grantee has a termination of employment for Cause,
(i) the Grantee's shares of Restricted Stock that are forfeitable
shall thereupon be forfeited, subject to the provisions of Section 6(e)(iv)
regarding repayment of certain amounts to the Grantee; and
(ii) any unexercised option, stock appreciation right, or performance
unit shall thereupon terminate.
(c) ON ACCOUNT OF DEATH. If a Grantee has a termination of employment on
account of the Grantee's death,
18
<PAGE>
(i) the Grantee's shares of Restricted Stock that were forfeitable
shall thereupon become vested and nonforfeitable;
(ii) any unexercised option or stock appreciation right shall be fully
exercisable and may be exercised, in whole or in part, at any time within
one (1) year after the death of the Grantee, by (A) his personal
representative or by the person to whom the option, stock appreciation
right is transferred by will or the applicable laws of descent and
distribution, (B) the Grantee's beneficiary designated in accordance with
Sections 6(c)(vii) or 8, or (C) the then-acting trustee of the trust
described in Section 8; and
(iii) any unexercised performance unit shall become exercisable and
may be exercised in whole or in part, at any time within one (1) year after
the Grantee's death, by (A) his personal representative or by the person to
whom the performance unit is transferred by will or the applicable laws of
descent and distribution, (B) the Grantee's beneficiary designated in
accordance with Section 8, or (C) the then-serving trustee of the trust
described in Section 8; provided that the benefit payable with respect to
any performance unit with respect to which the Measuring Period has not
ended as of the date of the Grantee's death shall be equal to the product
of the Unit Value multiplied successively by each of the following:
(1) a fraction, the numerator of which is the number of months
(including as a whole month any partial month) that have elapsed since
the beginning of such Measuring Period until the Grantee's death and
the denominator of which is the number of months (including as a whole
month any partial month) in the Measuring Period (the "Time Proration
Factor"); and
(2) a percentage equal to the greater of the target percentage,
if any, specified in the applicable Award Agreement or the maximum
percentage, if any, that would be earned under the terms of the
applicable Award Agreement assuming that the rate at which the
performance goals have been achieved as of the date of the Grantee's
death would continue until the end of the Measuring Period (the
"Performance Percentage Factor").
(d) ON ACCOUNT OF RETIREMENT OR DISABILITY. If a Grantee has a termination
of employment on account of Retirement or Disability, any unexercised option or
stock appreciation right (other than a stock appreciation right identified with
a share of Restricted Stock or a performance unit) shall become fully
exercisable and may be exercised, in whole or in part, at any time within ninety
(90) days after such Retirement or termination of employment on account of
Disability. The nonforfeitability and exercisability of the Grantee's Restricted
Stock and performance units (and any stock appreciation rights identified
therewith) shall be determined under Section 14(c).
(e) ANY OTHER REASON. If a Grantee has a termination of employment for a
reason other than for Cause, death, Disability, or Retirement,
19
<PAGE>
(i) the Grantee's shares of Restricted Stock (and any stock
appreciation rights identified therewith), to the extent forfeitable on the
date of the Grantee's termination of employment, shall be forfeited on such
date;
(ii) any unexercised option or stock appreciation right (other than a
stock appreciation right identified with a share of Restricted Stock or
performance unit) to the extent exercisable on the date of the Grantee's
termination of employment, may be exercised in whole or in part, not later
than the 30th day following the Grantee's termination of employment;
provided, however, that (x) if such 30th day is not a business day, such
option or stock appreciation right may be exercised not later than the
first business day following such 30th day and (y) if the Grantee has
entered into an agreement with the Company not to sell any shares of Stock
(or the capital stock of a successor to the Company) for a specified period
following the consummation of a business combination between the Company
and another corporation or entity (the "Specified Period"), such option or
stock appreciation right may be exercised in whole or in part until the
later of such 30th day following the termination of the Grantee's
employment or 10 business days following the expiration of the Specified
Period; and
(iii) the Grantee's performance units (and any stock appreciation
rights identified therewith) shall become non-forfeitable and may be
exercised in whole or in part, but only if and to the extent determined by
the Committee.
15. SHAREHOLDER APPROVAL. No Award shall become exercisable until after the
Plan has been approved by the holders of a majority of the shares of Stock
present and entitled to vote thereon at a meeting of the stockholders of the
Company or by consent without a meeting, in the manner authorized by the
Company's bylaws. If such approval is not obtained on or before the first
anniversary of the date the Plan is adopted by the Board, all outstanding Awards
shall terminate, and no additional Awards shall be granted.
16. EQUITY INCENTIVE PLANS OF FOREIGN SUBSIDIARIES. The Committee may
authorize any foreign Subsidiary to adopt a plan for granting Awards ("Foreign
Equity Incentive Plan"). All awards granted under such Foreign Equity Incentive
Plans shall be treated as grants under the Plan. Such Foreign Equity Incentive
Plans shall have such terms and provisions as the Committee permits not
inconsistent with the provisions of the Plan and which may be more restrictive
than those contained in the Plan. Awards granted under such Foreign Equity
Incentive Plans shall be governed by the terms of the Plan except to the extent
that the provisions of the Foreign Equity Incentive Plans are more restrictive
than the terms of the Plan, in which case such terms of the Foreign Equity
Incentive Plans shall control.
17. SUBSTITUTED AWARDS. If the Committee cancels any Award (granted under
this Plan or any plan of any entity acquired by the Company or any of its
Subsidiaries), and a new Award is substituted therefor, then the Committee may
determine the terms and conditions of such new Award; provided that (a) the
Option Price of any new option shall not be less than 100% of the Fair Market
Value of a share of Stock on the date of grant of the new Award; and (b) no
Award shall be cancelled without the consent of the Grantee if the terms and
conditions of the new Award to be substituted are not at least as favorable as
the terms and conditions of the Award to
20
<PAGE>
be cancelled (and the Grant Date of the new Award shall be the date on which
such new Award is granted).
18. SECURITIES LAW MATTERS.
(a) If the Committee deems necessary to comply with the Securities Act of
1933, the Committee may require a written investment intent representation by
the Grantee and may require that a restrictive legend be affixed to certificates
for shares of Stock.
(b) If, based upon the opinion of counsel for the Company, the Committee
determines that the exercise or non-forfeitability of, or delivery of benefits
pursuant to, any Award would violate any applicable provision of (i) federal or
state securities laws or (ii) the listing requirements of any national
securities exchange or national market system on which are listed any of the
Company's equity securities, then the Committee may postpone any such exercise,
nonforfeitability or delivery, as the case may be, but the Company shall use its
best efforts to cause such exercise, nonforfeitability or delivery to comply
with all such provisions at the earliest practicable date.
19. FUNDING. Benefits payable under the Plan to any person shall be paid
directly by the Company. The Company shall not be required to fund, or otherwise
segregate assets to be used for payment of, benefits under the Plan.
20. NO EMPLOYMENT RIGHTS. Neither the establishment of the Plan, nor the
granting of any Award shall be construed to (a) give any Grantee the right to
remain employed by the Company or any of its Subsidiaries or to any benefits not
specifically provided by the Plan or (b) in any manner modify the right of the
Company or any of its Subsidiaries to modify, amend, or terminate any of its
employee benefit plans.
21. RIGHTS AS A SHAREHOLDER. A Grantee shall not, by reason of any Award
(other than Restricted Stock) have any right as a shareholder of the Company
with respect to the shares of Stock which may be deliverable upon exercise or
payment of such Award until such shares have been delivered to him. Unless
otherwise provided in the Award Agreement, the delivery of any shares of Stock
pursuant to an Award shall be subject to the Grantee's becoming a party to the
Shareholders Agreement dated October 2, 1998, or such other shareholder
agreement to which shareholders may become subject. Shares of Restricted Stock
held by a Grantee or held in escrow by the Secretary of the Company shall confer
on the Grantee all rights of a stockholder of the Company, except as otherwise
provided in the Plan. Unless otherwise provided in the Award Agreement or any
applicable shareholders agreement, Awards do not include any registration
rights.
22. NATURE OF PAYMENTS. Any and all grants, payments of cash, or deliveries
of shares of Stock hereunder shall constitute special incentive payments to the
Grantee and shall not be taken into account in computing the amount of salary or
compensation of the Grantee for the purposes of determining any pension,
retirement, death or other benefits under (a) any pension, retirement,
profit-sharing, bonus, life insurance or other employee benefit plan of the
Company or any of its Subsidiaries or (b) any agreement between the Company or
any Subsidiary, on the
21
<PAGE>
one hand, and the Grantee, on the other hand, except as such plan or agreement
shall otherwise expressly provide.
23. NON-UNIFORM DETERMINATIONS. Neither the Committee's nor the Board's
determinations under the Plan need be uniform and may be made by the Committee
or the Board selectively among persons who receive, or are eligible to receive,
Awards (whether or not such persons are similarly situated). Without limiting
the generality of the foregoing, the Committee shall be entitled, among other
things, to make non-uniform and selective determinations, to enter into
non-uniform and selective Award Agreements as to (a) the identity of the
Grantees, (b) the terms and provisions of Awards, and (c) the treatment, under
Section 14, of terminations of employment. Notwithstanding the foregoing, the
Committee's interpretation of Plan provisions shall be uniform as to similarly
situated Grantees.
24. ADJUSTMENTS. The Committee shall make equitable adjustment of:
(a) the aggregate numbers of shares of Stock, shares of Restricted Stock,
and bonus stock, and the aggregate numbers of stock appreciation rights and
Performance Units available under Sections 3(a) and 3(b);
(b) the number of shares of Stock, shares of Restricted Stock, stock
appreciation rights or performance units covered by an Award;
(c) the Option Price; and
(d) the Fair Market Value of Stock to be used to determine the amount of
the benefit payable upon exercise of stock appreciation rights or performance
units
to reflect a stock dividend, stock split, reverse stock split, share
combination, recapitalization, merger, consolidation, acquisition of property or
shares, separation, asset spin-off, reorganization, stock rights offering,
liquidation or similar event, of or by the Company.
25. AMENDMENT OF THE PLAN. The Board may from time to time in its
discretion amend or modify the Plan without the approval of the shareholders of
the Company, except as such shareholder approval may be required under the
listing requirements of any national market system or securities exchange on
which are listed the Company's equity securities or under the Code in order to
preserve the intended tax effects of an Award on the Company and the Grantee.
26. TERMINATION OF THE PLAN. The Plan shall terminate on the tenth (10th)
anniversary of the Effective Date or at such earlier time as the Board may
determine. Any termination, whether in whole or in part, shall not affect any
Award then outstanding under the Plan.
27. NO ILLEGAL TRANSACTIONS. The Plan and all Awards granted pursuant to it
are subject to all laws and regulations of any governmental authority which may
be applicable thereto; and notwithstanding any provision of the Plan or any
Award, Grantees shall not be entitled to exercise Awards or receive the benefits
thereof and the Company shall not be obligated to deliver any Stock or pay any
benefits to a Grantee if such exercise, delivery, receipt or payment
22
<PAGE>
of benefits would constitute a violation by the Grantee or the Company of any
provision of any such law or regulation.
28. CONTROLLING LAW. The law of the State of Illinois, except its law with
respect to choice of law, shall be controlling in all matters relating to the
Plan.
29. SEVERIBILITY. If all or any part of the Plan is declared by any court
or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of the Plan not declared to
be unlawful or invalid. Any Section or part of a Section so declared to be
unlawful or invalid shall, if possible, be construed in a manner which will give
effect to the terms of such Section or part of a Section to the fullest extent
possible while remaining lawful and valid.
Executed as of this 20th day of April, 1999.
U.S. REALTEL, INC.
By:/s/ Jordan E. Glazov
Title: President
ATTEST:
/s/ Ilene Dobrow Davidson
Title: Assistant Secretary
23
<PAGE>
LIST OF SUBSIDIARIES
RealTel de Argentina, S.A.
RealTel Consulting, Inc.
RealTel Financing, L.L.C.
RealTel do Brasil, S.A.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,133,468
<SECURITIES> 0
<RECEIVABLES> 24,267
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,184,104
<PP&E> 282,778
<DEPRECIATION> (98,624)
<TOTAL-ASSETS> 4,392,600
<CURRENT-LIABILITIES> 2,242,221
<BONDS> 330,000
0
0
<COMMON> 6,443
<OTHER-SE> 1,712,651
<TOTAL-LIABILITY-AND-EQUITY> 4,392,600
<SALES> 0
<TOTAL-REVENUES> 410,451
<CGS> 0
<TOTAL-COSTS> 319,841
<OTHER-EXPENSES> 5,623,323
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 210,960
<INCOME-PRETAX> (5,743,673)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,743,673)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,743,673)
<EPS-BASIC> (0.96)
<EPS-DILUTED> (0.96)
</TABLE>
