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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1998 REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
AMENDMENT NO.3 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________
21ST CENTURY TELECOM GROUP, INC.
(EXACT NAME OF COMPANY AS SPECIFIED IN ITS CHARTER)
ILLINOIS 36-4076758
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
WORLD TRADE CENTER, 350 NORTH ORLEANS, SUITE 600
CHICAGO, ILLINOIS 60654
(312) 470-2100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF COMPANY'S PRINCIPAL EXECUTIVE OFFICES)
GLENN W. MILLIGAN
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS
21ST CENTURY TELECOM GROUP, INC.
WORLD TRADE CENTER, 350 NORTH ORLEANS, SUITE 600
CHICAGO, ILLINOIS 60654
(312) 470-2100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT FOR
SERVICE, SHOULD BE SENT TO:
EDWIN M. MARTIN, JR., ESQ.
PIPER & MARBURY, L.L.P.
1200 NINETEENTH STREET, N.W.
WASHINGTON, D.C. 20036
(202) 861-6315
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE WITH
GENERAL INSTRUCTION G, PLEASE CHECK THE FOLLOWING BOX: [_]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING PURSUANT
TO RULE 462(b) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST
THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING: [_]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(d) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING: [_]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX: [_]
CALCULATION OF REGISTRATION FEE
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========================================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED PROPOSED
SECURITIES TO BE REGISTERED REGISTERED MAXIMUM MAXIMUM AMOUNT OF
AGGREGATE AGGREGATE REGISTRATION FEE
OFFERING PRICE OFFERING PRICE(2)
PER NOTE(1)
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12 1/4 SENIOR DISCOUNT NOTES DUE 2008 $363,135,000 55% $200,000,000 $ 0
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13 3/4 SENIOR CUMULATIVE EXCHANGEABLE $ 50,000,000 100% $ 50,000,000 $ 0
PREFERRED STOCK DUE 2010
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(1) ESTIMATED SOLELY FOR PURPOSES OF CALCULATING THE REGISTRATION FEE.
(2) CALCULATED PURSUANT TO RULE 457(o).
(3) A registration fee of $59,000 for the 12 1/4% Senior Discount Notes Due
2008 and $ 14,750 for the 13 3/4% of Senior Cumulative Exchangeable
Preferred Stock Due 2010 was paid at the time of the initial filing of this
registration statement.
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 2, 1998
Preliminary Prospectus
LOGO
21ST CENTURY TELECOM GROUP, INC.
Offer to Exchange (i) 12 1/4% Senior Discount Notes Due 2008, which have been
registered under the Securities Act of 1933, as amended, for any and all of its
outstanding 12 1/4% Senior Discount Notes Due 2008 and (ii) 13 3/4% Senior
Cumulative Exchangeable Preferred Stock Due 2010, which has been registered
under the Securities Act of 1933, as amended, for any and all of its outstanding
13 3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010
The Exchange Offer will expire at 5:00 p.m., Eastern Standard Time, on
[_________, 1998] unless extended.
21st Century Telecom Group, Inc. ("21st Century" or the "Company") hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letters of transmittal (each a "Letter of
Transmittal," collectively the "Letters of Transmittal" and, together with this
Prospectus, the "Exchange Offer"), (i) to exchange its 12 1/4% Senior Discount
Notes Due 2008 (the "New Notes") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for an equal
principal amount of its outstanding 12 1/4% Senior Discount Notes Due 2008 (the
"Old Notes" and, together with the New Notes, the "Notes"), of which, as of the
date of this Prospectus, there was outstanding $363,135,000 principal amount at
maturity and (ii) to exchange shares of its 13 3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010 (the "New Exchangeable Preferred Stock")
which have been registered under the Securities Act, pursuant to a Registration
Statement of which this Prospectus is a part, for an equal number of shares of
its outstanding 13 3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010
(the "Old Exchangeable Preferred Stock" and, together with the New Exchangeable
Preferred Stock, the "Exchangeable Preferred Stock"). Shares of the Old
Exchangeable Preferred Stock were originally sold on February 9, 1998 (the
"Issue Date") as a component of Units (the "Units") consisting of one share of
Old Exchangeable Preferred Stock and one Warrant (a "Warrant") to purchase
8.7774 shares of common stock, no par value, of the Company at an exercise price
of $.01 per share. An additional 1833.33 shares of Old Exchangeable Preferred
Stock will be issued on May 15, 1998 as the first dividend payment on the Old
Exchangeable Preferred Stock. The sale of the Old Notes and the Units is
referred to herein as the "Private Placement. "
The Company will accept for exchange any and all Old Notes or shares of Old
Exchangeable Preferred Stock that are validly tendered and not withdrawn on or
prior to 5:00 p.m., Eastern Standard Time, on the date the Exchange Offer
expires (the "Expiration Date"), which will be [_________, 1998] (30 days
following the commencement of the Exchange Offer), unless the Exchange Offer is
extended. Tenders of Old Notes or shares of Old Exchangeable Preferred Stock
may be withdrawn at any time prior to 5:00 p.m., Eastern Standard Time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes or minimum number of shares of Old Exchangeable
Preferred Stock being tendered for exchange. See "The Exchange Offer."
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The New Notes will be obligations of the Company evidencing the same
indebtedness as the Old Notes and will be entitled to the benefits of the same
Indenture (as defined), which governs both the Old Notes and the New Notes. The
form and terms of the New Notes and the New Exchangeable Preferred Stock
(together, the "New Securities") are substantially identical to the form and
terms of the Old Notes and the Old Exchangeable Preferred Stock (together, the
"Old Securities" and collectively with the New Securities, the "Securities"),
respectively, except that the offer of the New Securities will have been
registered under the Securities Act and, therefore, the New Securities will not
bear legends restricting the transfer thereof. See "Description of the New
Notes" and "Description of New Exchangeable Preferred Stock."
The New Notes will be issued at a substantial original issue discount ("OID"),
and the holders of the New Notes will be required to include such OID in gross
income for U.S. Federal income tax purposes on a constant yield to maturity
basis, in advance of the receipt of the cash payments to which such income is
attributable. See "Certain United States Federal Income Tax Consequences." The
price to investors for the New Notes shown below represents a yield to maturity
of 12 1/4% per annum (computed on a semiannual bond equivalent basis). The New
Notes will begin to accrue interest at a rate of 12 1/4% per annum commencing
February 15, 2003, and interest will be payable thereafter on February 15 and
August 15 of each year. The New Notes will not be redeemable at the option of
the Company prior to February 15, 2003, except that until February 15, 2001, the
Company may redeem, at its option, in the aggregate up to 35% of the Accreted
Value of the Notes at the redemption price set forth herein with the net
proceeds of one or more Equity Offerings (as defined) following which there is a
Public Market (as defined) if at least $236.0 million principal amount at
maturity of the Notes remains outstanding after any such redemption. On or after
February 15, 2003, the New Notes may be redeemed at the option of the Company,
in whole or in part, at the redemption prices set forth herein. Upon a Change of
Control, each holder of the New Notes may require the Company to purchase such
New Notes at a purchase price equal to 101% of their Accreted Value thereof plus
accrued and unpaid interest, if any, to the date of purchase.
The New Notes will be senior unsecured indebtedness of the Company and will rank
pari passu in right of payment with all unsubordinated, unsecured indebtedness
of the Company and will rank senior in right of payment to all subordinated
indebtedness of the Company. As of December 31, 1997, after giving effect to the
Private Placement and the application of the proceeds therefrom, the Company
would have had outstanding $200.2 million of unsubordinated indebtedness and no
subordinated indebtedness. The New Notes will be effectively subordinated to all
current and future indebtedness of the Company's subsidiaries, including trade
payables and other accrued liabilities. See "Description of the New Notes."
Dividends on the New Exchangeable Preferred Stock will accrue from the date of
issuance and will be payable quarterly in arrears on February 15, May 15, August
15 and November 15 of each year, commencing May 15, 1998, at a rate per annum of
13 3/4% of the liquidation preference of $1,000 per share. Dividends will be
payable in cash, except that on each dividend payment date occurring on or prior
to February 15, 2003, dividends may be paid, at the Company's option, by the
issuance of additional shares of New Exchangeable Preferred Stock (including
fractional shares) having an aggregate liquidation preference equal to the
amount of such dividends. It is not anticipated that the Company will pay any
dividends in cash for any period ending on or prior to February 15, 2003. The
Indenture for the Notes also contains certain covenants that, among other
things, limit the payment of dividends and other distributions by the Company
and its Restricted Subsidiaries in respect of their capital stock. The New
Exchangeable Preferred Stock will not be redeemable prior to February 15, 2003
except that, on or prior to February 15, 2001, the Company may redeem, at its
option, in whole but not in part, the outstanding Exchangeable Preferred Stock
with the net proceeds of an Equity Offering at a redemption price of 113 3/4% of
the liquidation preference thereof, plus accumulated and unpaid dividends to the
date of redemption. On or after February 15, 2003, the New Exchangeable
Preferred Stock is redeemable at the option of the Company, at the prices set
forth herein plus accumulated and unpaid dividends, if any, to the date of
redemption. The Company is required to redeem the New Exchangeable Preferred
Stock on February 15, 2010, at a redemption price equal to 100% of the
liquidation preference thereof plus accumulated and unpaid dividends, if any, to
the date of redemption.
The New Exchangeable Preferred Stock will rank senior to all other classes of
equity securities of the Company outstanding upon consummation of the Exchange
Offer, including but not limited to the 1,554,871 shares of 8% cumulative
preferred stock issued pursuant to the January 1997 Stock Purchase Agreement.
The Company may not authorize any new class of Parity Stock (as defined) or
Senior Stock (as defined) without the approval of at least a majority of the
shares of Exchangeable Preferred Stock then outstanding, voting or consenting,
as the case may be, as one class.
On any scheduled dividend payment date, the Company may, at its option,
exchange all but not less than all the shares of Exchangeable Preferred Stock
then outstanding for the Company's 13 3/4% Subordinated Exchange Debentures Due
2010 (the "Exchange Debentures"). The Exchange Debentures will bear interest
at a rate of 13 3/4% per annum, payable semiannually in arrears on February 15
and August 15 of each year, commencing with the first such date to occur after
the date of exchange. The Exchange Debentures will be subordinated to all
existing and future Senior Indebtedness (as defined), including indebtedness
represented by the Notes, of the Company and to all indebtedness and other
liabilities (including trade payables) of the Company's subsidiaries. See
"Description of the Exchange Debentures--Ranking."
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The New Securities are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement, dated
February 2, 1998, among the Company and the other signatories thereto (the
"Registration Rights Agreement"). Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission"), as set forth in no-action
letters issued to third parties, the Company believes that the New Securities
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than any holder that is an
"affiliate" of the Company as defined under Rule 405 of the Securities Act),
provided that such New Securities are acquired in the ordinary course of such
holders' business and such holders are not engaged in, and do not intend to
engage in, a distribution of such New Securities and have no arrangement with
any person to participate in the distribution of such New Securities. However,
the staff of the Commission has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange Offer
as in such other circumstances. By tendering the Old Securities in exchange for
the New Securities, each holder, other than a broker-dealer, will represent to
the Company that (i) it is not an affiliate of the Company (as defined under
Rule 405 of the Securities Act), (ii) any New Securities to be received by it
were acquired in its ordinary business and (iii) it is not engaged in, and does
not intend to engage in, a distribution of such New Securities and has no
arrangement or understanding to participate in a distribution of the New
Securities. Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such New Securities. The Letters of
Transmittal state that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Securities received in exchange for Old Securities, where
such Old Securities were acquired by such broker-dealer as a result of market-
making activities or other trading activities. The Company has agreed that,
starting on the Expiration Date and ending on the close of business 180 days
after the Expiration Date, it will make this Prospectus available to any broker-
dealer for use in connection with any such resale. Each broker-dealer that
acquired Old Securities directly from the Company, and not as a result of
market-making or trading activities, must, in the absence of an exemption,
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with the secondary resale of the New Securities and
cannot rely on the position of the staff of the Commission enunciated in
no-action letters issued to third parties. In addition, until [ , 1998] (90 days
after the date of this Prospectus), all dealers effecting transactions in the
New Notes or shares of New Exchangeable Preferred Stock may be required to
deliver a prospectus. See "Plan of Distribution."
Prior to this Exchange Offer, there has been no public market for the Old
Securities or the New Securities. If such a market were to develop, the New
Notes and the New Exchangeable Preferred Stock could trade at prices that may be
higher or lower than their principal amount or liquidation preference,
respectively. The Company does not intend to apply for listing or quotation of
the New Notes or New Exchangeable Preferred Stock on any securities exchange or
stock market. Therefore, there can be no assurance as to the liquidity of any
trading market for the New Notes or New Exchangeable Preferred Stock or that an
active public market for the New Notes or New Exchangeable Preferred Stock will
develop. See "Risk Factors--Lack of Public Market."
Credit Suisse First Boston Corporation, BancAmerica Robertson Stephens and
BancBoston Securities Inc. (the "Initial Purchasers") have agreed that one or
more of them will act as market-makers for the New Securities. However, the
Initial Purchasers are not obligated to so act and they may discontinue any such
market-making at any time without notice. The Company will not receive any
proceeds from the Exchange Offer. The Company will pay all the expenses
incident to the Exchange Offer. No underwriter is being used in connection with
the Exchange Offer.
For a discussion of certain factors that should be considered by holders of Old
Securities who tender their Old Securities in the Exchange Offer, see "Risk
Factors" beginning on page __ of this Prospectus.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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"21st Century" is a trademark of the Company and is registered in certain
jurisdictions. This Prospectus also includes trademarks of companies other than
the Company.
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PROSPECTUS SUMMARY
The following is a brief summary of the matters covered by this Prospectus and
is qualified in its entirety by the more detailed information (including the
financial statements and the notes thereto) included elsewhere herein. Unless
the context indicates otherwise, "21st Century" or the "Company" means 21st
Century Telecom Group, Inc. All information contained in this Prospectus gives
effect to the Company's 1,000-for-1 common stock split and an increase in the
authorized number of shares of the Company's common stock, which were effected
in January 1998.
THE COMPANY
21st Century is an integrated, facilities-based communications company which
seeks to be the first provider of bundled voice, video and high-speed data
services (including cable television, high-speed internet access, and local and
long distance telephone service) in selected midwestern markets beginning with
Chicago's Area 1, for which the Company has been awarded a non-exclusive 15-year
renewable franchise by the City of Chicago. Area 1 stretches more than 16 miles
along Chicago's densely populated lakefront skyline and includes the affluent
residential neighborhoods of the Gold Coast, Lincoln Park and Dearborn Park and
the nation's second largest business and financial district. The Company has
developed (and has begun to install and activate) an advanced fiber optic
network that employs a distributed ring-star architecture characterized by
fiber-richness, two-way interactivity and SONET-based redundancy and self-
healing attributes (the "DRS Network"). The DRS Network accommodates not only
traditional voice and video applications, but also the rapidly growing demand
for high-speed data services. Although it has claimed no intellectual property
rights in the DRS Network, the Company believes that the DRS Network provides
the Company with significant strategic advantages that will differentiate 21st
Century from its competitors, such as improved time-to-market, multiple revenue
streams, enhanced service quality and reliability and the ability to provide
attractively priced bundled services.
The Company has secured a non-exclusive 15-year renewable attachment agreement
with the Chicago Transit Authority (the "CTA"), which reduces costly and time-
consuming "make-ready" and underground construction for the DRS Network and
enables the Company to install and activate the DRS Network rapidly and
efficiently by taking advantage of access to the CTA's elevated and underground
rail systems. The Company also has secured non-exclusive pole attachment
agreements with Commonwealth Edison Company ("Commonwealth Edison") and a
subsidiary of Ameritech Corporation ("Ameritech") which provide 21st Century
access to scarce pole space within Area 1 to further facilitate deployment of
its DRS Network. The decentralized configuration of the DRS Network (which
includes distributed hubs and nodes that act "intelligently" to route network
traffic efficiently) together with the CTA and the pole attachment agreements,
enable network construction to be driven in large part by market demand and
revenue potential in contrast to the conventional approach of building a system
from the headend outward on a block-by-block basis. To fully exploit this
advantage, the Company's sales and marketing strategy is coordinated with
ongoing network construction and focused on securing bulk contracts with 125-
unit or larger multiple dwelling unit buildings ("MDUs"). The Company believes
that this strategy will help to identify the optimal sequence of node activation
on the DRS Network and tie capital expenditures more directly to revenue-
producing subscribers.
21st Century's DRS Network currently provides video, audio and data services.
These services include 110 analog video channels, 59 interactive information
channels with local content (e.g., train and airline schedules, restaurant
menus, local news and sports scores, stock quotes and expressway traffic
updates) and 22 specialty audio channels (e.g., international and foreign
language programming, BBC radio broadcasts, reading services for the blind,
commercial-free music categories and select distant-market FM stations), with
significant capacity for additional broadband and narrowband products and
services. The Company's data product is its 4 Mbps cable modem Internet access
service, which is delivered at symmetrical speeds more than 125 times faster
than the prevalent 28.8 Kbps telephone modem and 25 times faster than an ISDN
modem. The Company is also hosting websites for commercial customers. The
Company will also provide switched, facilities-based competitive local
exchange carrier ("CLEC") services with last mile connectivity and local dial
tone to both commercial accounts and selected residential subscribers upon
receipt of the necessary regulatory approval and installation of the requisite
telephony equipment. The Company currently provides telephony service on a test
basis and plans to begin offering in mid-1998 a broad range of competitive
telephony services (e.g., local, long distance and enhanced services) to
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both commercial accounts and selected residential subscribers, most of whom
currently have no facilities-based alternative to the service provided over the
network of the incumbent local exchange carrier ("ILEC").
The City of Chicago is the third largest urban market in the United States and
Area 1 is the densest section of the city, characterized by a high concentration
of MDUs and commercial office buildings. Area 1 has several significant and
attractive attributes, including a relatively high density of 12,000 housing
units per square mile (compared with a density for the entire City of Chicago of
5,000 housing units per square mile); more than 300,000 homes (many of which are
located in upscale, demographically attractive lakefront neighborhoods);
existing cable penetration that the Company believes is significantly below the
national average for urban areas; and approximately 51,000 employers in the
City's prominent business and financial districts, which include such businesses
and landmarks as the Mercantile Exchange, Sears Tower, Chicago Board of Trade,
Chicago Board of Options Exchange, Federal Reserve, Hancock Building, Amoco
Tower, major banks and other premier businesses.
21st Century has taken significant steps to implement its business plan and
service offerings in Chicago's Area 1. In addition to securing the Area 1
franchise, the CTA attachment agreement and the Commonwealth Edison and
Ameritech pole attachment agreements, the Company has (i) constructed and
activated its network operations center ("NOC"), which includes a video
headend and a data operations center ("DOC"), (ii) completed the northern
fiber transport ring of the DRS Network, extending from the downtown business
district to the northern portions of the city bordering Evanston, (iii) secured
programming content for more than 170 channels of video and interactive
information programming, (iv) constructed and activated portions of the outside
fiber distribution network to reach selected MDUs, (v) initiated customer
installation processes, billing, call center and customer care services, (vi)
secured contracts for more than 4,000 residential subscribers (which include
more than 2,000 new subscribers under 5-year bulk MDU agreements as well as
subscribers acquired in early 1997 from an affiliated company) and (vii) passed
with its initial distribution facilities more than 15,800 additional potential
subscribers. The Company has completed installation of approximately 5 percent
of the fiber optic strand miles that will ultimately make up the DRS Network.
The Company has also entered into an agreement with Nortel for the acquisition
and installation of the switching and other ancillary equipment necessary for it
to provide telephony services.
BUSINESS STRATEGY AND COMPETITIVE ADVANTAGES
The Company believes that it can exploit its innovative DRS Network, superior
product offerings and other strategic assets to compete strongly in Chicago's
Area 1 and other selected markets. 21st Century's strategy and competitive
advantages include the following key components:
DEVELOP HIGH-CAPACITY, FULL-SERVICE DRS NETWORK. 21st Century intends to
exploit the advantages of its innovative, internally-developed DRS Network
architecture to provide fully integrated voice, video and high-speed data
services. Key attributes of the DRS Network include (i) an advanced integrated
network design built to the rigorous Bellcore standards, (ii) the distribution
of switching and traffic routing mechanics at specific locations out on the DRS
Network (rather than being concentrated at one point as in conventional
networks), allowing the Company to efficiently and economically route traffic
regardless of penetration and usage levels, (iii) a SONET-based redundancy and
self-healing architecture with both circuit and route diversity, (iv) multiple
layers of power redundancy to ensure network reliability and (v) a large fiber
capacity permitting delivery of advanced two-way, fully-interactive broadband
services, as well as significant unutilized capacity to allow the Company to
upgrade services, add applications and develop new product offerings without
service interruption or interference.
DEPLOY DRS NETWORK COST-EFFECTIVELY ON A REVENUE-DRIVEN BASIS. The
decentralized configuration of the DRS Network, combined with the CTA and pole
attachment agreements, allows the Company to rapidly and efficiently deploy the
DRS Network to accommodate market demand on a revenue-driven basis. This
strategy contrasts sharply with the typical approach of building a conventional
coaxial cable system from the headend outward on a block-by-block basis. This
DRS Network advantage will also allow the Company to efficiently utilize its
capital resources to secure larger MDU bulk video contracts which will be used
as the basis for node activation;
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thus, more significant revenue streams should be realized earlier in the planned
3-4 year construction buildout than would be realized by a conventional coaxial
cable system buildout. After a large MDU is activated within a node, the Company
will then market its premium cable and pay-per-view video services, as well as
its high-speed data and, when available, telephony services, to its cable
subscribers in order to leverage MDU subscriber relationships. In addition, 21st
Century will market its full range of voice, video and high-speed data services
to the other MDUs and homes passed (collectively, "Homes Passed") which are
located between the node and the transport ring. For commercial subscribers, the
Company will seek initially to deploy the DRS Network in Chicago's dense central
downtown area to (i) small to mid-sized commercial accounts and communications-
intensive businesses that have an interest in the Company's high-speed data and
Internet services and (ii) organizations such as the Building Owners Management
Association and other facilities management companies that influence the
selection of communications facilities installed at multiple buildings, as well
as industry associations which the Company believes will encourage member
companies to use the Company's services.
PROVIDE SUPERIOR PRODUCT OFFERINGS ON A BUNDLED BASIS. The Company believes
that its voice, video and high-speed data product offerings will be superior to
competitive products currently available in Area 1 in terms of (i) the breadth
and quality of the individual product offerings, (ii) the extent of the enhanced
service features offered to the customer and (iii) the ability to bundle such
product offerings into a simple, convenient and attractively priced package. The
Company's current video offering includes 110 analog video channels, 59
interactive information channels and 22 specialty audio channels, with
significant capacity for additional broadband and narrowband products and
services. 21st Century's fiber-rich DRS Network is designed with only one to
four amplifiers in cascade between its NOC and the subscriber (compared to up to
40 amplifiers used by conventional networks). This reduction in amplifiers
significantly reduces signal degradation and results in higher video quality and
telephony reliability, a superior audio component and greater data transmission
accuracy. The Company's interactive information channels, which provide useful
local content and information, are currently not available from any other single
source in Area 1. The Company's high-speed data offering includes cable modems
that provide access to the Internet at 4 Mbps, which is approximately 125 times
faster than the prevalent 28.8 Kbps telephone modem and 25 times faster than an
ISDN modem. Beginning in mid-1998, the Company expects to begin marketing a
broad range of competitive telephony services (e.g., local, long distance, call
waiting, call forwarding, caller ID and three-way calling) to both commercial
accounts and selected residential subscribers, most of whom currently have no
facilities-based alternative to the service provided over the ILEC's network.
The Company's bundled service offering will provide customers with convenient
"one-stop shopping," attractive pricing through significant bundled discounts,
a single source for installation and service and the ease of a single monthly
bill.
LEVERAGE STRATEGIC ASSETS. The Company's core strategic assets include (i)
the 15-year renewable franchise granted by the City of Chicago, which permits
the construction and installation of a network serving the entirety of Chicago's
Area 1 and (ii) the attachment agreement negotiated with the CTA and the pole
attachment arrangements negotiated with Commonwealth Edison and Ameritech, which
facilitate the timely and efficient buildout of the DRS Network through the
utilization of scarce pole space and city infrastructure rights-of-way. Each of
these assets is a valuable and important component of the Company's facilities-
based business strategy and together would be difficult for another entrant to
replicate.
SECURE FIRST-TO-MARKET ADVANTAGES. The Company seeks to be the first-to-
market in offering bundled voice, video and high-speed data services in
Chicago's Area 1 and other selected markets. The Company believes that the rapid
buildout of the DRS Network will enable it to acquire a significant customer
base and will give it a competitive advantage over other prospective bundled and
single-service providers.
CONTINUE TO ATTRACT EXPERIENCED MANAGEMENT. The Company's management team
has extensive and diverse experience in the cable television, Internet, data and
telecommunications industries. During the past year, the Company's senior
management has demonstrated its expertise by constructing and activating the
NOC, completing the northern fiber transport ring of the DRS Network, securing
necessary programming content and initiating services. The Company intends to
continue to attract qualified senior-level management with demonstrated
expertise from the various industries comprising the Company's service offering.
7
<PAGE>
FOCUS ON SUPERIOR CUSTOMER CARE. The Company is committed to providing
superior customer care to differentiate 21st Century from its competitors. To
accomplish this, the Company has (i) contracted with a third party to provide a
single billing statement for its voice, video and data services (which will
facilitate bundled discounting for multiple services, permit customized billing
statements and permit monthly, transactional and metered billing to support the
Company's planned product lines) and (ii) established a relationship with a
leading call center services provider to staff and operate a 24-hour call
center. The Company believes that the quality and reliability of its services
will result in fewer in-bound subscriber complaints, service requests and other
non-revenue producing calls. In addition, the Company has installed
sophisticated status monitoring equipment in the NOC and throughout its DRS
Network, which should allow the Company to become aware of and remedy many
potential problems before they are detectable by subscribers.
EXPAND TO ADDITIONAL MARKETS. The Company intends to expand its operations
to selected midwestern markets which have the size, demographics and
geographical location suitable for its business strategy. Although the Company
may consider stand-alone systems, the Company expects to focus on markets in
which it can use its Chicago DRS Network and NOC to achieve synergies and
economies of scale. The Company has applied for franchises in a number of cities
in suburban Chicago, central, southcentral and southwestern Michigan and
northern Indiana.
CURRENT INVESTORS
In addition to the $1.9 million initial equity investment by the Company's
founding common shareholders, the Company obtained a $21.8 million investment in
the form of convertible 8% cumulative preferred stock in January 1997 from a
group of private equity investors which includes various entities affiliated
with Purnendu Chatterjee and Soros Management Fund; various entities affiliated
with William Farley, chairman of Fruit of the Loom, Inc.; Chicago-based
telecommunications investment specialists JK&B Capital; and Boston Capital
Ventures. In September and November 1997, the Company issued an additional $1.15
million of convertible 8% cumulative preferred stock, $1.0 million of which was
issued to Consolidated Communications, a wholly owned subsidiary of McLeod, Inc.
In January 1998, several common shareholders and certain other persons and
entities purchased approximately $1.5 million of convertible 8% cumulative
preferred stock.
8
<PAGE>
THE EXCHANGE OFFER
Registration Agreement The Old Securities were sold by the Company on February
9, 1998 (the "Issue Date"), to Credit Suisse First
Boston Corporation, BancAmerica Robertson Stephens and
BancBoston Securities Inc. (the "Initial Purchasers"),
which placed such Old Securities with institutional
investors. In addition, 1833.33 shares of Old
Exchangeable Preferred Stock will be issued on May 15,
1998 as the first dividend payment on the Old
Exchangeable Preferred Stock. In connection therewith,
the Company executed and delivered for the benefit of
the holders of the Old Securities the Registration
Rights Agreement obligating the Company to file with
the Commission within 45 days after the date of
issuance of the Old Securities, a registration
statement under the Securities Act relating to (i) an
exchange offer for the Old Notes (the "Notes Exchange
Offer") and (ii) an exchange offer for shares of Old
Exchangeable Preferred Stock (the "Preferred Stock
Exchange Offer" and, together with the Notes Exchange
Offer, the "Exchange Offer") and to use its best
efforts to cause such registration statement to become
effective within 150 days after the Issue Date.
The Exchange Offer New Notes are being offered in exchange for an equal
principal amount at maturity of Old Notes. As of the
date hereof, there was outstanding $363,135,000
principal amount at maturity of Old Notes. New
Exchangeable Preferred Stock is being offered in
exchange for an equal number of shares of Old
Exchangeable Preferred Stock. Because the New Notes and
New Exchangeable Preferred Stock will be recorded in
the Company's accounting records at the same carrying
value as the Old Notes and Old Exchangeable Preferred
Stock, respectively, no gain or loss will be recognized
by the Company upon the consummation of the Exchange
Offer. See "The Exchange Offer--Accounting Treatment."
Holders of the Old Notes or Old Exchangeable Preferred
Stock do not have appraisal or dissenter's rights in
connection with the Exchange Offer under the Illinois
Business Corporation Act (the "IBCA"), the governing
law of the state of incorporation of the Company.
Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued to
third parties, the Company believes that the New
Securities issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by
holders thereof (other than any holder who is an
"affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of
the Securities Act; provided, however, that such New
Securities are acquired in the ordinary course of the
holder's business and such holders are not engaged in,
and do not intend to engage in, a distribution of such
New Securities and have no arrangement with any person
to participate in a distribution of such New
Securities. The staff of the Commission has not
considered the Exchange Offer in the context of a no-
action letter and there can be no assurance that the
staff of the Commission would make a similar
determination with respect to the Exchange Offer. Each
broker-dealer that receives New Securities for its own
account in exchange for Old Securities, where such Old
Securities were acquired by such broker-dealer as a
result of market-making activities or other
9
<PAGE>
trading activities, must acknowledge that it
will deliver a prospectus in connection with
any resale of such New Securities. See "Plan
of Distribution." To comply with the
securities laws of certain jurisdictions, it
may be necessary to qualify for sale or
register the New Notes or New Exchangeable
Preferred Stock prior to offering or selling
such New Notes or New Exchangeable Preferred
Stock. The Company has agreed, pursuant to the
Registration Agreement and subject to certain
specified limitations therein, to register or
qualify the New Notes and New Exchangeable
Preferred Stock for offer or sale under the
securities or "blue sky" laws of such
jurisdictions as may be necessary to permit
the holders of New Securities to trade such
New Securities without any restrictions or
limitations under the securities laws of the
several states of the United States. If a
holder of Old Securities does not exchange
such Old Securities for New Securities
pursuant to the Exchange Offer, such Old
Securities will continue to be subject to the
restrictions on transfer contained in the
legend thereon. In general, the Old Securities
may not be offered or sold, unless registered
under the Securities Act, except pursuant to
an exemption from, or in a transaction not
subject to, the Securities Act and applicable
state securities laws. See "Risk Factors--
Consequences of Failure to Exchange."
Expiration Date 5:00 p.m. Eastern Standard Time, on April
[__], 1998 (30 days following the commencement
of the Exchange Offer), unless the Exchange
Offer is extended, in which case the term
"Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Conditions to the Exchange Offer The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange Offer--
Conditions." Except for the requirements of
applicable Federal and state securities laws,
there are no Federal or state regulatory
requirements to be complied with or obtained
by the Company in connection with the Exchange
Offer. NO VOTE OF THE COMPANY'S SECURITY
HOLDERS IS REQUIRED TO EFFECT THE EXCHANGE
OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS
BEING SOUGHT HEREBY.
Procedures for Tendering
Old Notes Each holder of Old Notes wishing to accept the
Notes Exchange Offer must complete, sign and
date the appropriate Letter of Transmittal
(the "Notes Letter of Transmittal"), or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Notes Letter of
Transmittal, or such facsimile together with
the Old Notes to be exchanged and any other
required documentation to the Notes Exchange
Agent (as defined) at the address set forth
herein and therein. See "The Exchange Offer--
Procedures for Tendering."
Procedures for Tendering Old
Exchangeable Preferred Stock Each holder of Old Exchangeable Preferred
Stock wishing to accept the Preferred Stock
Exchange Offer must complete, sign and date
the
10
<PAGE>
appropriate Letter of Transmittal (the
"Preferred Stock Letter of Transmittal"), or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Preferred Stock
Letter of Transmittal, or such facsimile
together with the Old Exchangeable Preferred
Stock to be exchanged and any other required
documentation to the Preferred Stock Exchange
Agent (as defined) at the address set forth
herein and therein. See "The Exchange Offer--
Procedures for Tendering."
Withdrawal Rights Tenders of Old Securities may be withdrawn at
any time prior to 5:00 p.m., Eastern Standard
Time, on the Expiration Date. To withdraw a
tender of Old Securities, a written or
facsimile transmission notice of withdrawal
must be received by the Exchange Agent (as
defined) at its address set forth below under
"Exchange Agent" prior to 5:00 p.m., Eastern
Standard Time, on the Expiration Date.
Acceptance of Old Securities and
Delivery of New Securities Subject to certain conditions, the Company
will accept for exchange any and all Old
Securities which are properly tendered in the
Exchange Offer prior to 5:00 p.m., on the
Expiration Date. The New Securities issued
pursuant to the Exchange Offer will be
delivered promptly following the Expiration
Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Exchange Agents State Street Bank and Trust Company is serving
as exchange agent (the "Notes Exchange Agent")
in connection with the Notes Exchange Offer.
Boston EquiServe Trust Company, N.A. is
serving as exchange agent (the "Preferred
Stock Exchange Agent") in connection with the
Preferred Stock Exchange Offer. Each of the
Notes Exchange Agent and the Preferred Stock
Exchange Agent are also referred to herein as
the "Exchange Agent."
Use of Proceeds There will be no proceeds to the Company from
the Exchange Offer. The net proceeds to the
Company from the Private Placement were
approximately $240.3 million (after deduction
of discounts and estimated offering expenses).
The Company will continue using such proceeds
for capital expenditures associated with the
continued expansion of the DRS Network in
Chicago's Area 1 and for additional working
capital and other general corporate purposes,
including funding operating deficits.
11
<PAGE>
SUMMARY OF TERMS OF NEW NOTES AND
NEW EXCHANGEABLE PREFERRED STOCK
The Exchange Offer relates to the exchange of Old Notes for an equal
principal amount at maturity of New Notes and Old Exchangeable Preferred Stock
for an equal number of shares of New Exchangeable Preferred Stock. The New
Notes will be obligations of the Company evidencing the same indebtedness as the
Old Notes and will be entitled to the benefits of the same Indenture (as
defined), which governs both the Old Notes and the New Notes. The form and
terms of the New Notes and the New Exchangeable Preferred Stock are
substantially identical to the form and terms of the Old Notes and the Old
Exchangeable Preferred Stock, respectively, except that the offer of the New
Securities will have been registered under the Securities Act and, therefore,
the New Securities will not bear legends restricting the transfer thereof.
COMPARISON WITH OLD NOTES AND OLD EXCHANGEABLE PREFERRED STOCK
Freely Transferable Generally, the New Securities will be freely
transferable under the Securities Act by
holders who are not affiliates of the Company.
The New Notes and New Exchangeable Preferred
Stock otherwise will be substantially
identical in all material respects to the Old
Notes and Old Exchangeable Preferred Stock,
respectively. See "The Exchange Offer--Terms
of the Exchange Offer."
Registration Rights The holders of Old Securities currently are
entitled to certain registration rights
pursuant to a registration rights agreement
(the "Registration Rights Agreement") dated as
of February 2, 1998, between the Company and
the Initial Purchasers. However, upon
consummation of the Exchange Offer, subject to
certain exceptions, holders of Old Securities
who do not exchange their Old Securities for
New Securities in the Exchange Offer will no
longer be entitled to registration rights and
will not be able to offer or sell their Old
Securities, unless such Old Securities are
subsequently registered under the Securities
Act (which, subject to certain limited
exceptions, the Company will have no
obligation to do), except pursuant to an
exemption from, or in a transaction not
subject to, the Securities Act and applicable
state securities laws. See "Risk Factors--
Consequences of Failure to Exchange."
THE NEW NOTES
TERMS OF THE NEW NOTES
Maturity February 15, 2008.
Yield and Interest The issue price per New Note represents a
yield to maturity on the New Notes of 12 1/4%
(computed on a semi-annual bond equivalent
basis) calculated from the Issue Date. Except
as described herein, no cash interest will
accrue or be payable on the New Notes prior to
February 15, 2003. Thereafter, cash interest
will accrue at a rate of 12 1/4% per annum,
and cash interest will be payable on February
15 and August 15 of each year, commencing
August 15, 2003.
12
<PAGE>
Original Issue Discount For U.S. Federal income tax purposes, the New
Notes will be issued with OID. Each holder of
a New Note must include such OID in gross
income for U.S. Federal income tax purposes in
advance of the receipt of the cash payments to
which such income is attributable. See
"Certain United States Federal Income Tax
Consequences."
Optional Redemption The New Notes will not be redeemable at the
option of the Company prior to February 15,
2003, except that until February 15, 2001, the
Company may redeem, at its option, in the
aggregate up to 35% of the principal amount at
maturity of the Notes at the redemption price
set forth herein with the net proceeds of one
or more Equity Offerings following which there
is a Public Market if at least $236.0 million
principal amount at maturity of the Notes
remains outstanding after any such redemption.
On or after February 15, 2003, the New Notes
may be redeemed at the option of the Company,
in whole or in part, at the redemption prices
set forth herein, together with accrued and
unpaid interest, if any, to the date of
redemption. See "Description of the New
Notes--Optional Redemption."
Change of Control Upon a Change of Control, each holder of New
Notes may require the Company to purchase all
or any portion of such holder's New Notes at a
purchase price equal to 101% of the Accreted
Value thereof plus accrued and unpaid
interest, if any, to the date of purchase.
There can be no assurance that the Company
will be able to raise sufficient funds to meet
this purchase obligation should it arise. See
"Description of the New Notes--Change of
Control."
Ranking The New Notes will be unsecured senior
obligations of the Company and will rank pari
passu in right of payment with all
unsubordinated, unsecured indebtedness of the
Company and will be senior in right of payment
to all subordinated indebtedness of the
Company. As of December 31, 1997, after giving
effect to the Private Placement and the
application of the proceeds therefrom, the
Company would have had outstanding $200.2
million of unsubordinated indebtedness and no
subordinated indebtedness. The Notes will be
effectively subordinated to all current and
future indebtedness of the Company's
subsidiaries, including trade payables and
other accrued liabilities.
Restrictive Covenants The Indenture (as defined) contains certain
covenants that, among other things, limit (i)
the incurrence of additional Indebtedness by
the Company and its Restricted Subsidiaries
(as defined), (ii) the payment of dividends
and other distributions by the Company and its
Restricted Subsidiaries in respect of their
capital stock, (iii) investments or other
restricted payments by the Company and its
Restricted Subsidiaries, (iv) asset sales, (v)
certain transactions with affiliates, (vi) the
sale or issuance of capital stock of
Restricted Subsidiaries, (vii) the incurrence
of liens and the entering into of
sale/leaseback transactions and (viii) mergers
and consolidations. The Indenture also
prohibits certain restrictions on
distributions from Restricted Subsidiaries.
All of these limitations and prohibitions,
however, are subject to a number of important
qualifications and exceptions. See
"Description of the New Notes--Certain
Covenants."
13
<PAGE>
Use of Proceeds There will be no proceeds to the Company from
the Exchange Offer. The net proceeds to the
Company from the Private Placement were
approximately $240.3 million (after deduction
of discounts and estimated offering expenses).
The Company will continue using such proceeds
for capital expenditures associated with the
continued expansion of the DRS Network in
Chicago's Area 1 and for additional working
capital and other general corporate purposes,
including funding operating deficits.
THE NEW EXCHANGEABLE PREFERRED STOCK
TERMS OF THE NEW EXCHANGEABLE PREFERRED STOCK
Liquidation Preference $1,000 per share.
Dividends Dividends on the New Exchangeable Preferred
Stock will accrue at a rate of 13 3/4% per
annum of the liquidation preference thereof
and will be payable quarterly in arrears on
February 15, May 15, August 15 and November 15
of each year commencing May 15, 1998.
Dividends will be payable in cash, except that
on each dividend payment date occurring on or
prior to February 15, 2003, dividends may be
paid, at the Company's option, by the issuance
of additional shares of New Exchangeable
Preferred Stock (including fractional shares)
having an aggregate liquidation preference
equal to the amount of such dividends. It is
not anticipated that the Company will pay any
dividends in cash for any period ending on or
prior to February 15, 2003.
Ranking The New Exchangeable Preferred Stock will rank
senior to all other classes of equity
securities of the Company outstanding upon
consummation of the Exchange Offer, including
but not limited to the 1,554,871 shares of 8%
cumulative preferred stock issued pursuant to
the January 1997 Stock Purchase Agreement. The
Company may not authorize any new class of
Parity Stock or Senior Stock without the
approval of at least a majority of the shares
of Exchangeable Preferred Stock then
outstanding, voting or consenting, as the case
may be, as one class. See "Description of the
New Exchangeable Preferred
Stock--Ranking."
Optional Redemption The New Exchangeable Preferred Stock will not
be redeemable prior to February 15, 2003,
except that, on or prior to February 15, 2001,
the Company may redeem in whole but not in
part, at its option, the outstanding New
Exchangeable Preferred Stock at a redemption
price of 113 3/4% of the liquidation
preference thereof, plus accumulated and
unpaid dividends to the date of redemption,
with the net proceeds of an Equity Offering.
On or after February 15, 2003, the New
Exchangeable Preferred Stock is redeemable at
the option of the Company, in whole or in
part, at the redemption prices set forth
herein plus accumulated and unpaid dividends,
if any, to the date of redemption. See
"Description of the New Exchangeable Preferred
Stock--Optional Redemption."
14
<PAGE>
Mandatory Redemption The New Exchangeable Preferred Stock is
subject to mandatory redemption at its
liquidation preference, plus accumulated and
unpaid dividends, if any, on February 15,
2010, out of any funds legally available
therefor.
Change of Control In the event of a Change of Control (as
defined), the Company shall offer to purchase
all outstanding shares of New Exchangeable
Preferred Stock, in whole or in part, at a
purchase price equal to 101% of the aggregate
liquidation preference thereof, plus
accumulated and unpaid dividends, if any, to
the date of purchase.
In the event the Company is not permitted by
applicable law or by the terms of any
indebtedness of the Company to make the offer
referred to above or to purchase any shares of
New Exchangeable Preferred Stock pursuant to
such offer, holders of a majority of the
Exchangeable Preferred Stock will designate an
Independent Financial Advisor (as defined) to
determine the appropriate dividend rate (the
"reset rate") that the New Exchangeable
Preferred Stock should bear so that, after the
dividend rate on the New Exchangeable
Preferred Stock is reset to such reset rate,
the New Exchangeable Preferred Stock would
have a market value of 101% of the liquidation
preference. After determination of the reset
rate, the New Exchangeable Preferred Stock
shall accrue and accumulate dividends at the
reset rate from and after the date of
occurrence of the Change of Control; provided,
however, that the reset rate shall in no event
be less than 13 3/4% per annum (the initial
dividend rate on the New Exchangeable
Preferred Stock) or greater than 15% per
annum. See "Description of the New
Exchangeable Preferred Stock--Change of
Control."
Voting Rights Holders of the New Exchangeable Preferred
Stock will have limited voting rights,
including (i) those required by law and (ii)
that holders of the outstanding shares of New
Exchangeable Preferred Stock, voting together
as a class with the holders of any other
series of preferred stock upon which like
rights have been conferred and are
exercisable, upon the failure of the Company
(1) to pay dividends for six or more dividend
periods (whether or not consecutive), (2) to
satisfy any mandatory redemption obligation
with respect to the New Exchangeable Preferred
Stock, (3) to comply with the covenants set
forth in the Amended Articles (as defined) or
(4) to make certain payments on certain
Indebtedness, will be entitled to elect the
lesser of (x) two members to the Board of
Directors of the Company and (y) that number
of directors constituting 25% of the members
of the Board of Directors of the Company. See
"Description of the New Exchangeable Preferred
Stock--Voting Rights."
Restrictive Covenants The Amended Articles (as defined herein) limit
(i) the incurrence of additional Indebtedness
by the Company and its Restricted
Subsidiaries, (ii) the payment of dividends
and other distributions by the Company and its
Restricted Subsidiaries in respect of their
capital stock, (iii) investments or other
restricted payments by the Company and its
Restricted Subsidiaries, (iv) asset sales, (v)
certain transactions with affiliates, (vi) the
sale or issuance of capital stock of
Restricted
15
<PAGE>
Subsidiaries and (vii) mergers and
consolidations. The Amended Articles will also
prohibit certain restrictions on distributions
from Restricted Subsidiaries. All these
limitations and prohibitions, however, are
subject to a number of important
qualifications. See "Description of the New
Exchangeable Preferred Stock--Certain
Covenants."
Senior Debt Restrictions The Company's debt instruments, including the
Indenture for the Notes, contain provisions
which restrict, and if a default under any
thereof exists prohibit, redemption or
repurchase of the New Exchangeable Preferred
Stock, including upon a Change of Control or
through the issue of Exchange Debentures, and
the payment of cash dividends on the New
Exchangeable Preferred Stock. See "Risk
Factors" and "Description of the New Notes--
Certain Covenants."
Exchange Feature On any scheduled dividend payment date, the
Company may, at its option, exchange all but
not less than all the shares of Exchangeable
Preferred Stock then outstanding for Exchange
Debentures in a principal amount equal to the
liquidation preference of the shares of
Exchangeable Preferred Stock held by such
holder at the time of such exchange.
THE EXCHANGE DEBENTURES
Securities Offered 13 3/4% Subordinated Exchange Debentures Due
2010 issuable in exchange for the Exchangeable
Preferred Stock in an aggregate principal
amount equal to the sum of the liquidation
preference of the Exchangeable Preferred
Stock, plus accumulated and unpaid dividends
to the date of exchange.
Maturity February 15, 2010.
Interest The Exchange Debentures will bear interest at
the rate of 13 3/4% per annum, payable semi-
annually in arrears on February 15 and August
15, commencing with the first of such dates to
occur after the date of exchange (the
"Exchange Date"). On or prior to February 15,
2003, interest may, at the option of the
Company, be paid by issuing additional
Exchange Debentures with a principal amount
equal to such interest. After February 15,
2003, interest on the Exchange Debentures may
be paid only in cash.
Ranking The Exchange Debentures will be general
unsecured obligations of the Company,
subordinated in right of payment to all
existing and future Senior Indebtedness
(including the Notes) of the Company and to
all indebtedness and other liabilities
(including trade payables) of the Company's
subsidiaries. As of December 31, 1997 after
giving effect to the Private Placement and the
application of the proceeds therefrom, the
Company would have had $200.2 million of
outstanding indebtedness, all of which would
have been senior in right of payment to the
Exchange Debentures. See "Description of the
Exchange Debentures--Ranking."
16
<PAGE>
Optional Redemption The Exchange Debentures will not be redeemable
prior to February 15, 2003, except that, until
February 15, 2001, the Company may redeem in
whole but not in part, at its option, the
Exchange Debentures at a redemption price of
113 3/4% of the principal amount thereof,
plus accrued and unpaid interest to the date
of redemption, with the net proceeds of an
Equity Offering. On or after February 15,
2003, the Exchange Debentures are redeemable
at the option of the Company, in whole or in
part, at the redemption prices set forth
herein plus accrued and unpaid interest, if
any, to the date of redemption. See
"Description of the Exchange Debentures--
Optional Redemption."
Change of Control In the event of a Change of Control, holders
of the Exchange Debentures will have the right
to require the Company to purchase their
Exchange Debentures, in whole or in part, at a
price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase. See
"Description of the Exchange Debentures--
Change of Control."
Restrictive Covenants The indenture under which the Exchange
Debentures will be issued (the "Exchange
Indenture") limits (i) the incurrence of
additional Indebtedness by the Company and its
Restricted Subsidiaries, (ii) the payment of
dividends and other distributions by the
Company and its Restricted Subsidiaries in
respect of their capital stock, (iii)
investments or other restricted payments by
the Company and its Restricted Subsidiaries,
(iv) asset sales, (v) certain transactions
with affiliates, (vi) the sale or issuance of
capital stock of Restricted Subsidiaries and
(vi) mergers and consolidations. The Exchange
Indenture also prohibits certain restrictions
on distributions from Restricted Subsidiaries.
All these limitations and prohibitions,
however, are subject to a number of important
qualifications. See "Description of the
Exchange Debentures--Certain Covenants."
RISK FACTORS
See "Risk Factors" for certain factors that should be considered by holders of
Old Securities before tendering their Old Securities in the Exchange Offer.
17
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth summary financial and operating data for the
Company. The summary financial data as of and for the periods ended March 31,
1995, 1996 and 1997 have been derived from the audited financial statements of
the Company. The summary financial and operating data as of and for the nine
months ended December 31, 1996 and 1997 have been derived from the unaudited
financial statements of the Company and, in the opinion of the Company, include
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of such information. Operating results for the nine months ended
December 31, 1997 are not necessarily indicative of the results that may be
expected for the entire year. The summary financial and operating data set forth
below should be read in conjunction with "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
Year Ended March 31, ------------------------------
--------------------------------------- DECEMBER 31,
------------------------------
1995 1996 1997 1996 1997
----------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Subscriber revenues $ -- $ -- $ 27,480 $ -- $ 123,532
Operating expenses -- 9,617 200,911 190,817 413,979
Selling, general and administrative 624,963 694,122 7,276,439
expenses 2,337,534 1,572,936
Depreciation and amortization 38,923 108,182 170,108 114,734 643,427
---------- ----------- ------------ ----------- ------------
Operating loss (663,886) (811,921) (2,681,073) (1,878,487) (8,210,313)
Interest income -- -- 301,624 142,603 484,678
Interest expense (115,428) (214,688) (437,843) (376,828) (119,226)
---------- ----------- ------------ ----------- ------------
Net loss (779,314) (1,026,609) (2,817,292) (2,112,712) (7,844,861)
Preferred stock requirements -- -- (478,981) -- (2,287,928)
---------- ----------- ------------ ----------- ------------
Net loss attributable to common
shares $ (779,314) $(1,026,609) $ (3,296,273) $(2,112,712) $(10,132,789)
========== =========== ============ =========== ============
Net loss per common share $(.52) $(.64) $(1.66) $(1.11) $(4.26)
========== =========== ============ =========== ============
Weighted average common
shares 1,508,000 1,609,129 1,988,365 1,900,527 2,380,926
OTHER DATA:
Capital expenditures $ -- $ -- $ 246,863 $ 47,118 $ 15,007,751
Number of subscribers
(end of period) -- -- 1,734 -- 3,019
Deficiency in earnings to
cover combined fixed charges (3) $ 779,314 $ 1,026,609 $ 3,296,273 $ 2,112,712 $ 10,132,789
Deficiency in earnings to cover
interest charges (3) $ 779,314 $ 1,026,609 $ 2,817,292 $ 2,112,712 $ 7,844,861
Deficiency in earnings to cover
preferred stock requirements (3) N/A N/A $ 2,840,046 N/A $ 9,865,538
PRO FORMA (2):
Net loss $(29,640,225) $ 27,767,075)
Preferred stock requirements (8,586,459) (8,274,205)
----------- -----------
Net loss attributable to common
shares $(38,226,684) $(36,041,280)
=========== ===========
Net loss per common share (19.23) (15.14)
=========== ===========
Deficiency in earnings to cover
combined fixed charges (3) $ 38,226,684 $ 36,041,280
=========== ===========
Deficiency in earnings to cover
interest charges (3) $ 29,640,225 $ 27,767,075
Deficiency in earnings to cover
preferred stock requirements (3) $ 10,947,524 $ 15,851,815
=========== ===========
December 31, 1997
----------------------------
Actual AS ADJUSTED(1)
------------ ------------
<S> <C> <C>
Balance Sheet Data:
Total assets $23,835,488 $265,392,870
Total liabilities 15,874,148 207,874,148
Total Class A Convertible 8%
Cumulative Preferred Stock 19,974,325 --
Total Exchangeable Preferred
Stock Due 2010 -- 45,455,300
Total shareholders' equity (12,012,985) 12,063,422
</TABLE>
(1) Adjusted to give effect to the Private Placement and the application of the
net proceeds therefrom, certain revisions made to the Class A Convertible 8%
Cumulative Preferred Stock Agreement, the receipt of approximately $1.5
million of proceeds received from the issuance by the Company in January
1998 of 95.4 shares of Class A Convertible 8% Cumulative Preferred Stock and
reflects the repayment of $8.0 million outstanding under the Interim Credit
Facility.
(2) The year ended March 31, 1997 and nine months ended December 31, 1997, net
loss, preferred stock requirements, net loss attributable to common shares,
net loss per common share, ratio of earnings to combined fixed charges,
ratio of earnings to interest charges and ratio of earnings to preferred
stock requirements have been adjusted to reflect the impacts of the interest
expense, amortization of deferred debt costs, preferred stock dividends and
accretion associated with the Private Placement. The year ended March 31,
1997 and nine months ended December 31, 1997 reflect the first twelve and
nine months of interest expense, amortized debt costs, preferred stock
dividends, and accretion respectively.
(3) The Company has a deficiency of earnings necessary to cover its combined
fixed charges, interest payments and preferred dividend requirements,
historically and on a pro forma basis.
(4) The pro forma net income for the year ended March 31, 1997 includes twelve
months of pro forma interest expense totaling $27,260,776 which includes
$437,843 of historical interest expense as well as $25,276,002 of accretion
related to the original issue discount on the senior discount notes and
$1,546,931 of amortization of deferred issuance costs related to the senior
discount notes. The pro forma net income for the nine months ended December
31, 1997 includes nine months of pro forma interest expense totaling
$20,041,440 which includes $119,226 of historical interest expense as well
as $18,763,176 of accretion related to the original issue discount on the
senior discount notes and $1,159,038 of amortization of deferred issuance
costs related to the senior discount notes. The pro forma calculations
related to the senior discount notes were performed using the effective
interest method based on the following components: (1) the original carrying
value of the senior discount notes of $363,135,000 less the original issue
discount of $163,135,000 for a net carrying value of $200,000,000 and (2)
total issuance costs incurred in relation to the senior discount notes of
$7,886,824.
(5) The pro forma preferred stock requirements (dividends and accretion) for the
year ended March 31, 1997 totals $8,586,459 which includes $478,981 of
historical preferred stock requirements as well as twelve months of
preferred dividend requirements, $7,237,405, and twelve months of accretion,
$870,073, related to the senior exchangeable preferred stock. The pro forma
preferred stock requirements for the nine months ended December 31, 1997
totals $8,274,205 which includes $2,287,928 of historical preferred stock
requirements as well as nine months of preferred dividend requirements,
$5,335,255, and nine months of accretion, $651,022, related to the senior
exchangeable preferred stock. The pro forma calculations related to the
senior exchangeable preferred stock were performed using the effective
interest rate method based on the following components: (1) the redemption
value of the redeemable preferred stock of $50,000,000, (2) the portion of
the proceeds assigned to the related warrants of $2,605,500, (3) total
issuance costs incurred in relation to the senior exchangeable preferred
stock of $1,939,200, (4) quarterly compounding of preferred dividends, and
(5) dividend rate of 13 3/4%. This results in an initial carrying value of
$45,455,300 related to the senior exchangeable preferred stock.
18
<PAGE>
RISK FACTORS
Holders of Old Securities should carefully consider the following risk
factors, as well as other information set forth in this Prospectus, before
tendering the Old Securities in the Exchange Offer. The risk factors below
(other than "Consequences of Failure to Exchange") are generally applicable to
the Old Securities as well as the New Securities.
This Prospectus contains certain forward-looking statements regarding the
Company's operations, economic performance and financial condition, in
particular, statements made as to plans to develop and construct the DRS
Network, add and upgrade facilities and offer services, the Company's intention
to connect certain subscribers to the DRS Network, the development of the
Company's businesses, the markets for the Company's services and products, the
Company's anticipated capital expenditures, the Company's anticipated sources of
capital and effects of regulatory reform and competitive and technological
developments. Such forward-looking statements are subject to known and unknown
risks and uncertainties. Actual results could differ materially from those
currently anticipated due to a number of factors, including those identified in
this Section and elsewhere in this Prospectus. Such risks include, but are not
limited to, the Company's ability to successfully market its services to new
subscribers, access markets, finance network developments, and obtain rights-of-
way, building access rights and any required governmental authorizations,
franchises and permits, all in a timely manner, at a reasonable cost and on
satisfactory terms and conditions, as well as regulatory, legislative, judicial,
competitive and technological developments that could cause actual results to
vary materially from the future results indicated, expressed or implied, in such
forward-looking statements. Certain of these and other risk factors are more
completely described below.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Securities who do not exchange their Old Securities for New
Securities pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Securities as set forth in the legend
thereon as a consequence of the issuance of the Old Securities pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Old Securities may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Old Securities
under the Securities Act. Based on interpretations by the staff of the
Commission, as set forth in no-action letters to third parties, the Company
believes that the New Securities issued pursuant to the Exchange Offer in
exchange for Old Securities may be offered for resale, resold or otherwise
transferred by the holders thereof (other than any such holder that is an
"affiliate" of the issuer within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act provided that such New Securities are acquired in the
ordinary course of such holders' business and such holders are not engaged in,
and do not intend to engage in, a distribution of such New Securities and have
no arrangement or understanding with any person to participate in the
distribution of such New Securities. The staff of the Commission has not
considered the Exchange Offer in the context of a no-action letter and there can
be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer. Each broker-dealer that
receives New Securities for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Securities. The Letters of Transmittal state that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning or the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Old Securities where such Old Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of one year after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. Each broker-dealer that acquired Old
Securities directly from the Company, and not as a result of market-making or
trading activities, must, in the absence of an exemption, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with the secondary resale of the New Securities and cannot rely on
the position of the staff of the Commission enunciated in no-action letters
issued to third parties. See "Plan of Distribution." However, to comply with the
securities laws of certain jurisdictions, if applicable, the New Securities may
not be offered or sold unless they have been registered or
19
<PAGE>
with. To the extent that Old Securities are tendered and accepted in the
Exchange Offer, the trading market for the untendered and the tendered but
unaccepted Old Securities could be adversely affected. As indicated in the
Company's Summary Financial and Operating Data, footnote (3), the Company has a
deficiency of earnings necessary to cover its preferred dividend requirements,
historically and on a pro forma basis.
HISTORY OF LOSSES; EXPECTATION OF FUTURE LOSSES AND NEGATIVE CASH FLOWS FROM
OPERATIONS
The Company has had a cumulative net loss attributable to common shares of
$15,655,619 from its inception in 1992 through December 31, 1997, and incurred
net losses attributable to common shares of $3,296,273 and $10,132,789 for its
fiscal year ended March 31, 1997 and the nine months ended December 31, 1997,
respectively. At December 31, 1997, the Company had an accumulated deficit of
$15,655,619. Taking into consideration nine months and twelve months of interest
expense, amortized debt costs, preferred stock dividends and accretion related
to the Private Placement, the pro forma net loss attributable to common shares
for the nine months ended December 31, 1997 and year-ended March 31, 1997 are
$36,041,280 and $38,226,684, respectively. The implementation of the Company's
business plan to build out the DRS Network and commence construction of new
networks involves significant additional expenditures and substantially
increased depreciation and amortization expenses. Revenues currently are minimal
and may be slow in growing as services are new and may be subject to start-up
and other delays. Accordingly, the Company expects that it will incur net losses
and significant negative cash flow (after capital expenditures) during the next
several years as it continues to expand its operations. In addition to timely
and cost-effective construction efforts, the ability of the Company to achieve
profitability and positive cash flow will depend in large part on the successful
marketing of the voice, video and high-speed data services offered or to be
offered by the Company. There can be no assurance that the Company can
successfully compete in obtaining subscribers for its broadband services or that
the Company will generate sufficient revenues such that the Company's operations
will become profitable or generate positive cash flows in the future. If the
Company cannot achieve operating profitability or positive cash flows from
operating activities, it may not be able to meet its working capital or debt
service requirements, including its obligations under the New Notes, which would
cause an event of default under the Indenture and would substantially reduce or
eliminate the value of the New Exchangeable Preferred Stock. Moreover, if the
Company cannot achieve operating profitability or positive cash flows from
operating activities, it may not be able to meet its obligation to manditorily
redeem the New Exchangeable Preferred Stock in 2010. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SIGNIFICANT CAPITAL REQUIREMENTS
The Company's business requires substantial investment to finance capital
expenditures and related expenses to construct the DRS Network in Chicago, to
construct additional networks, to fund subscriber equipment, to purchase
equipment to initiate telephony services, to fund operating deficits as it
builds its subscriber base and to maintain the quality of its networks. The
Company estimates that its aggregate capital expenditure requirements related to
DRS Network construction will total approximately $270 million, of which between
approximately $90 million to $120 million is expected to be spent during
calendar year 1998. Actual costs and the timing thereof may vary significantly
from these estimates and will depend in part on the number of miles of the DRS
Network to be constructed in a particular period, other factors affecting
construction costs, the number of subscribers, the mix of services purchased,
the cost of subscriber equipment paid for or financed by the Company and other
factors. The Company has entered into a commitment letter with BankBoston, N.A.
and Bank of America NT&SA for a $50 million bank revolving credit facility to
provide supplemental financing. There are currently no amounts outstanding under
this facility. Although the Company's management believes that the proceeds from
the Private Placement, together with operating cash flow, will provide
sufficient funds to complete the DRS Network, the Company may need additional
financing to complete the DRS Network, to expand into additional cities, for new
business activities or in the event it decides to make acquisitions. Sources of
additional capital may include public and private equity and debt financing, and
the $50 million bank revolving credit facility referred to above. There can be
no assurance that the proposed bank financing or other financing will be
available to the Company on acceptable terms or at all. If the Company is not
successful in obtaining sufficient funds it may be required to defer or abandon
its expansion plans, which could limit the Company's growth and prospects, and
reduce some of the economies of scale the Company expects to obtain, including
with respect to purchases of equipment programming and advertising, which could
have an adverse effect on the Company's results of operations and financial
condition. Moreover, if the Company cannot achieve operating profitability or
positive cash flows from operating activities, it may not be able to meet its
obligation to manditorily redeem the New Exchangeable Preferred Stock in 2010.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
HIGH LEVERAGE; ABILITY TO SERVICE DEBT; RESTRICTIVE COVENANTS
20
<PAGE>
At December 31, 1997, on a pro forma basis, after giving effect to the Private
Placement and the application of the net proceeds therefrom, the Company would
have had $200.2 million of indebtedness, $45.5 million of Exchangeable Preferred
Stock and $12.1 million of shareholders' equity. The Indenture and the Amended
Articles limit, but do not prohibit, the incurrence of additional indebtedness
by the Company and its subsidiaries, and the Company may incur substantial
additional indebtedness to finance the construction of the DRS Network and
purchase related equipment. All additional indebtedness of the Company will rank
senior in right of payment to any payment obligations with respect to the New
Exchangeable Preferred Stock and the Exchange Debentures (to the extent that
such additional indebtedness represents Senior Indebtedness) and may be secured
debt, pari passu with or structurally senior to the New Notes. See "--Holding
Company Structure; Priority of Secured Debt." The debt service requirements of
any additional indebtedness would make it more difficult for the Company to meet
its payment obligations with respect to the New Notes, the New Exchangeable
Preferred Stock and the Exchange Debentures.
The level of the Company's indebtedness could adversely affect the Company in
a number of ways, including the following (i) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment (after ten
years) of the principal of and (after five years), of interest on the Notes and
will not be available for other purposes, (ii) the ability of the Company to
obtain any necessary financing in the future for working capital, capital
expenditures, debt service requirements or other purposes may be limited, (iii)
the Company's level of indebtedness could limit its flexibility in planning for,
or reacting to, changes in its business, (iv) the Company may be more highly
leveraged than some of its competitors, which may place it at a competitive
disadvantage and (v) the Company's degree of indebtedness may make it more
vulnerable to a downturn in its business or the economy generally.
There can be no assurance that the Company will be able to meet its debt
service obligations, including its obligations under the New Notes. As indicated
in the Company's Summary Financial and Operating Data, footnote (3), the Company
has a deficiency of earnings necessary to cover its preferred dividend
requirements, historically and on a pro forma basis. In order to meet its debt
service obligations, the Company must successfully implement its strategy,
including constructing the DRS Network in Chicago, increasing the number of
subscribers for video and high-speed data services, initiating and obtaining
subscribers for its voice services and generating significant and sustained
growth in the Company's cash flow. There can be no assurance that the Company
will successfully implement its strategy or that the Company will be able to
generate sufficient cash flow from operating activities to meet its debt service
obligations and its working capital requirements. In the event the
implementation of the Company's strategy is delayed or is unsuccessful or the
Company does not generate sufficient cash flow to meet its debt service
obligations and its working capital requirements, the Company may need to seek
additional financing. There can be no assurance that any such financing could be
obtained on terms that are acceptable to the Company, or at all. In the absence
of such financing, the Company could be forced to dispose of assets in order to
make up for any shortfall in the payments due on its indebtedness under
circumstances that might not be favorable to realizing the highest price for
such assets. There can be no assurance that the Company's assets could be sold
quickly enough or for sufficient amounts to enable the Company to meet its
obligations, including its obligations with respect to the Notes.
The Indenture and the Amended Articles impose, and future indebtedness may
impose, operating and financial restrictions on the Company and its
subsidiaries. These restrictions affect, and in certain cases significantly
limit or prohibit, among other things, the ability of the Company and its
subsidiaries to incur additional indebtedness, create liens upon assets, apply
the proceeds from the disposal of assets, make investments, make dividend
payments and other distributions on capital stock and redeem capital stock. The
limitations in the Indenture and the Amended Articles are subject to a number of
important qualifications and exceptions.
If the Company is unable to generate sufficient cash flow or otherwise obtain
funds necessary to make required payments from new financings or from asset
sales, or if the Company otherwise fails to comply with the various covenants in
its indebtedness, it would be in default under the terms thereof, which would
permit the holders of such indebtedness to accelerate the maturity of such
indebtedness and could cause defaults under other indebtedness of the Company.
Such defaults could delay or preclude payment of interest or principal on the
New Notes or the payment of dividends on the New Exchangeable Preferred Stock.
The ability of the Company to meet its obligations
21
<PAGE>
will be dependent upon the future performance of the Company, which will be
subject to prevailing economic conditions and to financial, business and other
factors. See "Description of Certain Indebtedness," "Description of the New
Notes--Certain Covenants" and "Description of the New Exchangeable Preferred
Stock--Certain Covenants."
HOLDING COMPANY STRUCTURE; PRIORITY OF SECURED DEBT
The Company is (or shortly after the Exchange Offer will be) a holding company
with no direct operations and no significant assets other than the stock of its
subsidiaries. The Company currently has three wholly-owned subsidiaries: 21st
Century Cable TV of Illinois, Inc.; 21st Century Telecom of Illinois, Inc.; and
21st Century Telecom Group of Michigan, Inc. Moreover, 21st Century Telecom
Group of Michigan, Inc. has two wholly-owned subsidiaries: 21st Century Cable TV
of Grand Rapids, Inc. and 21st Century Telecom of Michigan, Inc. The Company is
(or will be) dependent on the cash flows of its subsidiaries to meet its
obligations, including the payment of the principal of and interest on the Notes
and the payment of dividends on the Exchangeable Preferred Stock. The Company's
subsidiaries are (or will be) separate legal entities that have no obligation to
pay any amounts due pursuant to the Notes or the Exchangeable Preferred Stock or
to make any funds available therefor, whether by dividends, loans or other
payments. The ability of the Company's subsidiaries to make such dividends and
other payments to the Company will be subject to, among other things, the
availability of funds, the terms of such subsidiaries' indebtedness and
applicable state laws. Because the Company's subsidiaries will not guarantee the
payment of the principal of or interest on the Notes or the payment of dividends
on the Exchangeable Preferred Stock, any right of the Company to receive the
assets of any of its subsidiaries upon its liquidation or reorganization (and
the consequent right of holders of the Notes or the Exchangeable Preferred Stock
to participate in the distribution or realize proceeds from those assets) will
be effectively subordinated to the claims of the creditors of any such
subsidiary (including trade creditors and holders of indebtedness of such
subsidiary), except if and to the extent that the Company is itself a creditor
of such subsidiary, in which case the claims of the Company would still be
effectively subordinated to any security interest in the assets of such
subsidiary held by other creditors.
The New Notes are unsecured and therefore will be effectively subordinated in
right of payment to any secured indebtedness of the Company. The Indenture
permits the Company and its subsidiaries to incur an unlimited amount of
indebtedness to finance the acquisition of equipment, inventory and network
assets and to secure such indebtedness. Up to $50 million of bank indebtedness
may be secured by liens on all assets of the Company and its subsidiaries. In
the event of a bankruptcy, liquidation, dissolution, reorganization or similar
proceeding with respect to the Company, the holders of any secured indebtedness
will be entitled to proceed against the collateral that secures such
indebtedness and such collateral will not be available for satisfaction of any
amounts owed under the Notes until such other creditors have been paid in full.
In addition, to the extent such assets did not satisfy in full the secured
indebtedness, the holders of such indebtedness would have a claim for any
shortfall that would be pari passu (or effectively senior if the indebtedness
were issued by a subsidiary) with the New Notes. Accordingly, there may only be
a limited amount of assets available to satisfy any claims of the holders of the
New Notes upon an acceleration of the New Notes. See "Description of the New
Notes--Ranking."
ABILITY TO PAY DIVIDENDS ON THE NEW EXCHANGEABLE PREFERRED STOCK
The ability of the Company to pay any dividends is subject to applicable
provisions of state law and its ability to pay cash dividends on the New
Exchangeable Preferred Stock after February 15, 2003, will be subject to the
terms of the Indenture and any other indebtedness of the Company then
outstanding. The Indenture contains certain covenants that, among other things,
limit the payment of dividends and other distributions by the Company and its
Restricted Subsidiaries in respect of their capital stock. There can be no
assurance that the Indenture or the terms of other indebtedness of the Company
will permit the Company to pay cash dividends on the New Exchangeable Preferred
Stock. Moreover, under Illinois law the Company is permitted to pay dividends on
its capital stock, including the New Exchangeable Preferred Stock, only out of
its surplus, or in the event that it has no surplus, out of its net profits for
the year in which a dividend is declared or for the immediately preceding fiscal
year. Surplus is defined as the excess of a company's total assets over the sum
of its total liabilities plus the par value of its outstanding capital stock. In
order to pay dividends in cash, the Company must have surplus or net profits
equal to the full amount of the cash
22
<PAGE>
dividends at the time such dividend is declared. The Company cannot predict what
the value of its assets or the amount of its liabilities will be in the future
and, accordingly, there can be no assurance that the Company will be able to pay
cash dividends on the New Exchangeable Preferred Stock.
RANKING OF THE NEW EXCHANGEABLE PREFERRED STOCK
The Company's obligations with respect to the New Exchangeable Preferred Stock
are subordinate and junior in right of payment to all present and future
indebtedness of the Company and its subsidiaries, including the New Notes, but
will rank senior to existing equity securities of the Company (other than the
Old Exchangeable Preferred Stock), including but not limited to the 1,554,871
shares of 8% cumulative preferred stock issued pursuant to the January 1997
Stock Purchase Agreement. In the event of bankruptcy, liquidation or
reorganization of the Company, the assets of the Company will be available to
pay obligations on the New Exchangeable Preferred Stock only after all holders
of indebtedness, and all other creditors, of the Company have been paid, and
there may not be sufficient assets remaining to pay amounts due on any or all of
the New Exchangeable Preferred Stock then outstanding. See "Description of the
New Exchangeable Preferred Stock--Ranking."
While any shares of New Exchangeable Preferred Stock are outstanding, the
Company may not authorize, create or increase the authorized amount of any class
or series of stock that ranks senior to or pari passu with the New Exchangeable
Preferred Stock with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up without the consent of the holders of a
majority of the outstanding shares of Exchangeable Preferred Stock. However,
without the consent of any holder of Exchangeable Preferred Stock, the Company
may create additional classes of stock, increase the authorized number of shares
of preferred stock or issue a new series of stock that ranks junior to the New
Exchangeable Preferred Stock with respect to the payment of dividends and
amounts upon liquidation, dissolution or winding up.
SUBORDINATION OF THE EXCHANGE DEBENTURES
The payment of principal, premium, if any, and interest on or any other
amounts owing in respect of, the Exchange Debentures, if issued, will be
subordinated to the prior payment in full of all existing and future Senior
Indebtedness, including indebtedness represented by the New Notes, and will be
effectively subordinated to all indebtedness and other liabilities (including
trade payables) of the Company's subsidiaries. The Indenture and the Exchange
Indenture permit the incurrence by the Company and its subsidiaries of
additional indebtedness, all of which may constitute Senior Indebtedness, under
certain circumstances. In addition, the Company may not pay principal of,
premium, if any, or interest on or any other amounts owing in respect of, the
Exchange Debentures, or purchase, redeem or otherwise retire the Exchange
Debentures, if (i) the obligations with respect to the Notes are not paid when
due or (ii) any other event of default has occurred under the Indenture, and is
continuing or would occur as a consequence of such payment. In the event of
bankruptcy, liquidation or reorganization of the Company, the assets of the
Company will be available to pay obligations on the Exchange Debentures only
after all Senior Indebtedness has been paid, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Exchange Debentures
then outstanding. See "Description of the Exchange Debentures--Ranking."
COMPETITION
The cable television, Internet and telephone service businesses are highly
competitive and the level of competition is increasing. The ability of the
Company to compete will depend in part on the technical advantages of its
systems, the quality and performance of the DRS Network, the Company's focus on
customer service, the pricing of its services and its ability to offer a bundle
of services not available from any other single vendor. There can be no
assurance that the Company will be able to compete successfully, that customers
will prefer bundled to single services or that competitive pressures will not
have a material adverse effect on the Company's business, operating results or
financial condition. See "Business--Competition." Also, there can be no
assurance that the market for
23
<PAGE>
cable, Internet or telephone services will not ultimately be dominated by
approaches other than approaches marketed by the Company. Many of the Company's
competitors and potential competitors have longer operating histories, greater
name recognition, a larger subscriber base and significantly greater financial,
marketing, technical and other competitive resources than the Company. As a
result, they may be able to adapt more quickly to changes in customer
requirements, or to devote greater resources to the promotion and sale of their
products than can the Company. There can be no assurance that the Company's
current or potential competitors will not develop products comparable or
superior to those developed by the Company, adapt more quickly than the Company
to new technologies, evolving industry trends or changing customer requirements
or be more successful than the Company in marketing their products. Competition
could increase if new companies enter the market, which could result in price
reductions and loss of market share and could have a material adverse effect on
the Company's financial condition or results of operations. Although the Company
believes it has certain technological and other advantages over its competitors,
such advantages require continued investment by the Company in research,
development, DRS Network implementation and sales and marketing, and the Company
may not realize upon or maintain such advantages.
Television. In providing cable television service, the Company currently
competes with other cable television providers in Chicago, including TCI
Communications, Inc., which conducts business under the trade name Chicago Cable
("Chicago Cable"), a subsidiary of Tele-Communications, Inc. ("TCI"), and
competes or may compete with other means of video distribution, including
broadcast television stations, direct broadcast satellite ("DBS") companies,
microwave multipoint distribution systems ("MMDS"), satellite master antenna
television ("SMATV") and private home dish earth stations. Additional
competition may also come from new wireless local multipoint distribution
services ("LMDS") authorized by the Federal Communications Commission (the
"FCC"). In addition, the Telecommunications Act of 1996 (the "1996 Telecom Act")
repealed the cable television cross ownership ban and telephone companies will
now be permitted to provide cable television service within their service areas.
The Company also faces competition from other communications and entertainment
media, including newspapers, movie theaters, live sporting events and entities
that make videotaped movies and programs available for home rental.
Internet Services. In providing Internet access and high-speed data services,
the Company will compete with other network providers of such services,
providers of satellite-based Internet services, long-distance carriers that
offer Internet services and other cable television companies that offer or may
in the future offer Internet services. Technologies such as integrated services
digital network ("ISDN"), digital subscriber line ("DSL") and DBS offer high-
speed or broadband connections to the Internet, which address the basic
requirements for most Internet consumers today. In providing Internet services,
the Company likely will compete with companies such as DirecPC, one of the
principal providers of satellite-based Internet services in the United States,
long-distance carriers such as AT&T Corp. ("AT&T") and MCI Communications
Corporation ("MCI") and cable modem services such as @Home, a joint venture
among TCI and other large cable companies, and such Internet services providers
("ISPs") as WorldCom, Inc. ("WorldCom") and Teleport Communications Group
("TCG"), which also compete with 21st Century in the telephone and cable
industries. The Company will also compete with Ameritech, which recently
announced that it is providing high-speed Internet access using asynchronous
digital subscriber line ("ADSL") technology and will be collaborating with
Microsoft Corporation to facilitate the installation of its ADSL service.
Ameritech has announced plans to provide high-speed Internet access initially in
Ann Arbor, Michigan, and expects to offer such access in the Chicago area by
mid-1998.
Telephone. Once the Company begins providing local and long-distance
telephone service and long-distance access services, the Company will compete
with Ameritech, presently the only facilities-based provider available to the
local residential market, as well as with WorldCom and TCG. The Company will
also compete with long-distance carriers such as AT&T, MCI and Sprint
Corporation ("Sprint"), both in long-distance service and potentially in local
service. In January 1998, AT&T entered into an agreement to acquire all of the
outstanding common stock of TCG. The Company's ability to compete successfully
in telephony will depend on the overall bundle of services the Company is able
to offer, including price, features and customer service.
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<PAGE>
ABILITY TO COMPLETE DRS NETWORK CONSTRUCTION
The timing of completion of the various phases of construction of the DRS
Network is subject to numerous uncertainties. See "--Franchise Compliance and
Renewal" and "Legislation and Regulation." Although the CTA, Commonwealth
Edison and Ameritech attachment agreements reduce the need for underground
construction, the Company still will be required to build significant portions
of the DRS Network underground, and also must complete connections through
wiring of multiple units in MDUs and other multi-unit buildings. Delays in
receiving the necessary financing, in performing the "make-ready" work to use
essential utility facilities (e.g., to attach the cable to utility poles), in
receiving necessary permits and approvals for underground and other
construction, and in conducting the construction itself (due to inclement
weather, labor problems and other causes) could adversely affect the Company's
schedule. In order to develop the DRS Network, the Company must obtain building
access agreements, certain permits and certain rights-of-way and fiber capacity
from entities such as telecommunications companies and other utilities,
railroads, highway authorities, local governments and transit authorities. There
can be no assurance that the Company will be able to maintain its existing
franchises, permits and rights or obtain the other permits, building access
agreements and rights needed to implement its business plan on acceptable terms
and in a timely manner. In constructing the DRS Network, the Company also will
be dependent on the performance of contractors and other third parties. There
can be no assurance that the Company will be able to secure a sufficient number
of contractors or other third parties to construct the DRS Network at an
acceptable price or at all or that such contractors or other third parties will
perform in accordance with the Company's expectations. Any delay in implementing
or constructing the DRS Network or installing necessary equipment will have an
adverse effect on the Company's results of operations and financial condition.
ABILITY TO MANAGE GROWTH
The Company's plan is to obtain subscribers quickly and to grow rapidly. To
date, the Company's operations have been limited, and rapid growth may place a
significant strain on the Company's DRS Network and management, administrative,
operational and financial resources. The Company's ability to manage its growth
successfully will require the Company to further enhance its operational,
management, financial and information systems and controls. The Company's
success will also depend in part upon its ability to hire and retain qualified
sales, marketing, administrative, operating and technical personnel. In
addition, as the Company increases its service offerings and expands its
targeted markets, there will be additional demands on the Company's customer
support, sales, marketing and administrative resources as well as on the DRS
Network infrastructure. While the Company's DRS Network is operational, it has
not been tested under circumstances consistent with the more significant volume
of activity anticipated upon buildout of the DRS Network and increase of the
Company's subscriber base. The Company's inability to effectively manage its
growth could have a significant adverse effect on the Company, its results of
operations and financial condition.
While the Company does not currently intend to pursue an acquisition strategy,
the Company may acquire existing companies or networks under certain
circumstances. If the Company acquires existing companies or networks, or enters
into joint ventures as part of its expansion plan, it will be subject to the
risks generally attendant to an acquisition strategy or joint venture. Such
risks include the acquired company or joint venture not having all the benefits
that are anticipated, the diversion of resources and management time, the
integration of the acquired business or joint venture with the Company's
operations, the potential impairment of relationships with employees or
customers as a result of the acquisition or joint venture, the additional debt
burden or dilution incurred to pay the purchase price or capital investment
requirements, and other matters. There are also additional risks in
participating in joint ventures, including the risk that the other joint venture
partners may at any time have economic, business or legal interests or goals
that are inconsistent with those of the joint venture or the Company or that a
joint venture partner may be unable to meet its economic or other obligations in
the joint venture and that the Company may be required to fulfill some or all of
those obligations.
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<PAGE>
SALES AND DISTRIBUTION STAFFING
As of March 31, 1998, the Company had 32 employees in sales and marketing,
many of whom have been employed by the Company for less than one year. In order
to increase its direct sales effort, the Company will need to increase the size
of its internal sales and marketing staff, and will be required to obtain
marketing personnel who have experience in all three components of its broadband
service. There can be no assurance that the Company will be able to identify and
attract sufficient numbers of qualified personnel or that the Company's sales
and marketing operations will successfully compete against the more extensive
and well-funded sales and marketing operations of many of the Company's current
and future competitors.
UNCERTAIN DEMAND FOR BROADBAND SERVICES
The Company's business strategy to provide broadband services is comparatively
untested and subject to certain risks such as future competition, pricing,
regulatory uncertainties and operating and technical difficulties. The demand
for such services, at the prices proposed to be charged by the Company, is
uncertain. In addition, some of the broadband services being considered by the
Company, including high-speed data transmission services for residential
subscribers, are not currently available to business or residential subscribers.
The Company's business could be adversely affected if demand for an integrated
bundle of broadband services (voice, video and high-speed data) is materially
lower than anticipated.
FRANCHISE COMPLIANCE AND RENEWAL
The Company's franchise for Chicago Area 1 contains many conditions, such as
time limitations on commencement and completion of system construction (four
years from the grant of the franchise), customer service standards, minimum
number of channel requirements (80 channels), the provision of free service to
schools and certain other public institutions and payment of a franchise fee
equal to 5% of the annual gross revenues of the Company's wholly owned
subsidiary that holds the franchise. While the Company believes that the
conditions in its Chicago Area 1 franchise are typical for the industry, to the
extent that the Company fails to meet these conditions, it may be subject to
certain monetary penalties or revocation of the franchise.
The Company's franchise for the Chicago system is non-exclusive and expires in
June 2011. The Communications Act of 1934, as amended, provides for a reasonable
expectation of franchise renewal, limits the ability of local franchise
authorities to fail to renew a franchise and specifies a procedure and period
within which local franchise authorities must act. Nonetheless, the Company's
franchise may be subject to non-renewal under certain circumstances. Failure of
the Company to obtain renewal of its franchise would have a material adverse
effect on the Company's business.
COMMENCEMENT OF TELEPHONY SERVICES
The Company does not yet offer telephony services but has completed a number
of steps toward that end, including regulatory approval as a local exchange
carrier from the Illinois Commerce Commission, completion of a direct
interconnection agreement with Ameritech, and completion of an agreement with
Nortel to provide the switching and other equipment necessary to offer telephony
services. The Company must, however, complete several additional steps before it
can begin offering telephony services, including installation of necessary
switching and other equipment and negotiating long-distance and other service
arrangements. The Company also is seeking additional management, technical and
sales personnel with particular expertise in the telephony business to assist in
implementing its telephony strategy. Although the company expects to begin
offering telephony services in mid-1998, there is no assurance that it will be
able to do so. Installing necessary equipment and completing the DRS Network,
negotiating or implementing long-distance and other service arrangements,
securing necessary personnel, delays in receiving additional regulatory
approvals, or any other delay in the telephony service offering, could adversely
affect the Company and its results of operations and financial condition.
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<PAGE>
DEPENDENCE ON INTEGRATED BILLING AND INFORMATION SYSTEMS AND CUSTOMER CARE
OPERATIONS
The Company outsources certain of its billing and customer service operations
and is therefore dependent on others to provide sophisticated information and
processing systems, monitor costs, bill subscribers, fill subscriber orders and
achieve operating efficiencies. As the Company increases its provision of
broadband services, its dependence on integrated billing and information
management systems will increase significantly. Integrated billing systems for
voice, video and data broadband services are in beta testing phase, but are not
currently available for commercial use. The inability of the Company to
adequately identify all of its information and processing needs or to obtain
upgraded billing and information systems as necessary, could have a material
adverse impact on the Company's ability to expand its business and on its
results of operations and financial condition. Further, the failure of third-
party providers to adequately provide billing and customer care services could
adversely affect the Company.
RAPID TECHNOLOGICAL CHANGES
The telecommunications industry is subject to rapid and significant changes in
technology and changes in subscriber requirements and preferences. The Company
may be required to select, in advance, one technology over another, but at a
time when it would be impossible to predict with any certainty which technology
will prove to be the most economic, efficient or capable of attracting
subscriber usage. There can be no assurance that subsequent technological
developments will not reduce the competitiveness of the Company's DRS Network
and require upgrades or additional equipment that could be expensive and time
consuming.
EQUIPMENT COST AND AVAILABILITY
The ability of the Company to compete effectively and to expand its customer
base will depend, in part, upon the cost and availability of the set-top box to
be used with its video and audio offerings. There can be no assurance that the
Company will be able to obtain such set-top boxes in a timely manner and in
sufficient quantities to enable it to buildout the DRS Network to additional
subscribers, or at a cost that enables it to price its video and audio offerings
competitively. If the Company cannot obtain such set-top boxes in a timely
manner, in sufficient quantities and at an appropriate cost, its business,
financial condition and results of operations may be adversely affected.
DEPENDENCE ON THE INFRASTRUCTURE AND COMMERCIAL VIABILITY OF THE INTERNET
The success of the Company's bundled service offering will depend in part upon
the development and commercial viability of an infrastructure for providing
Internet access and services. Because global commerce and online exchange of
information on the Internet and other similar open wide-area-networks are new
and evolving, it is difficult to predict with any assurance whether the Internet
will prove to be a viable commercial marketplace. The Internet has experienced,
and is expected to continue to experience, significant growth in the number of
users and amount of traffic. There can be no assurance that the Internet
infrastructure will continue to be able to support the demands placed on it by
this continued growth. In addition, the Internet could lose its viability due to
delays in the development or adoption of new standards and protocols to handle
increased levels of Internet activity or due to
27
<PAGE>
increased governmental regulation. If the necessary infrastructure or
complementary services or facilities are not developed, or if the Internet does
not become a viable commercial marketplace, the Company's results of operations
or financial condition could be materially adversely affected.
EVOLVING REGULATORY ENVIRONMENT
Although the 1996 Telecom Act, together with the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") and other recent
laws and regulations, eliminated most limitations on competition in the
broadband service business, the 1996 Telecom Act is complex and in many areas
sets forth policy objectives to be implemented by regulation. It is generally
expected that the 1996 Telecom Act will undergo considerable interpretation and
implementation through regulation and court decisions over the next several
years. There can be no assurance that such interpretation or implementing
regulations will be favorable to the Company. In certain areas, particularly
telephony, further regulation is expected to affect the Company's provision of
service. The Company's ability to compete successfully in the provision of
telephone service will depend in part on the timing of the implementation of
such regulations and whether they are favorable to the Company. It is also
important to the Company that the provisions limiting the ability of franchise
authorities to deny awarding or renewing franchises not change in a manner
adverse to the Company. See "Legislation and Regulation."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continuing
contributions of its key management, sales, marketing and product development
personnel. The Company's business is currently managed by a small number of key
management and operating personnel. The Company does not maintain "key man"
insurance on these or any other employees. The Company believes that its future
success will depend in large part upon its ability to attract and retain highly
skilled managerial, sales, marketing and product development personnel. The loss
of the services of key personnel, or the inability to attract, recruit and
retain sufficient or additional qualified personnel, could have a material
adverse effect on the Company. See "Management."
DEPENDENCE ON LOCAL/REGIONAL ECONOMY
Because the Company's initial market is limited to Chicago's Area 1, it is
dependent on the vitality of the local and regional economy. As such, a
significant regional or local economic downturn could materially affect the
Company's financial condition and results from operations.
ABSENCE OF PRIOR MARKET FOR SECURITIES
The Securities are new securities for which there is currently no market.
Although the Initial Purchasers have informed the Company that they intend to
make a market in the Securities and, if issued, the Exchange Debentures, they
are not obligated to do so, and any such market-making may be discontinued at
any time without notice. Although the Securities and, if issued, the Exchange
Debentures, are expected to be tradable in the PORTAL market, the Company does
not intend to apply for listing of the Securities or, if issued, the Exchange
Debentures, on any securities exchange or for quotation through The Nasdaq Stock
Market, Inc. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Securities or, if issued, the Exchange
Debentures. If a market for the Securities or, if issued, the Exchange
Debentures, were to develop, the Securities or, if issued, the Exchange
Debentures, may trade at prices that may be higher or lower than their initial
offering prices depending upon many factors, including prevailing interest
rates, the Company's operating results and the markets for similar securities.
Historically, the markets for securities such as the Securities and the Exchange
Debentures have been subject to disruptions that have caused substantial
volatility in the prices of securities similar to the Securities. There can be
no assurance that, if a market for the Securities or, if issued, the Exchange
Debentures, were to develop, such a market would not be subject to similar
disruptions. Such disruptions may materially and adversely affect such liquidity
and trading independent of the financial performance of, and prospects for, the
Company.
CONSEQUENCES OF ORIGINAL ISSUE DISCOUNT ON NOTES
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<PAGE>
The New Notes will be issued at a substantial discount from their principal
amount. Consequently, purchasers of the New Notes generally will be required to
include amounts in gross income for Federal tax purposes in advance of receipt
of the cash payments to which the income is attributable, and no cash payments
of interest will be made until after February 15, 2003.
Moreover, the New Notes will constitute "applicable high yield discount
obligations" ("AHYDOs") because the yield to maturity of the New Notes
exceeds the relevant applicable Federal rate (the "AFR") at the time of issue
by more than 5 percentage points. For February 1998, the annual long-term AFR is
5.93% and the annual mid-term AFR is 5.69% (based on semi-annual compounding).
The appropriate AFR depends upon the weighted average maturity of the New Notes.
Because the New Notes constitute AHYDOs, the Company will not be entitled to
deduct OID accruing with respect thereto until such amounts are actually paid.
See "Certain United States Federal Income Tax Consequences" for a more
detailed discussion of the Federal income tax consequences to holders of New
Notes.
If a bankruptcy proceeding is commenced by or against the Company under the
United States Bankruptcy Code after the issuance of the New Notes, the claim of
a holder of New Notes may be limited to an amount equal to the sum of (i) the
initial offering price for the Notes and (ii) that portion of the original issue
discount that is not deemed to constitute "unmatured interest" for purposes of
the United States Bankruptcy Code. Any original issue discount that was not
amortized as of the commencement of any such bankruptcy proceeding would
constitute "unmatured interest."
LIMITATION ON CHANGE OF CONTROL
Unless the Company has consummated a Qualified Public Offering (as defined
below under "Description of Capital Stock"), beginning on the fourth
anniversary of the Issue Date and terminating on the earlier to occur of three
years thereafter and the consummation of a Qualified Public Offering by the
Company, holders of the Company's Class A Convertible 8% Cumulative Preferred
Stock will have the right to require the sale of the Company subject to certain
conditions. A Change of Control may occur in such a transaction. In addition, a
Change of Control may result from other transactions which could occur at any
time. Under the Indenture (in the case of the New Notes), the Amended Articles
(in the case of the New Exchangeable Preferred Stock) and the Exchange Indenture
(in the case of the Exchange Debentures), in the event of a Change of Control,
(i) each holder of New Notes may require the Company to purchase all or any
portion of such holder's New Notes at a purchase price equal to 101% of the
Accreted Value thereof plus accrued and unpaid interest, if any to the date of
purchase, (ii) the Company is required to offer to purchase all outstanding
shares of New Exchangeable Preferred Stock, in whole or in part, at a purchase
price equal to 101% of the aggregate liquidation preference thereof, plus
accumulated and unpaid dividends, if any to the date of purchase and (iii) each
holder of Exchange Debentures may require the Company to purchase such holder's
Exchange Debentures, in whole or in part, at a purchase price equal to 101% of
the aggregate principal amount thereof, plus accrued and unpaid interest, if any
to the date of purchase. The Company is not required to provide any credit
support or otherwise set aside funds for any obligation to purchase the New
Notes, the New Exchangeable Preferred Stock or the Exchange Debentures in the
event of a Change of Control. Accordingly, there can be no assurance that the
Company will have sufficient funds to satisfy any such repurchase obligations.
See "Description of the New Notes--Change of Control," "Description of the
New Exchangeable Preferred Stock--Change of Control," "Description of the
Exchange Debentures--Change of Control," "Description of Capital Stock--Right
to Require Sale" and "Description of the Warrants--Take Along Rights."
CONTROL BY HOLDERS OF CLASS A CONVERTIBLE 8% CUMULATIVE PREFERRED STOCK
Although no single shareholder has control over the corporate decisions of the
Company, the holders of the Class A Convertible 8% Cumulative Preferred Stock
are collectively in a position to control the taking of many
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<PAGE>
significant corporate actions by the Company, including the making of any
significant capital commitments, the incurrence of any significant indebtedness,
mergers and the payment of dividends on the Common Stock, pursuant to agreements
which provide that prior to taking such actions, the Company will need to obtain
the approval of the nominees to the Board of Directors of the holders of the
Class A Convertible 8% Cumulative Preferred Stock. These restrictions terminate
upon the consummation of a Qualified Public Offering. In addition, in the event
that a Qualified Public Offering is not completed before the fourth anniversary
of the Issue Date, the holders of the Class A Convertible 8% Cumulative
Preferred Stock have the right to require the sale of the Company, subject to
certain conditions. See "Description of Capital Stock."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital stock
and does not anticipate paying cash dividends on its capital stock in the
foreseeable future. It is the current policy of the Company's Board of Directors
to retain earnings to finance the expansion of the Company's operations. Future
declaration and payment of dividends, if any, will be determined in light of the
then-current conditions, including the Company's earnings, operations, capital
requirements, financial condition and other factors deemed relevant by the Board
of Directors. In addition, the Company's ability to pay dividends is limited by
the terms of the Indenture, the Amended Articles and the terms of the Company's
existing preferred stock. See "Description of the New Notes," "Description of
the New Exchangeable Preferred Stock" and "Description of Capital Stock."
USE OF PROCEEDS
There will be no proceeds to the Company from the Exchange Offer. The net
proceeds to the Company from the Private Placement were approximately $240.3
million (after deduction of discounts and estimated offering expenses). The
Company will continue using such proceeds for capital expenditures associated
with the continued expansion of the DRS Network in Chicago's Area 1 and for
additional working capital and other general corporate purposes, including
funding operating deficits.
The Company estimates that capital expenditures in calendar year 1998 for
continued construction of the DRS Network in Chicago Area 1, including the
installation of telephony equipment to commence voice services for certain
customers, will be approximately $90 million to $120 million. Actual costs, and
the timing thereof, may vary from this range and will depend in part on factors
affecting construction costs, the number of subscribers, the mix of services
purchased, the cost of subscriber equipment paid for or financed by the Company
and other factors.
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CAPITALIZATION
The following table sets forth the cash and capitalization of the Company as
of December 31, 1997 on a historical basis after reflecting an increase in
authorized common shares and a 1,000-for-1 common stock split and as adjusted to
reflect the Private Placement, the sale of Class A Convertible 8% Cumulative
Preferred Stock and the application of the net proceeds therefrom and the
impacts of certain revisions to the Class A Preferred Stock Purchase Agreement.
See ''Use of Proceeds'' and ''Selected Financial Data.''
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------
Historical AS ADJUSTED
------------------ -----------------
<S> <C> <C>
Cash and cash equivalents(1)(2)................................................ $ 1,404,975 $235,162,357
============ ============
Debt(1):
12/1//4% Senior Discount Notes Due 2008...................................... $ -- $200,000,000
Interim credit facility(1)................................................... 8,000,000 --
Debentures and related interest payable...................................... 227,185 227,185
------------ ------------
Total debt................................................................... 8,227,185 200,227,185
Redeemable preferred stock:
13/3//4% Senior Cumulative Exchangeable Preferred Stock Due 2010
$.01 par value, redemption value $50,000,000, 0 shares authorized,
issued and outstanding at September 30, 1997; 100,000 shares
authorized, 50,000 issued and outstanding, as adjusted..................... -- 45,455,300
Class A Convertible 8% Cumulative Preferred Stock, no par value, 500,000
shares authorized at December 31, 1997, 1,453.1 shares issued and
outstanding(7)............................................................. 19,974,325 --
Shareholders' equity:
Class A Convertible 8% Cumulative Preferred Stock, no par value, 500,000
shares authorized at December 31, 1997, 1,548.5 shares issued and
outstanding, as adjusted(2)(7)............................................. -- 20,865,388
Common Stock, no par value, 50,000,000 shares authorized, 2,388,743.5 shares
issued and outstanding at December 31, 1997, and 1,222,569.0 common
share warrants outstanding and 2,939,106.5 shares issued and outstanding,
1,302,868.7 common share warrants outstanding and Non-Voting Common Stock,
no par value, 1,000,000 shares authorized, 550,362.3 shares issued and
outstanding as adjusted(3)(4)(6)........................................... 7,023,934 7,640,253
Additional paid-in-capital(5)................................................ -- 2,594,700
Accumulated deficit and other................................................ (19,036,919) (19,036,919)
------------ ------------
Total shareholders' equity................................................... (12,012,985) 12,063,422
------------ ------------
Total capitalization........................................................... $ 16,188,525 $257,745,907
============ ============
</TABLE>
(1) The Company entered into the Interim Credit Facility in November 1997.
Borrowings outstanding under the Interim Credit Facility were $8.0 million
at December 31, 1997 and $9.0 million at January 31, 1998. The Company used
a portion of the proceeds from the Private Placement to repay borrowings
outstanding under the Interim Credit Facility, together with accrued and
unpaid interest, and to terminate such facility.
(2) The as adjusted number includes 95.4 shares of Class A Preferred Stock which
the Company issued to several common shareholders and others in January 1998
for an aggregate consideration of approximately $1.5 million.
(3) Excludes 728,667.7 shares of Common Stock issuable upon exercise of options
outstanding on December 31, 1997.
(4) The as adjusted number includes 28,330 shares of common stock and 28,330
shares of non-voting common stock which the Company issued in conjunction
with the January 1998 sale of Class A Preferred Stock.
(5) Of the $50 million gross proceeds from the issuance of the Units offered
hereby, $47.3 million has been allocated to the 13/3//4% Senior Cumulative
Exchangeable Preferred Stock Due 2010 and $2.7 million has been allocated to
additional paid-in-capital to reflect the issuance of 50,000 Warrants. Each
Warrant can be exercised to purchase 8.7774 shares of common stock at an
exercise price of $.01 per share for a total of 438,870 shares. No assurance
can be given that the value allocated to the Warrants will be indicative of
the price at which the Warrants may actually trade.
(6) The as adjusted number includes 522,032.3 shares of both voting and non-
voting common stock, for a total of 1,044,064.6 shares. These shares reflect
those that were issued to the Class A Convertible 8% Cumulative Preferred
Stock shareholders in conjunction with a revision to the related preferred
stock purchase agreement. This revision replaced the initial and debt
warrants with shares of voting and non-voting common stock.
(7) The as adjusted number reflects the classification of the Class A
Convertible 8% Cumulative Preferred Stock as equity at December 31, 1997.
This reclassification was performed to reflect a revision to the Class A
Convertible 8% Cumulative Preferred Stock Agreement that removed a put
arrangement and replaced it with the ability to compel to sale.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Company's Financial
Statements included elsewhere in this Prospectus.
GENERAL
21st Century was awarded a franchise in 1996 by the City of Chicago that
allows for the construction of the DRS Network in Chicago's Area 1. Under this
15-year renewable license, the Company is granted unrestricted access to the
public right-of-way to construct, operate and maintain its DRS Network to all
residential and commercial subscribers. From inception through the date of this
Prospectus, the Company's principal focus has been the development of its
communications business in Chicago's Area 1.
The Company has incurred net losses in each quarter since its inception, and
as of December 31, 1997, the Company had an accumulated deficit of $14,519,473
The Company anticipates that it will continue to incur net losses during the
next several years as it continues to expand its operations as a result of
substantially increased depreciation and amortization from the construction of
networks and operating expenses as it builds its subscriber base. There can be
no assurance that growth in the Company's revenues or subscriber base will occur
or that the Company will be able to achieve or sustain profitability or positive
cash flow. See ''Risk Factors--History of Losses; Expectation of Future Losses
and Negative Cash Flows from Operations.''
RESULTS OF OPERATIONS
Nine Months Ended December 31, 1997 Compared to Nine Months Ended December 31,
1996.
Revenues. The Company generated subscriber revenues of $123,532 for the nine
months ended December 31, 1997. No subscriber revenues were generated for the
nine months ended December 31, 1996. The commencement of subscriber revenues
resulted principally from the purchase of 1,734 bulk subscribers from an
affiliated entity during January 1997.
Expenses. The Company incurred operating expenses of $413,979 for the nine
months ended December 31, 1997 which represent primarily local access and
origination programming support as required by the franchise agreement and the
start up of basic programming fees. Operating expenses of $190,817 for the nine
months ended December 31, 1996 represent primarily local access and origination
programming support as required by the franchise agreement. General and
administrative expenses were $7,276,439 and $1,572,936 for the nine months ended
December 31, 1997 and December 31, 1996, respectively. Depreciation and
amortization costs were $643,427 and $114,734 for the nine months ended December
31, 1997 and December 31, 1996, respectively. The commencement of operating
expenses and the increase in general and administrative expenses as well as
depreciation and amortization reflects the Company's acquisition of subscribers,
the addition of employees and the expansion of the DRS Network, and $849,700 of
compensation expense related to stock options granted in October 1997. Interest
expense decreased from $376,828 to $119,226 due to the lower levels of
borrowings outstanding for the nine months ended December 31, 1997 caused by the
conversion of certain subordinated debentures into common stock and the
repayment in January 1997 of the June 21, 1996 loan and security agreement.
Interest Income. Interest income increased $342,075 for the nine months ended
December 31, 1997. The higher interest income is the result of primarily two
factors. The first factor is the higher overall cash balance created by the
infusion of cash associated with the preferred equity offering in January 1997.
This factor accounts for approximately $265,000 of the increase. The second
factor is the inclusion of nine months of accrued interest related to the
prepaid franchise fees in December 31, 1997 compared to approximately six months
included in December 31, 1996. This factor accounts for approximately $77,000 of
the increase.
Net Loss. For the nine months ended December 31, 1997 the Company incurred a
net loss of $7,844,861, and for the nine months ended December 31, 1996 the
Company incurred a net loss of $2,112,712. The Company expects its net losses to
continue to increase as it introduces new services and as the Company continues
to build-out the DRS Network and seeks to expand its business. See ''Risk
Factors--History of Losses; Expectation of Future Losses and Negative Cash Flows
from Operations.''
33
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data for the
Company. The selected financial data as of and for the periods ended March 31,
1995, 1996 and 1997 have been derived from the audited financial statements of
the Company. The selected financial and operating data as of and for the periods
ended March 31, 1993 and 1994, and the nine months ended December 31, 1996 and
1997 have been derived from the unaudited financial statements of the Company
and, in the opinion of the Company, include all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of such
information. Operating results for the nine months ended December 31, 1997 are
not necessarily indicative of the results that may be expected for the entire
year. The selected financial and operating data set forth below should be read
in conjunction with ''Use of Proceeds,'' ''Management's Discussion and Analysis
of Financial Condition and Results of Operations'' and the Financial Statements
included elsewhere in this Offering Circular.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
Period From YEAR ENDED MARCH 31, DECEMBER 31,
10/29/92- ----------------------------------------------------- ---------------------------
3/31/93 1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Subscriber revenues $ -- $ -- $ -- $ -- $ 27,480 $ -- $ 123,532
Operating expenses -- -- -- 9,617 200,911 190,817 413,979
Selling, general and
administrative expenses 117,604 253,205 624,963 694,122 2,337,534 1,572,936 7,276,439
Depreciation and
amortization -- 11,770 38,923 108,182 170,108 114,734 643,427
---------- ---------- ----------- ----------- ----------- ----------- -------------
Operating loss (117,604) (264,975) (663,886) (811,921) (2,681,073) (1,878,487) (8,210,313)
Interest income -- -- -- -- 301,624 142,603 484,678
Interest expense -- (38,055) (115,428) (214,688) (437,843) (376,828) (119,226)
---------- ---------- ----------- ----------- ----------- ----------- -------------
Net loss (117,604) (303,050) (779,314) (1,026,609) (2,817,292) (2,112,712) (7,844,861)
Preferred stock
requirements -- -- -- -- (478,981) -- (2,287,928)
---------- ---------- ----------- ----------- ----------- ----------- -------------
Net loss attributable to
common shares $ (117,604) $ (303,050) $ (779,314) $(1,026,609) $(3,296,273) $(2,112,712) $ (10,132,789)
========== ========== =========== =========== =========== =========== =============
Net loss per common share $(.08) $(.21) $(.52) $(.64) $(1.66) $(1.11) $(4.26)
========== ========== =========== =========== =========== =========== =============
Weighted average common
shares 1,443,497 1,470,288 1,508,000 1,609,129 1,988,365 1,900,527 2,380,926
PRO FORMA (1):
Net loss (3) (29,640,225) (27,767,025)
Preferred stock
requirements (4) (8,586,459) (8,274,205)
----------- -------------
Net loss attributable
to common shares (38,226,684) (36,041,280)
=========== =============
Net loss per common
share (19.23) (15.14)
=========== =============
Deficiency in earnings to cover
combined fixed charges (2) $38,226,684 $ 36,041,280
=========== =============
Deficiency in earnings to cover
interest charges (2) $29,640,225 $ 27,767,075
=========== =============
Deficiency in earnings to
cover preferred stock
requirements (2) $10,947,524 $ 15,851,815
=========== =============
Other Data:
Capital expenditures $ -- $ -- $ -- $ -- $ 246,863 $ 47,118 $ 15,007,751
Number of subscribers
(end of period) -- -- -- -- 1,734 -- 3,019
Deficiency in earnings to cover
combined fixed charges (2) $ 117,604 $ 303,030 $ 779,314 $1,026,609 $ 3,296,273 $ 2,112,712 $ 10,132,789
Deficiency in earnings to cover
interest charges (2) $ 117,604 $ 303,030 $ 779,314 $1,026,609 $ 2,817,292 $ 2,112,712 $ 7,844,861
Deficiency in earnings to
cover preferred stock
requirements (2) N/A N/A N/A N/A $ 2,840,046 N/A $ 9,865,538
BALANCE SHEET DATA
(END OF PERIOD):
Total assets $ 428,914 $ 847,659 $ 1,664,877 $15,553,488 $ 23,835,488
Total liabilities 726,450 1,910,781 3,409,433 1,718,862 15,874,148
Total redeemable preferred
stock -- -- -- 16,794,963 19,974,325 (1)
Total shareholders' equity (297,536) (1,063,122) (1,744,556) (2,960,337) (12,012,985)(1)
</TABLE>
- --------------
(1) The year ended March 31, 1997 and nine months ended December 31, 1997, net
loss, preferred stock requirements, net loss attributable to common shares,
net loss per common share, ratio of earnings to combined fixed charges,
ratio of earnings to interest charges and ratio of earnings to preferred
stock requirements have been adjusted to reflect the impacts of the interest
expense, amortization of deferred debt costs, preferred stock dividends and
accretion associated with the Private Placement. The year ended March 31,
1997 and nine months ended December 31, 1997 reflect the first twelve and
nine months of interest expense, amortized debt costs, preferred stock
dividends and accretion, respectively.
(2) The Company has a deficiency of earnings necessary to cover its combined
fixed charges, interest payments and preferred dividend requirements,
historically and on a pro forma basis. The deficiencies related to less
than one-to-one coverage of combined fixed charges, interest charges and
preferred stock requirements are as follows:
<TABLE>
<CAPTION>
Nine Months Ended PRO FORMA (2)
Year Ended March 31, December 31, ------------------------------------
------------------------------------ ------------------------- Year Ended Nine Months Ended
1995 1996 1997 1996 1997 March 31, 1997 December 31, 1997
-------- ---------- ---------- ---------- ----------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Combined fixed charges $779,314 $1,026,609 $3,296,273 $2,112,712 $10,132,789 $35,828,229 $34,235,425
Interest charges 779,314 1,026,609 2,817,292 2,112,712 7,844,861 28,093,294 26,608,037
Preferred stock
requirements N/A N/A 2,840,046 N/A 9,865,538 10,096,000 15,204,998
</TABLE>
(3) The pro forma net income for the year ended March 31, 1997 includes twelve
months of pro forma interest expense totaling $27,260,776 which includes
$437,843 of historical interest expense as well as $25,276,002 of accretion
related to the original issue discount on the senior discount notes and
$1,546,931 of amortization of deferred issuance costs related to the senior
discount notes. The pro forma net income for the nine months ended December
31, 1997 includes nine months of pro forma interest expense totaling
$20,041,440 which includes $119,226 of historical interest expense as well
as $18,763,176 of accretion related to the original issue discount on the
senior discount notes and $1,159,038 of amortization of deferred issuance
costs related to the senior discount notes. The pro forma calculations
related to the senior discount notes were performed using the effective
interest method based on the following components: (1) the original carrying
value of the senior discount notes of $363,135,000 less the original issue
discount of $163,135,000 for a net carrying value of $200,000,000 and (2)
total issuance costs incurred in relation to the senior discount notes of
$7,886,824.
(4) The pro forma preferred stock requirements (dividends and accretion) for the
year ended March 31, 1997 totals $8,586,459 which includes $478,981 of
historical preferred stock requirements as well as twelve months of
preferred dividend requirements, $7,237,405, and twelve months of accretion,
$870,073, related to the senior exchangeable preferred stock. The pro forma
preferred stock requirements for the nine months ended December 31, 1997
totals $8,274,205 which includes $2,287,928 of historical preferred stock
requirements as well as nine months of preferred dividend requirements,
$5,335,255, and nine months of accretion, $651,022, related to the senior
exchangeable preferred stock. The pro forma calculations related to the
senior exchangeable preferred stock were performed using the effective
interest rate method based on the following components: (1) the redemption
value of the redeemable preferred stock of $50,000,000, (2) the portion of
the proceeds assigned to the related warrants of $2,605,500, (3) total
issuance costs incurred in relation to the senior exchangeable preferred
stock of $1,939,200, (4) quarterly compounding of preferred dividends, and
(5) dividend rate of 13 3/4%. This results in an initial carrying value of
$45,455,300 related to the senior exchangeable preferred stock.
32
<PAGE>
Year Ended March 31, 1997 Compared to the Year Ended March 31, 1996.
The Company's net loss of $2,817,292 in fiscal 1997 was an increase over the
net loss of $1,026,609 in 1996. The higher losses reflect primarily the
additional activities undertaken to prepare for the initiation of services in
1997. These activities accelerated in February 1997 with the close of the
Company's initial private preferred stock offering. Operating expenses increased
to $200,911 in fiscal 1997 from $9,617 in fiscal 1996 primarily due to local
access and origination programming support as required by the franchise
agreement. Selling, general and administrative expenses increased to $2,337,534
in fiscal 1997 from $694,122 in fiscal 1996. This increase was primarily due to
higher payroll-related costs of $675,574, increased legal and professional fees
of $561,167, higher bank fees of $130,706 and increased occupancy costs of
$122,991. Interest expense increased by $223,155 due to the additional interest
on the revolving credit note outstanding for most of fiscal 1997. Depreciation
and amortization increased due to higher balances subject thereto. Interest
income was $301,624 for the year ended March 31, 1997. There was no interest
income for the year ended March 31, 1996. The increase in the interest income is
the result of primarily two factors. The first factor relates to the accrued
interest associated with prepayment of the franchise fees in June and July 1996.
This factor accounts for approximately $217,000 of the increase. The second
factor is the higher overall cash balance created by the infusion of cash
associated with the preferred equity offering in January 1997. This factor
accounts for approximately $84,000 of the increase.
Year Ended March 31, 1996 Compared to the Year Ended March 31, 1995.
The Company's results of operations for the fiscal year 1996 were comparable
to fiscal 1995. Operating expenses in fiscal 1996 of $9,617 represent mapping
and design charges. The $69,159 increase in selling, general and administrative
expenses is primarily due to increases of $95,569 in professional fees, $31,122
in office expense and $15,051 in travel and entertainment. These increases were
offset by a $79,039 decrease in payroll-related costs. Interest expense
increased by $99,260 due to the increased balance of debentures and notes
payable outstanding during the period. Depreciation and amortization increased
due to higher balances subject thereto.
LIQUIDITY AND CAPITAL RESOURCES
The cost of development, construction and start-up activities of the Company
will require substantial capital. As of March 31, 1997, the Company had expended
more than $3,800,000 related to the acquisition of the franchise for Chicago's
Area 1, including $3,000,000 to the City of Chicago for prepaid franchise fees.
The Company also purchased 1,734 bulk video subscribers from an affiliated
entity in January 1997 for $3,381,300.
Net cash used in operating activities was $5,987,369 for the nine months ended
December 31, 1997, $6,910,766 for the year ended March 31, 1997, $611,227 for
the year ended March 31, 1996 and $264,216 for the year ended March 31, 1995.
Net cash used in operating activities for the nine months ended December 31,
1997 resulted principally from the Company's net loss from operations, offset by
increases in accounts payable and the compensation expense recognized related to
the stock option plan of $849,700. Net cash used in operating activities for the
year ended March 31, 1997 resulted from the net loss from operations and
increases in prepayments consisting primarily of the $3,000,000 prepayment of
franchise fees to the City of Chicago and decreases in various payables made
possible by the equity infusion of approximately $20 million. Net cash required
for operations in 1996 and 1995 resulted primarily from net losses and increases
in deferred legal costs offset by increases in various payables incurred during
the acquisition of the Area 1 franchise.
Cash flow used in investing activities totaled $10,014,597 in the nine months
ended December 31, 1997 and $3,628,163 in the year ended March 31, 1997. Cash
requirements in the nine months ended December 31, 1997 consisted primarily of
the cost of building and equipping the NOC, facilitating the corporate
headquarters and network construction. Cash requirements in the year ended March
31, 1997 consisted primarily of the purchase of 1,734 Area 1 bulk subscribers
for $3,381,300.
34
<PAGE>
Cash flow from financing activities was $9,175,999 in the nine months ended
December 31, 1997, $18,768,915 in the year ended March 31, 1997, $608,765 in the
year ended March 31, 1996 and $266,429 in the year ended March 31, 1995. In the
nine months ended December 31, 1997, cash flow from financing activities was
generated through borrowings under the interim credit facility of $8,000,000,
and through the private sale of preferred equity totaling $1,175,999. For the
year ended March 31, 1997 approximately $20,000,000 of cash flow was generated
through the private sale of preferred equity. In fiscal 1996, cash flow from
financing activities was generated by the private sale of $342,000 in common
stock to a small group of Chicago investors and the sale of $266,765 in
convertible debentures to existing shareholders. In fiscal 1995, cash flow from
financing activities was generated by the sale of $266,429 in convertible
debentures.
The Company estimates that its aggregate capital expenditure requirements
related to DRS Network construction in Area 1 for the period from the date of
this Prospectus to the end of the current fiscal year, March 31, 1998 and for
the fiscal years 1999, 2000 and 2001, the time frame in which construction of
the DRS Network in Area 1 is expected to be completed, will total approximately
$270 million, of which between approximately $90 million to $120 million is
expected to be spent during calendar year 1998. The Company will fund these
expenditures from the net proceeds of the Private Placement and operating cash
flows. In order to retain funds available to support its operations, the Company
has no expectation of paying cash interest on the Notes or cash dividends on the
Exchangeable Preferred Stock prior to February 15, 2003. The Company may require
additional financing in the future if it begins to develop additional franchise
areas or if the development of Area 1 in Chicago is delayed or requires costs in
excess of current expectations. The Company has entered into a commitment letter
with BankBoston, N.A. and Bank of America NT&SA for a $50 million bank revolving
credit facility to provide supplemental financing. There can be no assurance
that the Company will be able to obtain such proposed bank financing or any such
additional debt or equity financing, or that the terms thereof will not be
unfavorable to the Company or its existing creditors or investors. See ''Risk
Factors--Significant Capital Requirements.''
YEAR 2000 POTENTIAL PROBLEMS
While the Year 2000 considerations are not expected to materially impact the
Company's internal operations, they may have an effect on some of its customers
and suppliers, and thus indirectly affect the Company. It is not possible to
quantify the aggregate cost to the Company with respect to customers and
suppliers with Year 2000 problems, although the Company does not anticipate it
will have a material adverse impace in its business.
HOLDING COMPANY STRUCTURE
Shortly after the Exchange Offer, the Company plans to become a holding
company with no direct operations and no significant assets other than the stock
of its subsidiaries. The Company currently has three wholly-owned subsidiaries:
21st Century Cable TV of Illinois, Inc.; 21st Century Telecom of Illinois, Inc.;
and 21st Century Telecom Group of Michigan, Inc. Moreover, 21st Century Telecom
Group of Michigan, Inc. has two wholly-owned subidiaries: 21st Century Cable TV
of Grand Rapids, Inc. and 21st Century Telecom of Michigan, Inc. The Company
will be dependent on the cash flows of its subsidiaries to meet its obligations,
including the payment of the principal of and interest on the Notes and the
payment of dividends on the Exchangeable Preferred Stock. The Company's
subsidiaries will be separate legal entities that have no obligation to pay any
amounts due pursuant to the Notes or the Exchangeable Preferred Stock or to make
any funds available therefor, whether by dividends, loans or other payments. The
ability of the Company's subsidiaries to make such dividends and other payments
to the Company will be subject to, among other things, the availability of
funds, the terms of such subsidiaries' indebtedness and applicable state laws.
Because the Company's subsidiaries will not guarantee the payment of the
principal of or interest on the Notes or the payment of dividends on the
Exchangeable Preferred Stock, any right of the Company to receive the assets of
any of its subsidiaries upon its liquidation or reorganization (and the
consequent right of holders of the Notes or the Exchangeable Preferred Stock to
participate in the distribution or realize proceeds from those assets) will be
effectively subordinated to the claims of the creditors of any such subsidiary
(including trade creditors and holders of indebtedness of such subsidiary),
except if and to the extent that the Company is itself a creditor of such
subsidiary, in which case the claims of the Company would still be effectively
subordinated to any security interest in the assets of such subsidiary held by
other creditors.
35
<PAGE>
THE EXCHANGE OFFER
TERMS OF EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Securities pursuant to a Purchase
Agreement dated as of February 2, 1998, between the Company and the Initial
Purchasers, the Initial Purchasers and their assignees became entitled to the
benefits of the Registration Rights Agreement, dated February 2, 1998.
Under the Registration Rights Agreement, the Company is obligated to (i)
file the Registration Statement of which this Prospectus is a part for a
registered exchange offer with respect to an issue of New Notes and New
Exchangeable Preferred Stock with terms substantially identical in all material
respects to the Old Notes and Old Exchangeable Preferred Stock, respectively
(except that such New Notes and New Exchangeable Preferred Stock will not
contain terms with respect to transfer restrictions), within 45 days after
February 9, 1998, the date the Old Notes and Old Exchangeable Preferred Stock
were originally issued (the "Issue Date") and (ii) use its best efforts to cause
the Registration Statement to be declared effective within 150 days after the
Issue Date. For each Old Note surrendered pursuant to the Notes Exchange Offer,
the holder of such Old Note will receive a New Note having a principal amount at
maturity equal to that of the surrendered Old Note. For each share of Old
Exchangeable Preferred Stock surrendered pursuant to the Preferred Stock
Exchange Offer, the holder of such share of Old Exchangeable Preferred Stock
will receive a share of New Exchangeable Preferred Stock having a liquidation
preference equal to that of the surrendered share of Old Exchangeable Preferred
Stock. The Exchange Offer being made hereby if commenced and consummated within
such applicable time periods will satisfy those requirements under the
Registration Rights Agreement. See "Description of the New Notes--Exchange
Offer, Registration Rights."
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letters of Transmittal (which together constitute the Exchange
Offer), the Company will accept for exchange all Old Securities validly tendered
and not withdrawn prior to 5:00 p.m., Eastern Standard Time, on the Expiration
Date. The Company will issue New Notes in exchange for an equal principal
amount at maturity of outstanding Old Notes accepted in the Exchange Offer and
will issue New Exchangeable Preferred Stock in exchange for an equal number of
shares of outstanding Old Exchangeable Preferred Stock accepted in the Exchange
Offer. As of the date of this Prospectus, there was outstanding $363,135,000
aggregate principal amount at maturity of Old Notes.
This Prospectus, together with the Letters of Transmittal, is being sent to
all registered holders as of May [__],1998. The Company's obligation to
accept Old Securities for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth herein under "--Conditions."
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Notes Exchange Agent. The Notes Exchange Agent will act as agent for the
tendering holders of Old Notes for the purposes of receiving the New Notes from
the Company and delivering New Notes to such holders. The Company shall be
deemed to have accepted validly tendered Old Exchangeable Preferred Stock when,
as and if the Company has given oral or written notice thereof to the Preferred
Stock Exchange Agent. The Preferred Stock Exchange Agent will act as agent for
the tendering holders of Old Exchangeable Preferred Stock for the purposes of
receiving the New Exchangeable Preferred Stock from the Company and delivering
New Exchangeable Preferred Stock to such holders.
In the event the Exchange Offer is consummated, subject to certain limited
exceptions, the Company will not be required to register the Old Securities. In
such event, holders of Old Securities seeking liquidity in their investment
would have to rely on exemptions to registration requirements under the U.S.
securities laws. See "Risk Factors--Consequences of Failure to Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
36
<PAGE>
The term "Expiration Date" shall mean June [__] , 1998 (30 days following
the commencement of the Exchange Offer), unless the Company, in its sole
discretion, extends the Exchange Offer, in which case the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended. In order to
extend the Expiration Date, the Company will notify each Exchange Agent of any
extension by oral or written notice and will mail to the record holders of Old
Securities an announcement thereof, each prior to 9:00 a.m., Eastern Standard
Time, on the next business day after the previously scheduled Expiration Date.
Such announcement may state that the Company is extending the Exchange Offer for
a specified period of time.
Notwithstanding any extension of the Exchange Offer, if for any reason the
Exchange Offer is not consummated before August 3, 1998, the Company will, at
its own expense, (a) as promptly as practicable, file a shelf registration
statement covering resales of the Old Securities (a "Shelf Registration
Statement"), (b) use its best efforts to cause a Shelf Registration Statement to
be declared effective under the Securities Act and (c) keep the Shelf
Registration Statement effective until the earlier of 24 months following the
Issue Date and such time as all of the Old Securities have been sold thereunder,
or otherwise can be sold pursuant to Rule 144 without any limitations under
clauses (c), (e), (f) and (h) of Rule 144. The Company will, in the event a
Shelf Registration Statement is filed, among other things, provide to each
holder for whom such Shelf Registration Statement was filed copies of the
prospectus which is a part of such Shelf Registration Statement, notify each
such holder when such Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the Old
Securities. A holder selling such Old Securities pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations).
The Company reserves the right (i) to delay accepting any Old Securities,
to extend the Exchange Offer or to terminate the Exchange Offer and not accept
Old Securities not previously accepted if any of the conditions set forth herein
under "--Conditions" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the Old
Securities. Any such delay in acceptance, extension, termination or amendment
will be followed as promptly as practicable by oral or written notice thereof.
If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendment
in a manner reasonably calculated to inform the holders of the Old Securities of
such amendment and the Company will extend the Exchange Offer for a period of
five to ten business days, depending upon the significance of the amendment and
the manner of disclosure to holders of the Old Securities, if the Exchange Offer
would otherwise expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligations to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
NO VOTE OF THE COMPANY'S SECURITY HOLDERS IS REQUIRED UNDER APPLICABLE LAW
TO EFFECT THE EXCHANGE OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING
SOUGHT HEREBY.
Holders of Old Securities do not have any appraisal or dissenters' rights
in connection with the Exchange Offer under the Illinois Business Corporation
Act, the governing law of the state of incorporation of the Company.
PROCEDURES FOR TENDERING
37
<PAGE>
To tender in the Exchange Offer, a holder must complete, sign and date the
Notes Letter of Transmittal or Preferred Stock Letter of Transmittal, as the
case may be, or a facsimile thereof, have the signatures thereon guaranteed if
required by such Letter of Transmittal and mail or otherwise deliver such Letter
of Transmittal or such facsimile, together with any other required documents, to
the Notes Exchange Agent or Preferred Stock Exchange Agent, as the case may be,
prior to 5:00 p.m. Eastern Standard Time, on the Expiration Date. In addition,
either (i) certificates for such tendered Old Securities must be received by the
Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation
of a book-entry transfer (a "Book-Entry Confirmation") of such Old Securities,
if such procedure is available, into the Exchange Agent's account at the
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF
OLD SECURITIES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT
THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD SECURITIES SHOULD BE SENT TO
THE COMPANY. To be tendered effectively, the Old Securities, the Letter of
Transmittal and all other required documents must be received by the appropriate
Exchange Agent prior to 5:00 p.m., Eastern Standard Time, on the Expiration
Date. Delivery of all documents must be made to the appropriate Exchange Agent
at the addresses set forth below. Holders may also request their respective
brokers, dealers, commercial banks, trust companies or nominees to effect such
tender for such holders.
The tender by a holder of Old Securities will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth therein and in the Letter of Transmittal.
Only a holder of Old Securities may tender such Old Securities in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Old Notes or Old Exchangeable Preferred Stock are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder.
Any beneficial owner whose Old Securities are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender shall contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Securities, either
make appropriate arrangements to register ownership of the Old Securities in
such owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
U.S. (an "Eligible Institution") unless the Old Securities tendered pursuant
thereto are tendered (i) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (ii) for the account of an Eligible Institution.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Securities listed therein, such Old Securities must
be endorsed or accompanied by bond powers or stock powers, as the case may be,
and a proxy which authorizes such person to tender the Old Securities on behalf
of the registered holder, in each case as the name of the registered holder or
holders appears on the Old Securities.
38
<PAGE>
If the Letter of Transmittal of any Old Securities bond powers or stock
powers are signed by trustees, executors, administrators, guardians, attorneys-
in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such person should so indicate when signing, and unless
waived by the Company, evidence satisfactory to the Company of their authority
to so act must be submitted with the Letter of Transmittal.
All questions as the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Old Securities will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Old Securities not
properly tendered or any Old Securities which, if accepted by the Company,
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to
particular Old Securities. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letters of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Securities must be
cured within such time as the Company shall determine. None of the Company, the
Notes Exchange Agent, the Preferred Stock Exchange Agent or any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of Old Securities, nor shall any of them incur any liability
for failure to give such notification. Tenders of Old Securities will not be
deemed to have been made until such irregularities have been cured or waived.
Any Old Securities received by an Exchange Agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived will
be returned without cost to such holder by such Exchange Agent to the tendering
holders of such Old Securities, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion, subject
to the provisions of the Indenture and the Amended Articles, to (i) purchase or
make offers for any Old Securities that remain outstanding subsequent to the
Expiration Date or, as set forth under "--Conditions," to terminate the Exchange
Offer in accordance with the terms of the Registration Rights Agreement and (ii)
to the extent permitted by applicable law, purchase Old Securities in the open
market, in privately negotiated transactions or otherwise. The terms of any
such purchase or offers could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the company that (i) it is not
an affiliate of the Company (as defined under Rule 405 of the Securities Act),
(ii) any New Securities to be received by it were acquired in the ordinary
course of its business and (iii) at the time of commencement of the Exchange
Offer, it was not engaged in, and did not intend to engage in, a distribution of
such New Securities and had no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of the
New Securities. If a holder of Old Securities is an affiliate of the Company,
and is engaged in or intends to engage in a distribution of the New Securities
or has any arrangement or understanding with respect to the distribution of the
New Securities to be acquired pursuant to the Exchange Offer, such holder could
not rely on the applicable interpretations of the staff of the Commission and
must comply with the registration and prospectus delivery requirement of the
Securities Act in connection with any secondary resale transaction. Each broker
or dealer that receives New Securities for its own account in exchange for Old
Securities, where such Old Securities were acquired by such broker or dealer as
a result of market-making activities, or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Securities. Each broker-dealer that acquired Old Securities directly
from the Company, and not as a result of market-making or trading activities,
must, in the absence of an exemption, comply with the registration and
prospectus delivery requirements of the Securities Act in connection with the
secondary resale of the New Securities and cannot rely on the position of the
staff of the Commission enunciated in no-action letters issued to third parties.
See "Plan of Distribution."
ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF NEW SECURITIES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Securities
properly tendered and will issue the New Securities promptly after acceptance of
the Old Securities. See "--Conditions" below. For purposes of the Exchange
Offer, the Company shall be deemed to have accepted validly tendered Old Notes
for exchange when, as and if the Company has given oral or written notice
thereof to the Notes Exchange Agent, and shall be deemed to have accepted
validly tendered Old Exchangeable Preferred Stock for exchange when, as and if
the Company has given oral or written notice thereof to the Preferred Stock
Exchange Agent.
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For each Old Note for exchange, the holder of such Old Note will receive a
New Note having a principal amount at maturity equal to that of the surrendered
Old Note, and for each share of Old Exchangeable Preferred Stock for exchange,
the holder of such share will receive a share of New Exchangeable Preferred
Stock having a principal amount equal to that of the surrendered share of Old
Exchangeable Preferred Stock.
If (i) by March 26, 1998 (45 days after the Issue Date), neither the
Exchange Offer Registration Statement nor the Shelf Registration Statement has
been filed with the SEC, (ii) by August 8, 1998 (180 days after the Issue Date),
the Exchange Offer is not consummated and, if applicable, the Shelf Registration
Statement is not declared effective or (iii) after either the Exchange Offer
Registration Statement or the Shelf Registration Statement is declared
effective, such Registration Statement thereafter ceases to be effective or
usable (subject to certain exceptions) in connection with resales of Old
Securities or New Securities in accordance with and during the periods specified
in the Registration Rights Agreement (each such event referred to in clauses (i)
through (iii) a "Registration Default"), additional interest or dividends, as
the case may be, will accrue or accumulate on the applicable Old Securities and
New Securities at the rate of 0.50% per annum from and including the date on
which any such Registration Default shall occur to but excluding the date on
which all Registration Defaults have been cured. Such interest or dividends, as
the case may be, will be payable in cash and will be in addition to any other
interest or dividends payable from time to time with respect to the Old
Securities and the New Securities.
In all cases, issuance of New Securities for Old Securities that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the appropriate Exchange Agent of certificates for such Old
Securities or a timely Book-Entry Confirmation of such Old Securities into such
Exchange Agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal and all other required
documents. If any tendered Old Securities are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer or if Old Securities are
submitted for a greater principal amount or larger number of shares, as the case
may be, than the holder desires to exchange, such unaccepted or nonexchanged Old
Securities will be returned without expense to the tendering holder thereof (or,
in the case of Old Securities tendered by book-entry transfer procedures
described below, such nonexchanged Old Securities will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Notes Exchange Agent and the Preferred Stock Exchange Agent will make a
request to establish an account with respect to the Old Notes and the Old
Exchangeable Preferred Stock, respectively, at the Book-Entry Transfer facility
for purposes of the Exchange Offer within two business days after the date of
the Prospectus. Any financial institution that is a participant in the Book-
Entry Transfer Facility's systems may make book-entry delivery of Old Securities
by causing the Book-Entry Transfer Facility to transfer such Old Securities into
the appropriate Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Old Securities may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof with any required signature guarantees and any other required
documents must, in any case, be transmitted to and received by the appropriate
Exchange Agent at one of the addresses set forth below under "--Exchange Agents"
on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Securities desires to tender such Old
Securities, the Old Securities are not immediately available, or time will not
permit such holder's Old Securities or other required documents to reach the
appropriate Exchange Agent before the Expiration Date, or the procedures for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) prior
to the Expiration Date, the Exchange Agent received from such Eligible
Institution a properly completed and
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duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of such Old Securities and the amount of Old Securities
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Securities, in proper form to transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution with the
appropriate Exchange Agent and (iii) the certificate for all physically tendered
Old Securities, in proper form for transfer, or a Book-Entry Confirmation, as
the case may be, and all other documents required by the Letter of Transmittal
are received by the appropriate Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Securities may be withdrawn at any time prior to 5:00 p.m.
Eastern Standard Time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the appropriate Exchange Agent at one of the addresses set forth
below under "--Exchange Agents." Any such notice of withdrawal must specify the
name of the person having tendered the Old Securities to be withdrawn, identify
the Old Securities to be withdrawn (including the principal amount of such Old
Notes and the number of shares of such Old Exchangeable Preferred Stock) and
(where certificates for Old Securities have been transmitted) specify the name
in which such Old Securities are registered, if different from that of the
withdrawing holder. If certificates for the Old Securities have been delivered
or otherwise identified to an Exchange Agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Securities have been tendered pursuant to the
procedures of book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Old Securities and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Old Securities so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Securities which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Securities tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Securities will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Securities) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Securities may be retendered by
following one of the procedures described under the "--Procedures for Tendering"
above at any time on or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to issue New Securities in exchange for,
any Old Securities and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Old Securities, if because of any changes
in law, or applicable interpretations thereof by the Commission, the Company
determines that it is not permitted to effect the Exchange Offer. In addition,
the Company has no obligation to, and will not knowingly, accept tenders of Old
Securities from affiliates of the Company (within the meaning of Rule 405 under
the Securities Act) or from any other holder or holders who are not eligible to
participate in the Exchange Offer under applicable law or interpretations
thereof by the Commission, or if the New Securities to be received by such
holder or holders of Old Securities in the Exchange Offer, upon receipt, will
not be tradeable by such holder without restriction under the Securities Act and
the Exchange Act and without material restriction under the "blue sky" or
securities law of substantially all of the states.
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EXCHANGE AGENTS
State Street Bank and Trust Company has been appointed as Notes Exchange
Agent in connection with the Notes Exchange Offer. Questions and requests for
assistance in connection with the Notes Exchange Offer and requests for
additional copies of this Prospectus or of the Notes Letter of Transmittal
should be directed to the Notes Exchange Agent addressed as follows:
By Registered or Certified Mail;
By Overnight Courier; or By Hand:
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, Massachusetts 02110-2804
Attention: Corporate Trust Department
By Facsimile: (617) 664-5371
Attention: Corporate Trust Department
Telephone: (617) 664-5635
Boston EquiServe Trust Company, N.A. has been appointed as Preferred Stock
Exchange Agent in connection with the Preferred Stock Exchange Offer. Questions
and requests for assistance in connection with the Preferred Stock Exchange
Offer and requests for additional copies of this Prospectus or of the Preferred
Stock Letter of Transmittal should be directed to the Preferred Stock Exchange
Agent addressed as follows:
By Registered or Certified Mail;
By Overnight Courier; or By Hand:
Boston EquiServe Trust Company, N.A.
Mail Stop 45-01-40
150 Royall Street
Canton, Massachusetts 02021
Attention: Corporate Reorganization Department
By Facsimile: (781) 575-2549
Attention: Corporate Reorganization Department
Telephone: (781) 575-4325
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tender pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay
each Exchange Agent reasonable and customary fees for its services and will
reimburse such Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-
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pocket expenses incurred by them in forwarding copies of the Prospectus and
related documents to the beneficial owners of the Old Securities, and in
handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, including fees and expenses of each Exchange Agent, the
Trustee (as hereinafter defined), the Transfer Agent (as hereinafter defined)
and accounting, legal printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Securities pursuant to the Exchange Offer. If, however, certificates
representing New Securities or Old Securities for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the Old
Securities tendered, or if tendered Old Securities are registered in the name of
any person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than exchange of Old Securities
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes and New Exchangeable Preferred Stock will be recorded in the
Company's accounting records at the same carrying values as the Old Notes and
Old Exchangeable Preferred Stock, respectively, as reflected in the Company's
accounting records on the date of the exchange. Accordingly, no gain or loss
for accounting purposes will be recognized upon the consummation of the Exchange
Offer. The expense of the Exchange Offer will be amortized by the Company over
the term of the New Notes and New Exchangeable Preferred Stock in accordance
with generally accepted accounting principles.
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BUSINESS
GENERAL
21st Century is an integrated, facilities-based communications company, which
seeks to be the first provider of bundled voice, video and high-speed data
services (including cable television, high-speed internet access, and local and
long distance telephone services) in selected midwestern markets beginning with
Chicago's Area 1, for which the Company has been awarded a non-exclusive 15-year
renewable franchise by the City of Chicago. Area 1 stretches more than 16 miles
along Chicago's densely populated lakefront skyline and includes the affluent
residential neighborhoods of the Gold Coast, Lincoln Park and Dearborn Park and
the nation's second largest business and financial district. The Company has
developed (and has begun to install and activate) the DRS Network, which employs
a distributed ring-star architecture characterized by fiber-richness, two-way
interactivity and SONET-based redundancy and self-healing attributes. The DRS
Network accommodates not only traditional voice and video applications, but also
the rapidly growing demand for high-speed data services. Although it has claimed
no intellectual property rights in the DRS Network, the Company believes that
the DRS Network provides the Company with significant strategic advantages that
will differentiate 21st Century from its competitors, such as improved time-to-
market, multiple revenue streams, enhanced service quality and reliability, and
the ability to provide attractively priced bundled services.
The Company has secured a non-exclusive 15-year renewable attachment agreement
with the CTA, which reduces costly and time-consuming "make-ready" and
underground construction for the DRS Network and enables the Company to install
and activate the DRS Network rapidly and efficiently by taking advantage of
access to the CTA's elevated and underground rail systems. The Company also has
secured non-exclusive pole attachment agreements with Commonwealth Edison and
Ameritech which provide 21st Century access to scarce pole space within Area 1
to further facilitate deployment of its DRS Network. The decentralized
configuration of the DRS Network, which includes distributed hubs and nodes that
act "intelligently" to route network traffic efficiently, together with the CTA
and the pole attachment agreements, enable network construction to be driven in
large part by market demand and revenue potential in contrast to the
conventional approach of building a system from the headend outward on a block-
by-block basis. To fully exploit this advantage, the Company's sales and
marketing strategy is coordinated with ongoing network construction and focused
on securing bulk contracts with 125-unit or larger MDUs. The Company believes
that this strategy will help to identify the optimal sequence of node activation
on the DRS Network and tie capital expenditures directly to revenue-producing
subscribers.
21st Century's DRS Network currently provides video, audio and data services.
These services include 110 analog video channels, 59 interactive information
channels with local content (e.g., train and airline schedules, restaurant
menus, local news and sports scores, stock quotes and expressway traffic
updates) and 22 specialty audio channels (e.g., international and foreign
language programming, BBC radio broadcasts, reading services for the blind,
commercial-free music categories and select distant-market FM stations), with
significant capacity for additional broadband and narrowband products and
services. The Company's data product is its 4 Mbps cable modem Internet access
service, which is delivered at symmetrical speeds more than 125 times faster
than the prevalent 28.8 Kbps telephone modem and 25 times faster than an ISDN
modem. The Company is also hosting websites for commercial customers. The
Company will also provide switched, facilities-based CLEC services with last
mile connectivity and local dial tone to both commercial accounts and selected
residential subscribers upon receipt of the necessary regulatory approval and
installation of the requisite telephony equipment. The Company currently
provides telephony service on a test basis and plans to begin offering in mid-
1998 a broad range of competitive telephony services (e.g., local, long distance
and enhanced services) to both commercial accounts and selected residential
subscribers, most of whom currently have no facilities-based alternative to the
service provided over the ILEC's network.
21st Century has taken significant steps to implement its business plan and
service offerings in Chicago's Area 1. In addition to securing the Area 1
franchise, the CTA attachment agreement and the Commonwealth Edison and
Ameritech pole attachment agreements, the Company has (i) constructed and
activated its NOC, which includes a video headend and its DOC, (ii) completed
the northern fiber transport ring of the DRS Network, extending from
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the downtown business district to the northern portions of the city bordering
Evanston, (iii) secured programming content for more than 170 channels of video
and interactive information programming, (iv) constructed and activated portions
of the outside fiber distribution network to reach selected MDUs, (v) initiated
installation processes, billing, call center and customer care services, (vi)
secured contracts for more than 4,000 residential subscribers (which includes
more than 2,000 new subscribers under 5-year bulk MDU agreements as well as
subscribers acquired in early 1997 from an affiliated company) and (vii) passed
with its initial distribution facilities more than 15,800 additional potential
subscribers. The Company has completed installation of approximately 5 percent
of the fiber optic strand miles that will ultimately make up the DRS Network.
The Company has also entered into an agreement with Nortel for the acquisition
and installation of the switching and other ancillary equipment necessary for it
to provide telephony services.
BUSINESS STRATEGY AND COMPETITIVE ADVANTAGES
The Company believes that it can exploit its innovative DRS Network, superior
product offerings and other strategic assets to compete strongly in Chicago's
Area 1 and other selected markets. 21st Century's strategy and competitive
advantages include the following:
DEVELOP HIGH-CAPACITY, FULL-SERVICE DRS NETWORK. 21st Century intends to
exploit the advantages of its innovative, internally-developed DRS Network
architecture to provide fully integrated voice, video and high-speed data
services. Key attributes of the DRS Network include (i) an advanced integrated
network design built to the rigorous Bellcore standards, (ii) the distribution
of switching and traffic routing mechanics at specific locations out on the DRS
Network (rather than being concentrated at one point as in conventional
networks), allowing the Company to efficiently and economically route traffic
regardless of penetration and usage levels, (iii) a SONET-based redundancy and
self-healing architecture with both circuit and route diversity, (iv) multiple
layers of power redundancy to ensure network reliability and (v) a large fiber
capacity permitting delivery of advanced two-way, fully-interactive broadband
services, as well as significant unutilized capacity to allow the Company to
upgrade services, add applications and develop new product offerings without
service interruption or interference.
DEPLOY DRS NETWORK COST-EFFECTIVELY ON A REVENUE-DRIVEN BASIS. The
decentralized configuration of the DRS Network, combined with the CTA and pole
attachment agreements, allows the Company to rapidly and efficiently deploy the
DRS Network to accommodate market demand on a revenue-driven basis. This
strategy contrasts sharply with the typical approach of building a conventional
coaxial cable system from the headend outward on a block-by-block basis. This
DRS Network advantage will also allow the Company to efficiently utilize its
capital resources to secure larger MDU bulk video contracts which will be used
as the basis for node activation; thus, more significant revenue streams should
be realized earlier in the planned 3-4 year construction buildout than would be
realized by a conventional coaxial cable system buildout. After a large MDU is
activated within a node, the Company will then market its premium cable and pay-
per-view video services, as well as its high-speed data and, when available,
telephony services, to its cable subscribers in order to leverage MDU subscriber
relationships. In addition, 21st Century will market its full range of voice,
video and high-speed data services to Homes Passed. For commercial subscribers,
the Company will seek initially to deploy the DRS Network in Chicago's dense
central downtown area to (i) small to mid-sized commercial accounts and
communications-intensive businesses that have an interest in the Company's high-
speed data and Internet services and (ii) organizations such as the Building
Owners Management Association and other facilities management companies that
influence the selection of communications facilities at multiple buildings, as
well as industry associations which the Company believes will encourage member
companies to use the Company's services.
PROVIDE SUPERIOR PRODUCT OFFERINGS ON A BUNDLED BASIS. The Company believes
that its voice, video and high-speed data product offering will be superior to
competitive products currently available in Area 1 in terms of (i) the breadth
and quality of the individual product offerings, (ii) the extent of the enhanced
service features offered to the customer and (iii) the ability to bundle such
product offerings into a simple, convenient and attractively priced package. The
Company's current video offering includes 110 analog video channels, 59
interactive information channels and 22 specialty audio channels, with
significant capacity for additional broadband and narrowband
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products and services. 21st Century's fiber-rich DRS Network is designed with
only one to four amplifiers in cascade between its NOC and the subscriber
(compared to up to 40 amplifiers used by conventional networks). This reduction
in amplifiers significantly reduces signal degradation and results in higher
video quality and telephony reliability, a superior audio component and greater
data transmission accuracy. The Company's interactive information channels,
which provide useful local content and information, are currently not available
from any other single source in Area 1. The Company's high-speed data offering
includes cable modems that provide access to the Internet at 4 Mbps, which is
approximately 125 times faster than the prevalent 28.8 Kbps telephone modem and
25 times faster than an ISDN modem. Beginning in mid-1998, the Company expects
to begin marketing a broad range of competitive telephony services (e.g., local,
long distance, call waiting, call forwarding, caller ID and three-way calling)
to both commercial accounts and selected residential subscribers, most of whom
currently have no facilities-based alternative to the service provided over the
ILEC's network. The Company's bundled service offering will provide customers
with convenient "one-stop shopping," attractive pricing through significant
bundled discounts, a single source for installation and service and the ease of
a single monthly bill.
LEVERAGE STRATEGIC ASSETS. The Company's core strategic assets include (i)
the 15-year renewable franchise granted by the City of Chicago, which permits
the construction and installation of a network serving the entirety of Chicago's
Area 1 and (ii) the attachment agreement negotiated with the CTA and the pole
attachment arrangements negotiated with Commonwealth Edison and Ameritech, which
facilitate the timely and efficient buildout of the DRS Network through the
utilization of scarce pole space and city infrastructure rights-of-way. Each of
these assets is a valuable and important component of the Company's facilities-
based business strategy and together would be difficult for another entrant to
replicate.
SECURE FIRST-TO-MARKET ADVANTAGES. The Company seeks to be the first-to-
market in offering bundled voice, video and high-speed data services in
Chicago's Area 1 and other selected markets. The Company believes that the rapid
buildout of the DRS Network will enable it to acquire a significant customer
base and will give it a competitive advantage over other prospective bundled and
single-service providers.
CONTINUE TO ATTRACT EXPERIENCED MANAGEMENT. The Company's management team
has extensive and diverse experience in the cable television, Internet, data and
telecommunications industries. During the past year, the Company's senior
management has demonstrated its expertise by constructing and activating the
NOC, completing the northern fiber transport ring of the DRS Network, securing
necessary programming content, and initiating services. The Company intends to
continue to attract qualified senior-level management with demonstrated
expertise from the various industries comprising the Company's service offering.
FOCUS ON SUPERIOR CUSTOMER CARE. The Company is committed to providing
superior customer care to differentiate 21st Century from its competitors. To
accomplish this, the Company has (i) contracted with a third party to provide a
single billing statement for its voice, video and data services (which will
facilitate bundled discounting for multiple services, permit customized billing
statements and permit monthly, transactional and metered billing to support the
Company's planned product lines) and (ii) established a relationship with a
leading call center services provider to staff and operate a 24-hour call
center. The Company has provided a dedicated toll-free number to the call center
for all subscriber needs and has established call center performance parameters
under which (i) at least 90% of customer calls are to be answered within 30
seconds, (ii) customers are to receive a busy signal less than 3% of the time
and (iii) customer-abandoned calls are to account for less than 5% of all calls.
The Company believes that the quality and reliability of its services will
result in fewer in-bound subscriber complaints, service requests and other non-
revenue producing calls. In addition, the Company has installed sophisticated
status monitoring equipment in the NOC and throughout its DRS Network, which
should allow the Company to become aware of and remedy many potential problems
before they are detectable by subscribers.
EXPAND TO ADDITIONAL MARKETS. The Company intends to expand its operations
to selected midwestern markets which have the size, demographics and
geographical location suitable for its business strategy. Although the Company
may consider stand-alone systems, the Company expects to focus on markets in
which it can use its Chicago DRS Network and NOC to achieve synergies and
economies of scale. The Company has applied for
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franchises in a number of cities in suburban Chicago, central, south-central and
south-western Michigan and northern Indiana.
MARKET OVERVIEW
The City of Chicago is the third largest urban market in the United States and
Area 1 is the densest section of the city, characterized by a high concentration
of MDUs and commercial office buildings. Area 1 has several significant and
attractive attributes, including a relatively high density of 12,000 housing
units per square mile (compared with a density for the entire City of Chicago of
5,000 housing units per square mile); more than 300,000 homes (many of which are
located in upscale, demographically attractive lakefront neighborhoods);
existing cable penetration that the Company believes is significantly below the
national average for urban areas and approximately 51,000 employers in the
City's prominent business and financial districts, which include such businesses
and landmarks as the Mercantile Exchange, Sears Tower, Chicago Board of Trade,
Chicago Board of Options Exchange, Federal Reserve, Hancock Building, Amoco
Tower, major banks and other premier businesses.
INTERACTIVE BROADBAND DRS NETWORK
DRS NETWORK COMPONENTS. The DRS Network consists of six main components: the
NOC, the Transport Ring, Transport Hubs, Campus Rings, Campus Hubs and Nodes.
The following graphic depicts the design of the DRS Network.
[PICTURE OF NETWORK]
The NOC processes voice, video and data signals before they are transported to
the rest of the system. The DOC and a video headend are located at the NOC and,
when the Company begins to offer telephony service, a telephone switch will also
be located at the NOC. The NOC also functions as a gateway to other networks
outside the DRS Network. The NOC monitors DRS Network activity and receives
real-time information regarding DRS Network performance and power supply status.
When the Company begins to offer telephony service, the NOC will monitor the
activation of equipment at the premises of the Company's telephony subscribers.
The Transport Ring, a group of fiber-optic cables that run along the CTA
right-of-way, carries voice, video and high-speed data signals between the NOC
and the Transport Hubs. Transport Hubs connect the Transport Ring and the Campus
Rings and also provide a diagnostic function by trouble-shooting potential
problems on the DRS Network. The Campus Rings are groups of fiber-optic cables
that carry voice, video and high-speed data signals between the Transport Hubs
and the Campus Hubs. The Campus Hubs connect the Campus Rings and the lines that
feed the Nodes and provide a diagnostic function similar to the Transport Hubs.
The Nodes connect the subscribers to the Campus Hubs via coaxial cable. The
Nodes represent the point in the DRS Network where light sent over the DRS
Network via fiber-optic cable is translated into radio frequencies for delivery
to the subscriber. The Nodes also monitor the DRS Network and detect potential
problems. The "star distribution" of the DRS Network refers to the star-shaped
DRS Network components branching off each Node to the subscribers.
Delivery of telephony services over the DRS Network will require the
installation of switching and other ancillary equipment at the NOC and at the
Nodes, where the existing twisted-pair telephone wire will connect to the DRS
Network. The Company has entered into an agreement with Nortel for the
acquisition and installation of such equipment.
DESIGN ATTRIBUTES. The Company's DRS Network was conceived and designed by
the Company's engineers and incorporates SONET, Ring and Star architectures as
well as wave-division multi-plexing elements, and includes certain attributes of
Hybrid Fiber Coax ("HFC"). Key attributes of the DRS Network include (i) an
advanced integrated network design built to the rigorous Bellcore standards,
(ii) the distribution of switching and traffic
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routing mechanics at specific locations out on the DRS Network (rather than
being concentrated at one point as in conventional networks), allowing the
Company to efficiently and economically route traffic regardless of penetration
and usage levels, (iii) a SONET-based redundancy and self-healing architecture
with both circuit and route diversity, (iv) multiple layers of power redundancy
to ensure network reliability and (v) a large fiber capacity permitting delivery
of advanced two-way, fully-interactive broadband services, as well as
significant unutilized capacity to allow the Company to upgrade services, add
applications and develop new product offerings without service interruption or
interference. In addition, the DRS Network is designed with only one to four
amplifiers in cascade between its NOC and the subscriber (compared to up to 40
amplifiers used by conventional networks). This reduction in amplifiers
significantly reduces signal degradation and results in higher video quality and
telephony reliability, a superior audio component and greater data transmission
accuracy.
The DRS Network uses signal processing techniques to deliver communication
services such as Internet access and high-speed data, Shared Tenant Services
("STS"), Small Business Services and Plain Old Telephone Services, which the
Company intends to provide directly or in conjunction with strategic business
partners. The DRS Network is able to separate data and voice signals from the
video signals, which will enable it to provide higher reliability and the
advanced network management necessary for residential and commercial data
communications and telephony services.
DRS NETWORK ADVANTAGES. The DRS Network has several advantages including (i)
intelligent routing of network traffic, (ii) advanced functionality at
subscribers' premises, (iii) efficient introduction of new switched and
broadband services and (iv) dedicated, two-way, high-speed data connectivity.
INTELLIGENT ROUTING OF TRAFFIC. The DRS Network routes traffic
intelligently using grooming and hairpinning techniques. Grooming is a
technique by which voice, video and data signals are kept on the DRS Network,
thereby decreasing the reliance on and the costs incurred by using other
companies' communications networks. Hairpinning, a type of grooming, is a
technique that allows voice, video and data signals to be diverted away from
the Company's NOC, where network traffic is likely to be heavy, and routed by
Campus Hubs or Transport Hubs.
ADVANCED FUNCTIONALITY AT SUBSCRIBERS' PREMISES. The Company uses an
advanced analog set-top box with 512K RAM and flash memory, which will allow
it to provide subscribers additional functions and features. Among such
functions and features are interactive data channel capability, impulse pay-
per-view, fully computerized addressability, forward and return path
capability, bit-mapped graphics, downloadable software capability, fully
interactive seven-day electronic program guide, enhanced signal theft
protection and dataport connectivity to printers, faxes and personal
computers. The Company believes that this terminal is designed to readily
convert to digital technology at a cost that is competitive with analog
industry standards. See "Risk Factors--Equipment Cost and Availability."
EFFICIENT INTRODUCTION OF NEW SWITCHED AND BROADBAND TECHNOLOGIES. 21st
Century should be able to introduce most new switched and broadband
technologies to its subscribers without causing service interruption or
interference. The DRS Network's architecture has reserved bandwidth from
750MHz to 860MHz. This bandwidth has been allocated for future digital video
services representing approximately 90 to 100 channels. While the Company does
not anticipate conversion to digital in the near future given the DRS
Network's initial 110 analog video channel offering, the DRS Network's large
fiber capacity will allow the Company to upgrade services, add applications
and develop new product offerings without service interruption or
interference.
DEDICATED, TWO-WAY, HIGH-SPEED DATA CONNECTIVITY. The DOC allows true
two-way (duplex), high-speed interactivity. At the DOC a redundant series of
routers, servers and switches are installed, from which typical ISP
functionalities (Domain Naming System, Mail, News, Proxy, etc.) are
administered and dual connections to national ISPs are maintained. 21st
Century will store the most popular Web pages, along with local content, in
servers located in the DOC. By storing these Web pages and local content
within the DOC and
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providing cable modem access to these resources, subscribers can receive any
of this information at up to four Mbps, or approximately 125 times faster than
the prevalent 28.8 Kbps telephone modem. As a further benefit, since the cable
modem is connected directly from the subscriber's PC to the coaxial portion of
the DRS Network, there is no need for a second telephone line to access the
Internet, no delay associated with dialing into and signing onto a typical
ISP's modem service and no surcharge for making a call into the DOC (as is
typically the case with 128 Kbps ISDN service).
As an integral part of the DRS Network design, the Company has reserved fiber-
optic capacity dedicated for providing a wide variety of high-speed data
services, including high-speed (up to OC-12) private line quality access to the
Internet. The use of multi-protocol switching platforms in both the Campus and
Transport hubs and the DRS Network's high fiber count will allow the Company to
offer private virtual networks to link offices, buildings and campuses located
in Area 1. Further, the high-speed data network will extend to both commercial
as well as residential areas and will support a host of other applications,
including telecommuting, distance-learning, software distribution, site
mirroring, bulk data transfer and teleconferencing.
BROADBAND SERVICES
The Company's service offering will include a wide range of voice, video and
high-speed data services that the Company expects to provide on a bundled basis.
The Company's bundled service offering will provide customers with convenient
"one-stop shopping," attractive pricing through significant bundled discounts,
a single source for installation and service and the ease of a single monthly
bill.
VIDEO AND AUDIO. The Company currently offers 110 analog video channels, 59
interactive information channels with local content and 22 specialty audio
channels, with significant capacity for additional broadband and narrowband
products and services. The 110 analog video channels include a basic package of
84 channels, one of the largest basic packages in the United States, designed to
appeal to Chicago's ethnic and cultural diversity. Basic video channels for
business customers also include specialized business programming such as
Bloomberg, CNN, CNN Financial and Knowledge TV. This specialized business
programming will be combined with downlink teleconferencing from the NOC.
Programming for the Company's video offering comes from national and local
networks, including most major networks such as ESPN, HBO, Showtime, Disney and
CourtTV and local networks such as local affiliates of ABC, CBS, NBC and Fox.
The video offering includes an on-screen 7-day interactive program guide, one-
button VCR recording and near-video-on-demand pay-per-view movies, with start
times every 30 minutes, 24 hours per day. The Company also plans to offer a
custom camera-monitored security channel for apartment and condominium buildings
that execute master agreements with the Company.
Also included in the Company's basic video package are 59 interactive
information channels, which include local bus and train schedules, airline
schedules, employment ads, restaurant menus, local news and sports scores, stock
quotes, expressway traffic updates, personal ads and other relevant local
content (including building-specific information for large MDU accounts). The
Company plans to expand its interactive information offering to 100 channels
during 1998. This server-delivered information is accessed on the customer's
television via a specialized universal remote control.
The Company's 22 specialty audio channels include international and foreign
language broadcasts (selected to appeal to concentrations of nationalities
residing in Chicago's Area 1), BBC radio broadcasts, reading services for the
blind, commercial-free music categories and select distant-market FM stations.
HIGH-SPEED DATA AND INTERNET SERVICES. The Company will provide high-speed
Internet access services using a high-speed cable modem in much the same way
customers currently receive Internet services over a modem linked to the local
telephone network. The cable modems presently being used with the Company's DRS
Network will operate at 4 Mbps, which is approximately 25 times faster than ISDN
modems and more than 125 times faster than the prevalent 28.8 Kbps analog
modems. The customer's cable line (with cable modem) will be connected
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directly into the Internet. Because the cable modem connects through a cable
line rather than through a telephone line, the Internet connection will always
be active and there will be no need to dial up for access to the Internet or
wait to connect through a port leased by an ISP. The Company is also hosting
websites for commercial customers and expects to offer private virtual networks
to link offices, buildings or campuses located throughout the franchise area. In
addition to supporting cable modem services for Internet access, the DRS Network
is capable of connecting computers or computer networks via a separate fiber
connection. By connecting computers or computer networks at multiple locations,
subscribers can establish virtual local area networks, over which they can
transport data. The Company expects to offer such connections, which will enable
subscribers to conduct video conferences, provide Internet-protocol telephony
services, conduct electronic commerce, connect hospitals and universities for
tele-medicine and distance-learning applications and access their office
networks with the same speed and functionality as though they were using their
office desktop computers.
TELEPHONY. The Company has received regulatory approval from the Illinois
Commerce Commission to provide CLEC services. The DRS Network will allow the
Company, after installation of the requisite telephony equipment, to act as a
facilities-based CLEC offering telecommunications services with last mile
connectivity and local dial tone. The Company anticipates that the necessary
equipment and installation will cost approximately $40 million over five years
and that the installation necessary for the Company to begin providing telephony
service will take approximately five to six months. The Company plans to begin
offering in mid-1998 a broad range of competitive telephony services (e.g.,
local, long distance and enhanced services) to both commercial accounts and
selected residential subscribers, most of whom currently have no facilities-
based alternative to the service provided over the ILEC's network. The selected
residential customers to which the Company will offer telephony services
initially will be limited to those residing in, or in close proximity to, MDUs
containing 24 or more residences, but the Company expects that the threshold
number of residences in MDUs to which this service can be viably offered will be
reduced over time. The Company anticipates that it s telecommunications service
offerings will include local service, long-distance and enhanced service
packages. Enhanced services will include custom calling features such as call
waiting, call forwarding and three-way calling. The Company also expects to
offer more advanced custom local area signaling services ("CLASS") features,
such as caller ID and caller masking and plans to offer voice mail as an
optional service. The Company expects to provide long-distance service on a
resale basis from one or more national interexchange carriers. The Company also
plans to make available to businesses Centrex services and PBX trunk
provisioning. The Company anticipates that it will establish wireless and paging
services on a resale basis.
The Company will be required to rely on local exchange carriers ("LECs") and
interexchange carriers to provide communications capacity or interconnection for
its local and long-distance telephone service. The Company has entered into a
direct interconnection agreement with Ameritech. The terms of the
interconnection agreement require the approval of the Illinois Commerce
Commission. The 1996 Telecom Act established certain requirements and standards
for interconnection arrangements, and the Company's interconnection agreement
with Ameritech is based in part on such requirements. However, these
requirements and standards are still being developed and implemented by the FCC
in conjunction with the states through a process of negotiation and arbitration.
See "Risk Factors--Commencement of Telephony Services" and "Legislation and
Regulation--Federal Regulation of Telecommunications Services."
The DRS Network is capable of providing telephony services, but will require
the installation of switching and other ancillary equipment at the NOC and at
the nodes, where the customer's existing twisted-pair telephone wire will
connect to the DRS Network. The Company has entered into an agreement with
Nortel for the acquisition and installation of such equipment.
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FUTURE BROADBAND SERVICES. The Company believes that the DRS Network will
enable it to provide additional broadband services in the future, including (i)
high-speed data transmission connecting homes and offices ("extranets"), (ii)
wholesale transport and interconnection (local loop) services to connect long-
distance carriers to their customers, (iii) security services, including closed-
circuit television security monitoring and alarm systems and (iv) interactive
energy management services, which involve active monitoring by the customer of
energy usage and cost. The Company expects to commence trials of certain of
these services in 1998. The Company plans to seek strategic partnerships and
alliances to provide a number of these services. See "Risk Factors--Uncertain
Demand for Broadband Services."
SALES AND MARKETING
21st Century seeks to capitalize on its position as a new communications
company that brings competition, choice and an innovative bundle of
communications products to the residential and commercial markets covered by its
DRS Network.
RESIDENTIAL MARKETING. The Company's marketing plan for residential
customers is initially focused on establishing relationships with the managers
of residential rental properties and presidents of condominium associations
which the Company expects will lead to long-term bulk video service contracts
with the residents of targeted MDUs. Once the Company has entered into bulk MDU
contracts and has connected its DRS Network to the buildings, the Company will
then market its premium cable and pay-per-view video services, as well as its
high-speed data and, when available, telephony services, to its cable
subscribers in order to leverage its existing MDU subscriber relationships. In
addition, the Company will utilize direct mail and personal sales calls to
market its full range of voice, video and data services to Homes Passed.
COMMERCIAL MARKETING. The Company's commercial marketing plan is initially
focused on Chicago's central downtown area due to the heavy concentration of
potential commercial accounts. Further, the Company expects to focus on small to
mid-sized commercial accounts (under 50 employees), a market that the Company
believes has been underserved by the incumbent providers and which has the
potential for higher margins and greater interest in switching carriers for
better pricing and customer care. Because the Company is not yet widely known,
it will seek to acquire visibility and recognition by selling to well-known,
communications-intensive accounts that have an interest in the Company's high-
speed data and Internet services. At the same time, the Company's sales staff
will seek to develop relationships with organizations such as the Building
Owners Management Association and other facilities management companies that
influence the selection of communications facilities installed at multiple
buildings, as well as industry associations which the Company believes will
encourage member companies to use the Company's services.
The Company will also focus its marketing efforts on the commercial market
outside of Chicago's central downtown area, which is made up primarily of small
businesses operating in shopping strips, commercial boulevards or small-
office/home-office environments. This market has an expanding diversity of
communications needs which 21st Century believes are well-suited to the bundled
products offered by the Company. The Company plans to focus its marketing
efforts to these subscribers on its high-speed data service capabilities, which
the Company believes will be an attractive alternative to data connectivity via
the lower-speed, twisted-pair copper lines that are currently available.
SALES AND MARKETING STAFF. The Company's sales and marketing staff currently
consists of 25 individuals. The Company expects to increase this staff to
approximately 28 during the first quarter of 1998. The sales and marketing staff
is comprised of a commercial division and a residential division, each of which
is headed by a manager who supervises various account executives. In addition,
the Company has contracted with a third-party organization for sales support on
an interim basis to assist the Company in marketing and selling its services to
certain Homes Passed. The Company has selected its account executives for the
collective diversity of their industry experience across the cable television,
telephony and data service sectors.
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CUSTOMER CARE
The Company believes that customer care is an essential element of its
operations and is committed to providing superior customer care to differentiate
it from its competitors. The Company believes that the quality and reliability
of its services will result in fewer in-bound subscriber complaints, service
requests and other non-revenue producing calls. In addition, the Company has
installed sophisticated status-monitoring and diagnostic equipment on both the
NOC and its DRS Network which should allow the Company to become aware of and
remedy many potential problems before they are detectable by subscribers.
BILLING. The Company has contracted with a third party to provide a single
billing statement for its voice, video and data services. This technology will
facilitate bundled discounting for multiple services, permit customized billing
statements and permit monthly, transactional and metered billing to support the
Company's planned product lines. The third party's billing and information
management system is currently integrated for video and data services, and is in
the beta testing phase for integrated voice, video and data services. If an
integrated billing and information management system for all three services is
not commercially available when the Company begins providing telephony service,
the Company's customers will still receive a single billing statement, but such
statement will be generated from two separate billing and information management
systems.
CUSTOMER SERVICE REPRESENTATIVES. The Company has established a relationship
with a leading call-center services provider to outsource its customer service
operations. The call center is currently staffed with six full-time customer
service representatives ("CSRs") trained to handle calls 24 hours per day, 365
days per year. An additional 20 CSRs have been trained and will be available to
the Company as demand requires. Each CSR is required to have a thorough
understanding of the Company's service offerings. The Company has provided a
dedicated toll-free number to the call center for all subscriber needs and has
established call center performance parameters under which (i) at least 90% of
customer calls are to be answered within 30 seconds, (ii) customers are to
receive a busy signal less than 3% of the time and (iii) customer-abandoned
calls are to account for less than 5% of all calls.
COMPETITION
VIDEO SERVICE
Cable television providers compete for subscribers in local markets with other
providers of television services and other providers of entertainment, news and
information. The competition in these markets includes broadcast television and
radio, satellite and wireless video distribution systems and competitive
television operations, newspapers, magazines and other printed sources of
information and entertainment. The enactment of the 1996 Telecom Act may create
more competition in providing cable television because it allows LECs to provide
video services in their local service areas.
CABLE SYSTEMS AND OTHER VIDEO PROVIDERS. There are existing cable television
operations and other video providers in Chicago's Area 1. In addition, because
Federal law prohibits cities from granting exclusive cable franchises and from
unreasonably refusing to grant additional competitive franchises, additional
cable television operators could obtain franchises in the future. An increasing
number of cities are exploring the feasibility of owning their own cable systems
in a manner similar to city-provided utility services.
Chicago Cable, the local subsidiary of TCI, is the incumbent provider of cable
services in Chicago's Area 1. Chicago Cable's legacy system is a traditional
street-grid, coaxial cable system, is one-way, non-interactive, limited to the
residential sector and does not currently accommodate enhanced communications
transmissions. In the Chicago metropolitan area, of which Area 1 is a part,
Chicago Cable and other subsidiaries of TCI have
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approximately 515,000 subscribers for their basic cable services and their cable
networks pass approximately 1,340,000 homes.
OTHER VIDEO COMPETITION IN CHICAGO. There are small wireless cable providers
serving certain MDUs in Chicago. In its current analog format, wireless cable
has limited bandwidth and cannot accommodate a video channel offering comparable
to 21st Century's. Further, the Company believes that the wireless technology
required to provide bundled voice, video and high-speed data services with real
interactivity does not exist at the present time, and the current technology
that requires a phone-line return path should be at a competitive disadvantage
to 21st Century's online cable modem Internet and high-speed data offerings.
There are alternative methods of distributing the same or similar video
programming offered by cable television systems, although cable television
systems currently account for a substantial percentage of total subscribership
to multichannel video programming distributors ("MVPDs"). In addition to
broadcast television stations, the Company competes with other multichannel
programming service providers on a direct over-the-air basis. Multichannel
programming services are distributed by communications satellites directly to
satellite dishes serving residences, private businesses and various nonprofit
organizations.
The Company expects a more significant competitive impact from medium-power
and high-power communications DBS that transmit signals that can be received by
small dish antennas. Hughes Communications, Inc. ("Hughes") commonly known as
DirecTV, a subsidiary of General Motors Corporation, and United States Satellite
Broadcasting Company, a subsidiary of Hubbard Broadcasting, began offering
multichannel programming services in 1994 via high-power communications
satellites that require a dish antenna of only approximately 18 inches. Other
DBS providers include PrimeStar and EchoStar. Although DBS providers presently
serve a relatively small percentage of pay television subscribers, their share
has been growing steadily. Competition from both medium- and high-power DBS
services could become substantial as developments in technology continue to
increase satellite transmitter power and decrease the cost and size of equipment
needed to receive these transmissions. However, the Company believes that
equipment and programming costs presently are limiting DBS market share in
cabled areas. The Company also believes that Area 1 has lower potential for DBS
due to the difficulties of attaching dishes to high-rise structures.
DBS has advantages and disadvantages as an alternative means of distributing
video signals to the home. Among the advantages are that the capital investment
(although initially high) for the satellite and uplinking segment of a DBS
system is fixed and does not increase with the number of subscribers receiving
satellite transmissions, that DBS is not currently subject to local regulation
of service or required to pay franchise fees and that the capital costs for the
ground segment of a DBS system (the reception equipment) are directly related to
and limited by the number of service subscribers. The disadvantages of DBS
presently include a limited ability to tailor the programming package to the
interests of different geographic markets, such as providing local news, other
local origination services and local broadcast stations, signal reception being
subject to line of sight angles and intermittent interference from atmospheric
conditions and terrestrially-generated radio frequency noise. The long-term
effect of competition from these services cannot be predicted. Nonetheless, the
Company believes that such competition will be significant.
MMDS and LMDS systems represent another type of video distribution service.
Both systems deliver programming services over microwave channels received by
subscribers with a special antenna. LMDS, operating in the higher 28GHz
frequency band, employs frequency reuse within a distributed architecture and is
also capable of providing simultaneous delivery of two-way voice and data, as
well as video services. MMDS and LMDS systems are less capital-intensive, are
not required to obtain local franchises or pay franchise fees and are subject to
fewer regulatory requirements than cable television systems. Although there are
relatively few MMDS systems in the United States that are currently in operation
or under construction, many markets have been licensed or tentatively licensed
by the FCC. The FCC has taken a series of actions intended to facilitate the
development of these "wireless cable systems" as alternative means of
distributing video programming, including reallocating the use of certain
frequencies to these services and expanding the permissible use of certain
channels reserved for
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educational purposes. The FCC's actions enable a single entity to develop a MMDS
system with a potential of up to 35 channels, and thus compete more effectively
with cable television. Developments in compression technology have significantly
increased the number of channels that can be available from other over-the-air
technologies. Subscribing to MMDS services is projected to continue to increase
over the next several years. There are currently no commercial operating
licensed LMDS systems in the United States. The FCC began auctioning commercial
LMDS licenses in February 1998. It is not expected that any commercial LMDS
systems will begin operating until late 1998.
21st Century believes that the density of high-rise buildings in the Chicago
market area is a limiting factor for wireless technologies, such as DBS, LMDS
and MMDS, all of which require a direct line of sight to the satellite or
headend tower, respectively. Satellite dish installations on metropolitan
Chicago MDUs have proven to be problematic and aesthetically undesirable.
Moreover, the Company believes that "ghosting" and other distortion created by
areas with substantial high-rise density, such as Area 1, may represent a
quality disadvantage for potential wireless competitors.
The Company also competes with master antenna television systems ("MATV")
and SMATV systems, which provide multichannel program services directly to
hotel, motel, apartment, condominium and similar multi-unit complexes within a
cable television system's franchise area. These systems are generally free of
any regulation by state and local government authorities. The 1996 Telecom Act
changed the definition of a "cable-system" to include only systems that cross
public rights-of-way. Therefore SMATV systems that serve buildings that are not
commonly owned or managed and which do not cross public rights-of-way are no
longer considered cable systems and no longer require a franchise to operate.
Prior to enactment of the 1996 Telecom Act, LECs were prohibited from offering
video programming directly to subscribers in their telephone service areas
(except in limited circumstances in rural areas). The 1996 Telecom Act
eliminated restrictions on LECs and the Company may face increased competition
from local telephone companies, which in most cases have greater financial
resources than the Company. Several major LECs, including Ameritech, have
announced plans to acquire cable television systems or provide video services to
the home through fiber optic technology.
The 1996 Telecom Act provides LECs with four options for providing video
programming directly to customers in their local exchange areas. Telephone
companies may provide video programming by radio-based systems, common carrier
systems, "open video" systems or "cable systems." LECs that elect to provide
service via "open video" systems must allow others to use up to two-thirds of
their activated channel capacity. They will be relieved of regulation as
"common carriers" and are not required to obtain local franchises, but will
still be subject to all rules governing cable systems, including franchising
requirements. It is unclear which model LECs will ultimately choose but the
video distribution service developed by local telephone companies is likely to
represent direct competition for the Company.
The ability of local telephone companies to compete with the Company by
acquiring an existing cable system is limited. The 1996 Telecom Act prohibits a
LEC and its affiliates from acquiring more than a 10% financial or management
interest in any cable company providing cable service in its telephone service
area. It further prohibits a cable operator and its affiliates from acquiring
more than a 10% financial or management interest in any LEC providing telephone
exchange service in its franchise area. A LEC and a cable operator that have a
telephone service and cable franchise in the same market may not enter into a
joint venture to provide telecommunications services or video programming. There
are exceptions to these limitations for rural locations, very small cable
systems and LECs in non-urban areas.
INTERNET AND HIGH-SPEED DATA SERVICES
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Internet service, both Internet access and on-line content services, is
provided by ISPs, satellite-based companies, long-distance carriers and other
cable television companies.
A large number of companies provide businesses and individuals with direct
access to the Internet and a variety of supporting services. In addition, many
companies (such as America Online, Inc., MSN Computers, Prodigy Services Company
and WebTV Networks) offer "online" services consisting of access to closed,
proprietary information networks with services similar to those available on the
Internet, in addition to direct access to the Internet. Such companies generally
offer Internet services over telephone lines using standard computer modems. The
Company believes that this form of transmission works well for smaller amounts
of data, but standard telephone lines have limitations in handling large volumes
of information, multimedia applications or high-speed data transmissions,
resulting in lengthy delays. Also, ISPs have limited numbers of ports available
for customers to dial in to the Internet, and their customers may experience
difficulties in obtaining access to the Internet or be disconnected if activity
is too great. A few ISPs also offer high-speed ISDN connections to the Internet.
The Company believes that broadband transmission is the most efficient means of
transmitting large volumes of data and information on a high-speed basis to and
from the Internet.
A few satellite companies provide broadband access to the Internet from
desktop PCs using a small dish antenna and receiver kit comparable to that used
for satellite television reception. DirecPC, principally owned and operated by
Hughes, is a prominent provider of satellite-based Internet services in the
United States. These satellite-based Internet services generally require a local
wireline telephone (twisted copper pair) return path, which will have inherent
capacity limitations and costs.
Long-distance companies are aggressively entering the Internet access markets.
Long-distance carriers have substantial transmission capabilities, traditionally
carry data to large numbers of customers and have an established billing system
infrastructure that permits them to add new services. For example, AT&T began
providing Internet access in the United States through a new service called
WorldNet, offering its long-distance customers five free hours of Internet
access per month for a one-year period. MCI is offering MCI Internet in
competition with AT&T's WorldNet service. The Company expects competition for
the end-consumer from such companies to be vigorous due to such competitors'
greater resources, operating histories and name recognition. However, the long-
distance companies are still limited by the inherent speed constraints of
traditional copper twisted-pair telephone lines.
Other cable television companies can enter the Internet services market.
Traditional cable networks provide only one-way transmission and must be
upgraded (and often reconfigured) to permit two-way data transmission, which
requires significant investments on the part of service providers. Broadband
technology must be incorporated to enable digital data to be transmitted over a
separate channel. The Company is not aware of any cable television competitors
in its existing service area providing Internet access service using cable
modems. However, owners of newer or upgraded cable television networks have the
ability to provide Internet services using cable modems. The Company believes
that some existing cable television providers are beginning to provide such
services in certain of their major markets or clusters. @Home, a joint venture
among TCI and several other large cable companies, is offering high-speed
Internet service using cable modems in areas where its affiliates have HFC
networks. The Company believes that high-speed Internet services ultimately will
be offered by other cable providers and companies such as @Home in most of the
Company's present and future service areas. In addition, @Home announced in
December 1997 that it and Best Internet Communications would collaborate to
deliver web hosting to customers of @Home's @Work division.
Wireline and wireless telephony operators also provide high-speed data
services. The wireline carriers include Ameritech and two competitive access
providers ("CAPs"): WorldCom and TCG. While Ameritech provides telephony
service in all of Area 1, its existing copper lines are not well suited to
provide high-speed data services. Recent advances in DSL technology have made it
possible to enhance the data transport capabilities over copper lines and
Ameritech recently announced that it is providing high-speed Internet access
using ADSL technology and will be collaborating with Microsoft Corporation to
facilitate the installation of its ADSL service. Ameritech has announced plans
to provide high-speed Internet access initially in Ann Arbor, Michigan, and
expects to offer such
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access in the Chicago area by mid-1998. However, the Company believes that the
installation and operation of ADSL technology (especially in residential areas)
will be costly to Ameritech. Neither of the CAPs offers ubiquitous telephony
service in Chicago's business district or has built a network infrastructure in
Chicago's residential areas. In addition, as in the case of Ameritech's network,
the CAPs' networks are currently designed primarily for the transport of voice
rather than data services and the Company believes the network upgrades
necessary for the CAPs to provide competitive high-speed data services will be
costly.
Wireless telephony providers offer high-speed data services via satellite
dishes. Data is transmitted to the subscriber from the satellite dish at
relatively fast rates, but the subscriber must use a telephone line to send
data. This restricts the ability of the subscriber to send information to the
speed of an analog modem (generally 56 Kbps) and necessitates the use and
expense of an additional telephone line. In addition, installation of a
satellite dish is generally difficult in an MDU environment and in Chicago's
business district.
VOICE SERVICES
Once the Company begins providing local and long-distance telephony services,
it will likely face competition in providing such services. The 1996 Telecom Act
is expected to have a substantial impact on the degree of competition because it
permits providers to enter markets that were previously closed to them.
Specifically, the 1996 Telecom Act preempts state policies that have
historically protected LECs from significant competition in local service
markets. In addition, the 1996 Telecom Act supersedes the antitrust consent
decree that prohibited the Regional Bell Operating Companies ("RBOCs") from
providing long-distance services, and establishes terms and conditions under
which RBOC entry into the long-distance market will be permitted. The overall
effect of these provisions is to blur the distinctions that previously existed
between local and long-distance services.
One major impact of the 1996 Telecom Act may be a trend toward the use and the
acceptance of bundled service packages, consisting of local and long-distance
telephony, combined with other elements such as cable television and wireless
telecommunications service. As a result, the Company will be competing with the
ILEC, Ameritech, with traditional providers of long-distance service, such as
AT&T, MCI, Sprint and WorldCom and with competitive local service providers, and
may face competition from other providers of cable television service, such as
TCI. The Company's ability to compete successfully in telephony will depend on
the attributes of the overall bundle of services the Company is able to offer,
including price, features and customer service.
Wireless telephone service (cellular and personal communication service
("PCS")) now is generally viewed by consumers as a supplement to, not a
replacement for, wireline telephone service. In particular, wireless is more
expensive than wireline local service and is generally priced on a usage basis.
However, it is possible that in the future the rate and quality differential
between wireless and wireline service will decrease, leading to more direct
competition between providers of these two types of services. In that event, the
Company's telephony operations may also face competition from wireless
operators.
OTHER TELEPHONY COMPETITORS. There are currently three principal competitive
telecommunications carriers in Chicago's Area 1: Ameritech, WorldCom and TCG.
Others have announced their entry into the local telephone business in Chicago,
but none is offering a commercially available product at this time. Of the "Big
Three" interexchange carriers, only MCI has attempted to enter the local market
to date. AT&T has publicly stated that it will be in the local Chicago market by
the end of 1998.
Ameritech is the regulated monopoly local carrier in Chicago's Area 1. It was
formed in 1983 as a result of the divestiture of AT&T. The local operating
company is known as Ameritech-Illinois, formerly Illinois Bell, and reported
operating revenues of $3.7 billion for 1996. Presently, its telephony services
are provided largely over restricted bandwidth, twisted-copper pair wire.
Ameritech offers local residential service on the basis of a per-line charge and
measured usage charges based on distance and time-of-day. Ameritech is the only
facilities-based provider presently available to the local residential market.
On the business side, Ameritech offers a wide range of
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switched and dedicated intraLATA local and toll services. Ameritech also offers
enhanced services such as custom calling and CLASS features to both residential
and business customers.
In late 1994, Ameritech received FCC approval to enter the cable television
business. Ameritech is initially targeting franchises in suburban Chicago and
Michigan. This new unregulated organization is called Ameritech New Media.
Ameritech is formally seeking the Area 5 franchise to compete with TCI in a
predominantly residential, single-family home market. Because Ameritech's video
division is not currently regulated, telephony services cannot currently be
bundled with cable services.
WorldCom is an integrated communications provider of local and long-distance
telecommunications services and certain Internet-related services to business
and government end-users nationally and internationally. It considers itself to
be the first CLEC and promotes its ability to offer an integrated set of
communications services. WorldCom says its strategy is to become the premier
provider of communications services to business and government end-users.
WorldCom has used a merger/acquisition strategy to achieve some of its goals.
In August 1996, MFS (now WorldCom) acquired Internet service provider UUNet
Technologies, Inc. and in August 1996, announced a merger with interexchange
carrier LDDS WorldCom. More recently, in October 1997, WorldCom announced the
purchase of Brooks Fiber Communications, which boosts its presence in the local
telecommunications arena. Finally, in November 1997, WorldCom announced a merger
with MCI, subject to regulatory approval. The combined WorldCom-MCI will offer a
broad range of services and will be one of the largest communications companies
in the world. The resulting integration of service offerings should strongly
position WorldCom against other interexchange carriers and local monopoly
carriers that do not yet provide the same range of services.
TCG is the nation's oldest competitive local telecommunications provider for
businesses and long-distance carriers. TCG's network currently encompasses more
than 6,200 route miles through 51 major markets. TCG markets its services
particularly to large businesses, interexchange carriers, ISPs, STS companies,
cable companies (dark and lit fiber transport) and other information-intensive
businesses. TCG provides dedicated and switched access, local-transport
services, central office switched services and fax and data services. TCG also
supplies point-to-point, broadcast-quality video channels between two or more
locations. TCG offers local access and is targeting interexchange carriers and
ISPs.
Switched services represented about 40% of TCG's revenue in 1996; special
access accounted for 60% during the same period. As of March 1997, four of the
nation's largest cable television companies (TCI, Cox Communications, Inc.,
Comcast Corporation and Media One) controlled approximately 88% of the voting
power of TCG. In January 1998, AT&T entered into an agreement to acquire all of
the outstanding common stock of TCG. In Chicago, TCG operates a 372-route mile
network, serving 144 commercial buildings in the downtown Loop. In September
1994, TCG was granted a CLEC license to operate in the Chicago area and has
focused its marketing efforts in Chicago's western suburbs.
TCI has formed a new division, TCI Telephony, Inc., to enable TCI to become a
participant in the competitive telephony market, and has indicated that it
intends to offer a full-range of both wired and wireless services to residential
and business customers. TCI has indicated that it plans to package its
telecommunications products with its cable services. It has been granted a
license to offer residential telephony service in Arlington Heights, Illinois (a
suburb of Chicago), but it has not stated any plan to enter the City of Chicago,
although it may choose to do so in the future.
CHICAGO FRANCHISE
21st Century was awarded a franchise effective June 1996 by the City of
Chicago for the construction of a fiber cable network in Chicago's Area 1,
representing one of the first second-provider franchise awards for a large urban
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area. Under this non-exclusive 15-year renewable franchise, the Company has been
granted unrestricted access to the public right-of-way to construct, operate and
maintain its DRS Network to all residential and commercial subscribers in the
franchise area. The franchise requires that the Company provide ubiquitous
service to all residential subscribers in the franchise area in accordance with
a specified time schedule, and allows the Company to selectively provide service
to the franchise area's business and financial districts.
Franchises typically contain many conditions, such as time limitations on
commencement and completion of system construction, customer service standards,
minimum number of channels and the provision of free service to schools and
certain other public institutions. The Company believes that the conditions in
its franchise in Chicago's Area 1 are fairly typical. The franchise obligates
the Company to meet a number of local regulatory requirements, including (i)
notices to subscribers of service and fee changes, (ii) system design,
construction, maintenance and technical criteria that, among other things,
require that the system be fully constructed within four years, (iii)
interconnection with other cable operators serving the City for purposes of
public, educational and governmental ("PEG") and leased access, (iv) various
payments to the Chicago Access Corp. ("CAC") for PEG local access obligations,
including (a) payments over ten years to CAC aggregating $1.1 million to fund
CAC's PEG local access capital costs and (b) an annual payment to CAC of one
percent of annual gross revenues, (v) preservation of 10 percent of channel
capacity for PEG local access, (vi) equal employment and affirmative action
requirements and (vii) development and fulfillment of standards for customer
service and consumer complaints. The Company may not transfer or assign the
franchise until June 1999, and then only with the prior consent of the City. The
Company is required to pay a quarterly fee for the franchise to the issuing
authority equal to 5% of gross revenues received from the operation of its cable
television system. The Company prepaid $3 million of its franchise fee, which
amount was credited toward future franchise fee payments, including a credit for
the time value of the prepayment.
EMPLOYEES
At March 31, 1998, the Company had 120 full-time employees, of which 48 were
technicians or others performing installation, maintenance, construction and
design repair on the DRS Network, 27 were involved principally in sales and
marketing, 15 were involved in matters relating to Internet and high-speed data
services and 30 had management or administrative responsibilities. The Company
considers its relations with its employees to be satisfactory. The Company
recruits from several major industries for employees with skills in voice, video
and data technologies.
PROPERTIES
The Company entered into a license agreement dated October 27, 1994 with the
CTA. The term of the agreement commenced on June 24, 1996 and is for 15 years.
The parties may elect to extend the agreement for additional 15-year terms.
Pursuant to this agreement, the CTA gave the Company a nonexclusive license to
install and maintain fiber optic cable on railway structures of the CTA's red,
brown and green transit lines.
The Company entered into a five-year pole attachment agreement dated April 3,
1996 with Commonwealth Edison. The Company has the option to renew this
agreement for one additional five-year term. Pursuant to this agreement,
Commonwealth Edison gave the Company nonexclusive licenses to attach fiber optic
strands and/or cable wire, strand hardware, hardware and power supplies to
utility poles that are owned by Commonwealth Edison so long as it does not
interfere with Commonwealth's use of such utility poles.
The Company entered into a pole attachment agreement dated November 14, 1996
with Ameritech. Either party may terminate the agreement upon six month's notice
to the other party. Pursuant to this agreement, Ameritech has given the Company
the nonexclusive right to place communications facilities on Ameritech's poles
and/or conduit systems.
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The Company entered into a 15-year lease dated January 31, 1997 for its
headquarters (which includes the NOC) (the "Apparel Lease") with LaSalle
National Bank. The Apparel Lease currently covers 32,422 square feet, and will
be increased on December 1, 1998 to cover 36,410 square feet and on December 1,
2000 to cover 40,397 square feet.
The Company's principal physical assets consist of fiber optic network and
equipment, located either at the equipment site or along the DRS Network. The
Company's distribution equipment along the DRS Network is generally attached to
utility poles under pole rental agreements with local public utilities, although
in some areas the distribution cable is buried in underground ducts or trenches.
The Company's franchise from the City of Chicago gives the Company rights of way
for its DRS Network. The physical components of the DRS Network require
maintenance and periodic upgrading to keep pace with technology advances. The
Company believes that its properties, taken as a whole, are in good operating
condition and are suitable for the Company's business operations.
INDUSTRY STRUCTURE AND TECHNOLOGY
GENERAL
Under the 1996 Telecom Act, cable companies may provide telephone service and
telephone companies may provide cable service, local telephone companies may
provide long-distance service and long-distance telephone companies may provide
local service, and all may provide numerous ancillary services (with certain
exceptions not material to the Company). Municipalities are required to grant
cable television franchises to qualified applicants. This change in the
regulatory environment, along with substantial growth in use of the Internet,
has led and is generally expected to continue to lead to a rush by
communications companies and other companies (such as utilities) to provide a
wider range of voice, video and data communications services to consumers.
COMMUNICATIONS TECHNOLOGIES AND SERVICES
Set forth below is a brief description of the current communications industry
systems, the technology generally used by each system (although numerous
variations exist, and some systems combine a variety of technologies), and the
hurdles each set of providers faces in offering new services.
CABLE TELEVISION. Cable television systems generally consist of coaxial
cable (which carries signals via radio frequency) and/or fiber optic cable
(which carries signal via light waves generated by a laser) that runs along
aerial or underground rights-of-way past the homes and businesses in a service
area, connecting to each home and business individually through a coaxial cable
connection tap located outside of the premises. Subscriber premises have
internal wiring running from the coaxial cable connection tap to one or more
outlets or "jacks" into which television sets or set-top terminals (which are
used for special services, descrambling, "pay-per-view" and other features)
may be connected. HFC cable networks rely on numerous amplifiers cascaded
throughout the network to increase the signal strength, which diminishes as it
travels through the network. The use of amplifiers produces distortion and noise
which causes the signal quality to degrade, and this degradation increases as
the number of amplifiers increases. Networks which are primarily fiber optic do
not use amplifiers in the fiber optic portion of the network. Optical networks
use lasers and fiber optic cable to distribute signals throughout the network.
The number of channels or features that a cable network can offer is limited by
the capacity of the HFC network and the electronic equipment which processes and
amplifies the signal.
Many traditional cable companies have sought to compete by increasing channel
capacity through the use of extensive electronics, often resulting in poor
signal quality. Most cable television systems use one-way (half-duplex, non-
interactive) networks and accordingly do not have the ability to provide
telephone services, which require full-duplex, two-way interactive cable.
Several cable companies, including large cable companies, are beginning to offer
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one-way data transmission (with telephony dial-back services). However, such
services generally cannot deliver high-speed performance unless the operator
substantially upgrades its cable system infrastructure.
WIRELESS CABLE. MMDS, LMDS and DBS technologies allow the transmission of
television programming, including high-speed computer data, high-definition
television and facsimile transmissions, via microwave frequencies from a single
location. Wireless cable was designed to serve primarily rural areas where
laying traditional coaxial cable is not economically feasible. The wireless
cable system's signal is sent from a centrally located facility equipped with
transmitters, antennas, satellite dishes and scrambling and descrambling
equipment, and is received by subscribers with rooftop antennas and the
necessary converters. Because wireless cable signals are sent via microwaves,
they require line-of-sight transmission from the central source to the
subscribers. Obstructions such as trees, uneven terrain or dense urban skylines
can interfere with reception, although repeaters that aid in reaching
subscribers in certain obstructed areas are being developed to alleviate these
shortcomings. As a result, the Company believes that at present this technology
is not well suited to providing broadband services in urban areas such as those
targeted by the Company.
DTH, DBS AND OTHER SATELLITE TECHNOLOGIES. Direct-to-home Satellite TV
("DTH") companies provide the satellite transmission of television products
and services. As part of the programming package, DTH companies generally
include hardware and software for the reception and decryption of satellite
television programming. The majority of DTH programming is transmitted on C-band
radio frequency, which typically requires dish sizes ranging from six to twelve
feet in diameter, depending upon the geographic location of the subscriber. In
1982, the FCC allocated spectrum within the Ku-band for DBS systems. The Ku-band
historically has allowed for higher power transmission than C-band, enabling
recipients to receive Ku-band signals using smaller satellite dishes (ranging in
size from 15 to 18 inches in diameter). DBS systems generally offer more
channels (often over 100 channels in all) than cable systems, although DBS
providers usually do not offer local programming. Unlike cable television, DBS
and DTH do not require ground construction to install or maintain or to upgrade
services, but do require a southern line-of-site, a separate dish for every
television and are not suitable for use in large MDUs. Rather, the programming
is transmitted from a ground station to the subscriber via a communications
satellite. These systems require the subscriber to purchase or lease a satellite
dish to receive signals and a receiver system to process and descramble signals
for television viewing.
Most of the small satellite dishes available at present are not two-way
interactive and therefore are not suitable for telephone or Internet services,
although businesses that can afford to do so purchase expensive dishes with two-
way interactivity and can receive each of the broadband services. Residential
systems have been designed using telephone lines to transmit to the Internet and
satellite transmission for reception from the Internet. This approach still is
subject to dial-up delays and has many of the same limitations as two-way
telephone communications as compared to service via an interactive broadband
network. Satellite transmissions are also ill-suited for voice transmissions
utilizing existing technologies due to the delay and echo inherent in the
transmission from ground to satellite and back.
WIRELINE TELEPHONY. Local wireline telephone systems consist of a network of
switches, transmission facilities between switches and the "local loop"
connections between customer premises and the nearest local exchange switch. A
call initiated by a customer can be routed by the local exchange switch either
directly to the called party, if that party is served by the same switch, to
another local or toll switch for delivery to the called party, or through one or
more switches to the POP of a long-distance carrier that transmits the call to a
more distant local switch for ultimate delivery to the called party. The
transmission facilities connecting switches are comprised primarily of very
high-capacity fiber optic cables. However, local loops generally consist of
twisted copper wire pairs that run along aerial or underground rights-of-way to
each of the premises served. These local loops generally carry analog
transmission and have relatively low transmission capacity, sufficient to carry
only one two-way voice conversation. Local loop capacity can be expanded
somewhat by using advanced technologies such as ISDN and DSL, which permits
voice and data transmission to occur simultaneously and can support some limited
level of video teleconferencing.
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Local loops (even with ISDN or DSL) do not have sufficient capacity for large-
scale provision of full-motion video services. Telephone service is the most
common way of communication with the Internet, but existing local loop telephone
lines do not have enough capacity for rapid downloading of large volumes of data
(such as graphics), leading many Internet users to experience delays and ISPs to
experience circuit overload.
WIRELESS TELEPHONY (CELLULAR, PCS AND ENHANCED SPECIALIZED MOBILE RADIO
("ESMR")). Wireless telephone technology is based upon the division of a
given market area into a number of smaller geographic areas or "cells." Each
cell has "base stations" or "cell sites," which are physical locations
equipped with transmitter-receivers and other equipment that communicate by
radio signal with cellular telephones located within range of the cell-site.
Cells generally have an operating range from 2 to 25 miles. Each cell site is
connected to a mobile telephone switching office ("MTSO"), which, in turn, is
connected to the local landline telephone network. When a subscriber in a
particular cell dials a number, the cellular telephone sends the call by radio
signal to the cell's transmitter-receiver, which then sends it to the MTSO. The
MTSO then completes the call by connecting it with the landline telephone
network or another cellular telephone unit. Incoming calls are received by the
MTSO, which instructs the appropriate cell to complete the communications link
by radio signal between the cell's transmitter-receiver and the cellular
telephone. Like wireline local loops, wireless telephone technologies do not
have sufficient capacity for large scale provision of video and data services.
INTERNET ACCESS. Most Internet access takes place over telephone lines using
computer modems. This form of transmission works well for text and small amounts
of data, but telephone lines generally are not capable of handling large volumes
of information, multimedia applications or high-speed data transmission,
resulting in lengthy delays. Also, ISPs have limited numbers of ports available
for customers to dial into the Internet, and their customers may experience
difficulties obtaining access to the Internet or be disconnected if the access
network is congested. A few satellite companies provide broadband access to the
Internet from desktop PCs using a small dish antenna and receiver kit comparable
to that used for satellite television reception, although such systems generally
provide only one-way satellite transmission, requiring communications in the
other direction to travel over telephone lines. High-speed cable modems used
over traditional non-interactive cable networks similarly permit high-speed
broadband reception from the Internet, but require communications from the user
to the Internet to travel over telephone lines and are therefore hampered by the
same delays and access difficulties associated with their telephone-only
counterparts.
LEGISLATION AND REGULATION
The cable television industry currently is regulated by the FCC, some state
governments and most local governments. Telecommunications services are
regulated by the FCC and state public utility commissions. Internet services are
generally unregulated at the Federal and state levels. In addition, legislative
and regulatory proposals under consideration by Congress and Federal agencies
may materially affect the cable television, telecommunications and Internet
industries. The following is a brief summary of Federal laws and regulations
affecting the growth and operation of the cable television, telecommunications
and Internet industries and a description of certain state and local laws.
CABLE COMMUNICATIONS POLICY ACT OF 1984
The Cable Communications Policy Act of 1984 (the "1984 Cable Act"), which
amended the Communications Act of 1934, as amended (the "Communications Act"),
established comprehensive national standards and guidelines for the regulation
of cable television systems and identified the boundaries of permissible
Federal, state and local government regulation. The FCC was charged with the
responsibility for adopting rules to implement the 1984 Cable Act. Among other
things, the 1984 Cable Act affirmed the right of franchising authorities (state
or local, depending on the practice in individual states) to award one or more
franchises within their jurisdictions. The 1984 Cable Act provided that in
granting or renewing franchises, franchising authorities may establish
requirements for
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cable-related facilities and equipment, but may not establish or enforce
requirements for video programming or information services other than in broad
categories.
CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992
The 1992 Cable Act, which also amended the Communications Act, permitted a
greater degree of regulation of the cable industry with respect to, among other
things: (i) cable system rates for both basic and certain cable programming
services; (ii) programming access and exclusivity arrangements; (iii) access to
cable channels by unaffiliated programming services; (iv) leased access terms
and conditions; (v) horizontal and vertical ownership of cable systems; (vi)
customer service requirements; (vii) television broadcast signal carriage and
retransmission consent; (viii) technical standards and (ix) cable equipment
compatibility. Additionally, the 1992 Cable Act allowed municipalities to own
and operate their own cable television systems without a franchise, prevented
franchising authorities from granting exclusive franchises or unreasonably
refusing to award additional franchises covering an existing cable system's
service area, and prohibited the common ownership of cable systems and co-
located MMDS or SMATV systems. The 1992 Cable Act also prevented video
programmers affiliated with cable television companies from favoring cable
operators over competitors and required such programmers to sell their
programming to other multichannel video distributors. The legislation required
the FCC to initiate a number of rulemaking proceedings to implement various
provisions of the statute, the majority of which have been completed.
On June 28, 1996, the Supreme Court upheld cable operators' ability to enforce
prospective written policies against carrying programming that depicts sexual or
excretory activities or organs in an offensive manner on commercial leased
access channels. The Court also ruled that cable operators may not be required
to segregate indecent commercial leased access programming and block it from
viewer access, finding that this statutory provision violated cable operators'
First Amendment rights. The Court also struck down on First Amendment grounds
the statutory provision that enabled cable operators to prohibit obscene
material, sexually explicit conduct or material soliciting unlawful acts on PEG
channels.
TELECOMMUNICATIONS ACT OF 1996
The 1996 Telecom Act significantly altered the regulatory structure of
telecommunications markets by mandating that states permit competition for local
exchange services. The 1996 Telecom Act also required ILECs to provide
competitors with interconnection on reasonable and non-discriminatory terms and
conditions, with access to ILEC facilities on an unbundled basis, and to provide
competitors, at wholesale rates, telecommunications services for resale. In
addition, the 1996 Telecom Act provided a statutory procedure for the RBOCs,
which offer local exchange service, to apply to the FCC for authority to provide
long-distance services.
The 1996 Telecom Act also included significant changes in the regulation of
cable operators. Specifically, the 1996 Telecom Act reversed over a three-year
period much of the cable rate regulation established by the 1992 Cable Act. The
rates for cable programming service ("CPS" or "expanded-basic") tiers
offered by small cable operators in small cable systems were deregulated
immediately. The FCC's authority to regulate the CPS tier rates of all other
cable operators will expire on March 31, 1999. The legislation also (i)
eliminated the uniform rate requirements of the 1992 Cable Act where effective
competition exists, (ii) repealed the anti-trafficking provisions of the 1992
Cable Act, which prohibited transfers of ownership of cable systems within three
years after initial construction or acquisition, (iii) limited the rights of
franchising authorities to require certain technology and prohibit or condition
the provision of telecommunications services by the cable operator, (iv)
required cable operators to fully block or scramble both the audio and video on
sexually-explicit or indecent programming on channels primarily dedicated to
sexually-oriented programming, (v) allowed cable operators to refuse to carry
leased access programs containing "obscenity, indecency or nudity," (vi)
adjusted the pole attachment laws and (vii) allowed cable operators to enter
telecommunications markets which historically have been closed to them, while
also allowing some telecommunications providers to begin providing competitive
cable service in their local service areas.
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FEDERAL REGULATION OF CABLE SERVICES
The FCC has promulgated regulations covering many aspects of cable television
operations, and is required to adopt additional regulations or repeal or modify
existing regulations to implement the 1996 Telecom Act. The FCC may enforce its
regulations through the imposition of fines, issuance of cease and desist orders
and/or the imposition of other administrative sanctions, such as the revocation
of FCC licenses needed to operate certain transmission facilities often used in
connection with cable operations. A brief summary of certain Federal regulations
follows.
RATE REGULATIONS. Local franchising authorities may regulate rates for basic
cable services and equipment in communities where the cable operator is not
subject to "effective competition." The FCC resolves complaints about rates
for expanded-basic CPS and can reduce rates found to be unreasonable. Cable
services offered on a per channel or on a per program basis are not subject to
rate regulation by either local franchising authorities or the FCC. The 1996
Telecom Act deregulated the CPS rates of "small cable operators" immediately
and the CPS rates of all other cable operators after March 31, 1999.
A "small operator" is an operator that has fewer than 50,000 subscribers in
the franchise area, that with its affiliates serves less than 617,000
subscribers and that is not affiliated with entities with annual aggregate gross
revenues of more than $250 million.
Local franchise authorities must be certified by the FCC before regulating
basic cable rates. Upon certification, the local community obtains the right to
evaluate the reasonableness of basic rates under standards established by the
FCC. Certified franchising authorities are also empowered to regulate rates
charged for additional outlets and for the installation, lease and sale of
equipment used by subscribers to receive the basic service tier. Cable operators
may be required to refund overcharges with interest. The 1992 Cable Act permits
communities to certify at any time, so it is possible that the Company's
franchising authorities may choose in the future to certify to regulate the
Company's basic rates. FCC review of CPS rates is triggered by franchising
authority complaints filed within 180 days of a rate increase.
The FCC's rate regulations do not apply where a cable operator demonstrates
that it is subject to "effective competition" as defined under the 1992 Cable
Act. The Company believes that it is subject to effective competition in the
area that it currently serves.
The 1992 Cable Act also requires cable systems to permit subscribers to
purchase video programming offered by the operator on a per channel or a per
program basis without the necessity of subscribing to any tier of service, other
than the basic service tier, unless the system's lack of addressable converter
boxes or other technological limitations do not permit it to do so. Systems
facing "effective competition" are not subject to this tier buy-through
prohibition.
The 1996 Telecom Act allows cable operators to pass through franchise fees and
regulatory fees to subscribers without any prior notice. Notices of other rate
changes may be given by any reasonable written means, at the cable operator's
"sole discretion."
CARRIAGE OF BROADCAST TELEVISION SIGNALS. The 1992 Cable Act established
signal carriage requirements for cable operators. These regulations allow
commercial television broadcast stations which are "local" to a cable system,
to elect every three years whether to require the cable system to carry the
station, subject to certain exceptions, or whether to require the cable system
to negotiate for "retransmission consent" to carry the station. Commercial
stations are generally considered "local" to a cable system where the system
is located in the station's 1992 ADI, as determined by Arbitron; the regulatory
method for determining whether a station is "local" to a cable system may
change at the time of the October 1999 election. Cable systems must obtain
retransmission consent for
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the carriage of all "distant" commercial broadcast stations, except for certain
"superstations" (i.e., commercial satellite-delivered independent stations such
as WGN).
Local non-commercial educational television stations are also given mandatory
signal carriage rights. Subject to certain exceptions, a cable operator must
carry all such stations if the cable system is within the larger of (i) a 50-
mile radius of the station's city of license or (ii) the station's Grade B
contour (a measure of signal strength). Non-commercial stations are not given
the option to negotiate for retransmission consent.
DELETION OF NETWORK AND SYNDICATED PROGRAMMING. Cable television systems
that have 1,000 or more subscribers must, upon the appropriate request of a
local television station, delete or "black out" the network and/or syndicated
non-network programming of a distant station when the local station has
contracted for such programming on an exclusive basis.
REGISTRATION PROCEDURES AND TECHNICAL REQUIREMENTS. Prior to commencing
operation in a particular community, all cable television systems must file a
registration statement with the FCC listing the broadcast signals that it will
carry and certain other information. The Company has filed its registration
statement with the FCC. Additionally, cable operators periodically are required
to file various informational reports with the FCC. Cable operators that operate
in certain frequency bands used in the aeronautical service for airport air-to-
ground communications (108-137 MHz and 225-400 MHz bands) must notify the FCC
before commencing operations and, on an annual basis, file the results of
periodic cumulative leakage testing measurements to insure that they do not
interfere with aeronautical stations. Operators that fail to make these filings
or who exceed the FCC's allowable cumulative leakage index risk being prohibited
from operating in those frequency bands in addition to other sanctions. The
Company has filed its initial aeronautical notice with the FCC. The FCC has also
imposed technical standards applicable to the cable channels on which broadcast
stations are carried, and has prohibited franchising authorities from adopting
standards which conflict with or are more restrictive than those established by
the FCC. The FCC has applied its standards to all classes which carry downstream
National Television System Committee ("NTSC") video programming. The 1992
Cable Act requires the FCC to update periodically its technical standards to
reflect improvements in technology.
FRANCHISE AUTHORITY. The 1984 Cable Act affirmed the right of franchising
authorities (the cities, counties or political subdivisions in which a cable
operator provides cable service) to award franchises within their jurisdictions
and prohibited non-grandfathered cable systems from operating without a
franchise in such jurisdictions. The Company holds a cable franchise in the
franchise area in which it currently provides service.
In addition to the franchise matters discussed in greater detail below, local
franchise authorities typically exercise regulatory jurisdiction over cable
system design and construction, safe use of public rights-of-way, consumer
protection and customer service. The Company's franchise contains such
requirements.
The 1996 Telecom Act exempts from franchise requirements those
telecommunications services provided by a cable operator or its affiliate.
Franchise authorities may not require a cable operator to provide
telecommunications service or facilities, other than institutional networks, as
a condition of franchise grant, renewal or transfer. Similarly, franchise
authorities may not impose any conditions on the provision of such service.
Local officials may, however, regulate cable-provided telecommunications
services' use of public rights-of-way, provided that it is done outside the
cable franchising process and in a competitively neutral, non-discriminatory
way.
FRANCHISE FEES. Although franchising authorities may impose franchise fees
under the 1984 Cable Act, as modified by the 1996 Telecom Act, such payments
cannot exceed 5% of the cable system's annual gross revenues derived from the
operation of the cable system to provide cable services. Franchise fees apply
only to revenues from cable services. Franchising authorities are permitted to
charge a fee for any telecommunications provider's use of public rights-of-way
"on a competitively neutral and nondiscriminatory basis."
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FRANCHISE RENEWAL. Federal statutory law provides renewal procedures and
criteria designed to protect incumbent franchisees against arbitrary denials of
renewal. These formal procedures are mandatory only if timely invoked by either
the cable operator or the franchising authority. Even after the formal renewal
procedures are invoked, franchising authorities and cable operators remain free
to negotiate a renewal outside the formal process. Although the procedures
provide substantial protection to incumbent franchisees, renewal is by no means
assured, as the franchisee must meet a number of statutory standards and filing
deadlines. Even if a franchise is renewed, a franchising authority may impose
new and more onerous requirements such as upgrading facilities and equipment,
although the municipality must take into account the cost of meeting such
requirements.
CHANNEL SET-ASIDES. Federal law permits local franchising authorities to
require cable operators to set aside certain channels for PEG access
programming. In addition, cable television systems with 36 or more activated
channels are required to designate a portion of their channel capacity for
commercial leased access by unaffiliated third parties. Leased access rates are
to be set according to an FCC-prescribed formula.
OWNERSHIP. The 1996 Telecom Act prohibits a LEC or its affiliate from
acquiring more than a 10% financial or management interest in any cable operator
providing cable service in its telephone service area. It also prohibits a cable
operator or its affiliate from acquiring more than a 10% financial or management
interest in any LEC providing telephone exchange service in its franchise area.
A LEC and cable operator whose telephone service area and cable franchise area
are in the same market may not enter into a joint venture to provide
telecommunications service or video programming. There are exceptions to these
limitations for rural facilities, very small cable systems and small LECs in
non-urban areas.
The 1984 Cable Act prohibited the common ownership, operation, control or
interest in a cable system and a local television broadcast station whose
predicted Grade B contour covers any portion of the community served by the
cable system, and FCC rules continue to prohibit such cross-ownership. The 1996
Telecom Act repeals this statutory restriction on broadcast-cable cross-
ownership, but does not require the FCC to repeal its cross-ownership rule.
Nevertheless, the FCC intends to review this rule. The 1996 Telecom Act also
eliminates the FCC's restriction against the ownership or control of both a
broadcast network and a cable system, but it authorizes the FCC to adopt
regulations which will ensure carriage, channel positioning and
nondiscriminatory treatment of non-affiliated broadcast stations by cable
systems which are owned by a broadcast network.
The 1992 Cable Act prohibits the common ownership, affiliation, control or
interest in cable television systems and MMDS facilities or SMATV systems with
overlapping service areas. However, a cable system may acquire a co-located
SMATV system if it provides cable service to the SMATV system in accordance with
the terms of its cable television franchise. The 1996 Telecom Act provides that
these rules shall not apply where the cable operator is subject to effective
competition.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number of
cable systems a single cable operator may own. In general, no cable operator may
hold an attributable interest in cable systems which pass more than 30% of all
homes nationwide. This statutory provision was found to be unconstitutional by a
Federal district court in 1993, and the FCC has stayed the effectiveness of its
applicable rules pending disposition of further administrative reconsideration
and judicial appeal. Attributable interests for these purposes include voting
interests of 5% or more (unless there is another single holder of more than 50%
of the voting stock), officerships, directorships and general partnership
interests. An FCC proceeding in which ownership attribution standards currently
are under review may lead to changes in FCC policies affecting cable ownership.
PRIVACY. The 1984 Cable Act imposes a number of restrictions on the manner
in which cable system operators can collect and disclose data about individual
system subscribers. The statute also requires that the system operator
periodically provide all subscribers with written information about its policies
regarding the collection and handling of data about subscribers, their privacy
rights under Federal law and their enforcement rights. Under the 1992 Cable Act,
the privacy requirements are strengthened to require that cable operators take
such actions as are necessary to prevent unauthorized access to personally
identifiable information.
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ANTI-TRAFFICKING. Under the 1996 Telecom Act, a local franchise may require
prior approval of a transfer or sale of a cable system. The 1992 Cable Act
requires franchising authorities to act on a franchise transfer request within
120 days after receipt of all information required by FCC regulations and the
franchising authority. Approval is deemed granted if the franchising authority
fails to act within such period.
ACCESS TO PROGRAMMING AND EXCLUSIVITY. As required by the 1992 Cable Act,
the FCC adopted regulations designed to increase access to video programming for
all multichannel video programming distributors by prohibiting unfair or
discriminatory practices in the sale of satellite cable programming distributed
by cable-affiliated programmers. The rules also limit exclusive programming
contracts that may be entered into between cable operators and cable-affiliated
programmers.
COPYRIGHT. Cable television systems are subject to Federal compulsory
copyright licensing covering carriage of broadcast signals. In exchange for
making semi-annual payments to a Federal copyright royalty pool and meeting
certain other obligations, cable operators obtain a statutory license to
retransmit broadcast signals. The amount of the royalty payment varies,
depending on the amount of system revenues from certain sources, the number of
distant signals carried and the location of the cable system with respect to
over-the-air television stations. Cable operators are liable for interest on
underpaid and unpaid royalty fees, but are not entitled to collect interest on
refunds received for overpayment of copyright fees.
Copyright music performed in programming supplied to cable television systems
by pay cable networks (such as HBO) and cable programming networks (such as USA
Network) has generally been licensed by the networks through private "through
to the viewer" license agreements with the American Society of Composers and
Publishers and BMI, Inc., although music used in local origination programming
is not yet covered by a license.
TELECOMMUNICATIONS AND CABLE INSIDE WIRING. The FCC recently issued new
rules of particular importance to providers of cable television and
telecommunications services to MDUs. These rules, which govern such inside
wiring matters as procedures for an incumbent provider to sell, remove or
abandon its wiring upon termination of service and shared use of space by
competing providers, may affect the competitive position of providers of cable
and telephone service to the MDU market. The FCC is continuing to review issues
such as exclusive service contracts and application of cable home wiring rules
to non-cable video distributors.
POLE ATTACHMENTS. The Communications Act permits the FCC, in the absence of
state regulation, to regulate rates, terms and conditions for pole attachments
and use of utility conduits, ducts or other rights-of-way by cable operators.
Rates for pole attachments and use of conduits and other facilities for
providers of telecommunications services are subject to different FCC
regulations.
REGULATORY FEES AND OTHER MATTERS. The FCC requires payment of annual
"regulatory fees" by the various industries it regulates, including the cable
television industry. The current fee is $0.54 per subscriber. Fees are also
assessed for other FCC licenses, including licenses for business radio, cable
television relay system and earth stations. Fees are reassessed by the FCC
annually.
In December 1994, the FCC adopted new cable television and broadcast technical
standards to support a new Emergency Alert System. The FCC has not established a
date by which cable operators must install and activate equipment necessary to
implement the new Emergency Alert System.
FCC regulations also address the carriage of local sports programming,
restrictions on origination and cablecasting by cable system operators,
application of the rules governing political broadcasts, customer service
standards, closed captioning of programming for the hearing impaired,
limitations on advertising contained in nonbroadcast children's programming and
equal employment opportunity requirements for cable system employees.
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FEDERAL REGULATION OF TELECOMMUNICATIONS SERVICES
Telecommunications services are subject to varying degrees of Federal, state
and local regulation. The FCC exercises jurisdiction over all facilities of and
services offered by telecommunications carriers to the extent those facilities
are used to provide, originate or terminate interstate or international
communications.
The 1996 Telecom Act substantially revised communications regulation in the
United States. The legislation is intended to allow providers to enter
communications markets that have historically been closed to them as a result of
legal restrictions and due to practical and economic considerations. At the same
time, implementation of the 1996 Telecom Act and regulatory actions at the state
level may result in increased competition in the local exchange business, which,
in turn, will give incumbent providers greater flexibility to compete
aggressively. The Company is unable to predict the ultimate outcome of Federal
and state proceedings to implement the legislation.
INTERCONNECTION. The 1996 Telecom Act establishes local exchange competition
as a national policy by preempting laws that prohibit competition in the local
exchange. The 1996 Telecom Act also requires ILECs to enter into mutual
compensation arrangements with new local telephone companies for transport and
termination of local calls on each others' networks. The Act's interconnection,
unbundling and resale standards have been developed in the first instance by the
FCC and will be implemented by the states in numerous proceedings and through a
process of negotiation and arbitration. In August 1996, the FCC adopted a wide-
ranging decision regarding the statutory interconnection obligations of the
LECs. Among other things, the order established pricing principles to be used by
the states in determining rates for unbundled local network elements and
established a method for calculating discounts to reflect costs saved by the
LECs in offering their retail services to other carriers on a wholesale basis.
In July 1997, the United States Court of Appeals for the Eighth Circuit struck
down the pricing rules established by the FCC, ruling that the FCC lacked
jurisdiction under the 1996 Telecom Act to establish pricing rules to be applied
by the states. Consequently, the pricing of interconnection, unbundled network
elements and wholesale ILEC services is a matter primarily within the
jurisdiction of state commissions at the present time. The court generally
upheld the FCC's non-pricing requirements for unbundling of network elements and
offering of wholesale services. The FCC has appealed such decision to the United
States Supreme Court.
NUMBER PORTABILITY. Another new statutory provision requires all providers
of local exchange services to give users the ability (without the impairment of
quality, reliability or convenience) to retain their existing telephone numbers
if they switch local exchange service providers ("number portability"). The
FCC has adopted an order requiring the implementation of interim portability and
mandating that permanent number portability be available in the 100 largest
metropolitan areas by December 31, 1998. However, an appeal challenging that
decision is pending.
UNIVERSAL SERVICE AND ACCESS CHARGE REFORM. The FCC has adopted rules
implementing the universal service requirements of the 1996 Telecom Act.
Pursuant to those rules, all telecommunications providers must contribute to a
newly established Universal Service Fund. Carriers providing service to
customers in high-cost and rural areas, as well as to low-income customers, will
be eligible to collect subsidies from the fund. The fund also will subsidize
service provided to schools, libraries and rural health care providers. The FCC
also completed a proceeding in which it revised the rules governing access
charges imposed by ILECs on interexchange carriers for use of the local network
to complete long-distance calls. The policies adopted in that proceeding are
intended to move the ILECs' charges for access services closer to cost. Appeals
of the FCC's access charge reform and universal service orders are currently
pending.
RBOC ENTRY INTO LONG DISTANCE. The 1996 Telecom Act opens the way for RBOCs
and their affiliates to provide long-distance telecommunications services
between a local access and transport area ("LATA") and points outside that
area. Prior to the 1996 Telecom Act, RBOCs were generally prohibited from
offering such "interLATA" services. Under the 1996 Telecom Act such services
may be offered by a RBOC outside of its local exchange service states
immediately. RBOCs may offer interLATA services from within such states (in-
region) only after receiving FCC approval, and in accordance with regulatory
requirements. On December 31, 1997, a Federal district court judge in Texas
declared portions of the 1996 Telecom Act unconstitutional. If this ruling is
upheld on appeal,
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RBOCs could enter the interLATA market in the very near future. If the Company
decides itself to provide interLATA service, it will likely face vigorous
competition from RBOC entrants, as well as from existing long-distance carriers.
TARIFFS. Pursuant to its forbearance authority, the FCC recently determined
that it will no longer require nondominant interexchange carriers to file
tariffs listing their rates, terms and conditions. This decision has been stayed
by the United States Court of Appeals for the District of Columbia Circuit.
Nondominant providers of exchange access services provided to interexchange
carriers no longer are required to file tariffs at the FCC. Authorization from
the FCC must be obtained, and a carrier must file a tariff at the FCC detailing
the rates, terms and conditions of service, prior to offering international
service.
ADDITIONAL REQUIREMENTS. Federal law imposes a number of additional
obligations on all telecommunications carriers, including the obligations to:
(i) interconnect with other carriers and not to install equipment that cannot be
connected with the facilities of other carriers; (ii) ensure that their services
are accessible and usable by persons with disabilities; (iii) provide
Telecommunications Relay Service ("TRS"), either directly or through
arrangements with other carriers or service providers (TRS enables hearing
impaired individuals to communicate by telephone with hearing individuals
through an operator at a relay center); (iv) comply with verification procedures
in connection with changing the prescribed interexchange carrier of a customer
so as to prevent "slamming," a practice by which a customer's chosen long-
distance carrier is switched without the customer's knowledge; (v) protect the
confidentiality of proprietary information obtained from other carriers,
manufacturers and customers; (vi) pay annual regulatory fees to the FCC; (vii)
contribute to the Telecommunications Relay Services Fund; and (viii) cooperate
with Federal, state and local law enforcement officials in lawful
investigations, while protecting the confidentiality of subscribers'
communications. In addition, the Company will be subject to requirements
potentially affording competitors access to its facilities and rights-of-way and
enabling others to resell the Company's services.
ADDITIONAL REQUIREMENTS IMPOSED ON LECS. Federal law imposes a number of
additional obligations that will apply to the Company to the extent it provides
local exchange and exchange access services, including the duty (i) not to
prohibit or impose unreasonable or discriminatory conditions or limitations on
the resale of its telecommunications services, (ii) to provide, to the extent
technically feasible, number portability in accordance with FCC requirements, to
provide dialing parity to competing providers of telephone exchange service and
telephone toll service and the duty to permit all such providers to have
nondiscriminatory access to telephone numbers, operator services, directory
assistance and directory listing, with no unreasonable dialing delays, (iii) to
afford access to its poles, ducts, conduits and rights-of-way to competing
providers of telecommunications services on rates, terms and conditions that are
consistent with section 224 of the Communications Act and (iv) to establish
reciprocal compensation arrangements for the transport and termination of
telecommunications.
STATE AND LOCAL REGULATION
CABLE TELEVISION REGULATIONS
In June of 1996, the Company and the City of Chicago entered into a franchise
agreement to provide cable services to Area 1 of the City. The franchise remains
in effect for 15 years, until June 2011. Under the franchise, the Company is
obligated to pay to the City a franchise fee of 5 percent of its annual gross
revenues received from operation of its cable television system. The franchise
obligates the Company to meet a number of local regulatory requirements,
including: (i) notices to subscribers of service and fee changes; (ii) system
design, construction, maintenance and technical criteria that, among other
things, require that the system be fully constructed within four years; (iii)
interconnection with other cable operators serving the City for purposes of City
PEG and leased access; (iv) various payments to the CAC for PEG local access
obligations, including (a) payments over ten years aggregating $1,125,000 to
fund CAC's PEG local access capital costs and (b) an annual payment of one
percent of annual gross revenues; (v) preservation of 10 percent of channel
capacity for PEG local access; (vi) equal employment and affirmative action
requirements; and (vii) development and fulfillment of standards for customer
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service and consumer complaints. The Company may not transfer or assign the
franchise until June 1999, and then only with the prior consent of the City.
TELECOMMUNICATIONS REGULATIONS
The 1996 Telecommunications Act contains provisions that prohibit states and
localities from adopting or imposing any legal requirement that may prohibit, or
have the effect of prohibiting, market entry by new providers of intrastate or
interstate telecommunications services. The FCC is required to preempt any state
or local requirements to the extent necessary to enforce the open market entry
requirements. States and localities may continue to regulate the provision of
intrastate telecommunications services and require carriers to obtain
certificates or licenses before providing service. These regulatory agencies are
governed by respective Federal or state legislation and, therefore, any change
or modification to such regulation or legislation can result in positive or
negative effects upon the Company. Moreover, any significant changes in
regulations by Federal or state governmental agencies could significantly
increase the Company's costs or otherwise have an adverse effect on the
Company's activities.
STATE CERTIFICATION PROCEDURES. CLECs desiring to provide service within the
State of Illinois must obtain certificates of exchange and interexchange
telecommunications service authority. On October 27, 1997, the Company applied
to the Illinois Commerce Commission ("ICC") for such certificates. Those
applications are currently pending. To be awarded a certificate, an applicant
must show that it has the requisite technical, financial and managerial
expertise to offer the underlying services. In addition, an application for a
certificate to provide local exchange service must prove that grant of the
certificate would not adversely affect the prices, network design or the
financial viability of the principal provider of local exchange
telecommunications service. In addition to obtaining the requisite certificates,
carriers are required to file tariffs describing the nature of the service,
applicable rates and other charges, terms and conditions of service and the
exchange, exchanges or other geographical area or areas in which the service
shall be offered or provided.
STATE RESALE REQUIREMENTS. Once the Company receives its certification from
the ICC, it will be required to offer for resale all noncompetitive services. A
carrier offering noncompetitive services to any customer must provide that
service pursuant to tariff to all persons, including all telecommunications
carriers and competitors. A service is competitive if it is reasonably available
(or its functional equivalent or substitute is reasonably available) for some
identifiable class or group of customers. A carrier may petition the ICC to
request a ruling that a service be declared competitive, and thus, not subject
to the resale requirements. In addition, noncompetitive services are subject to
additional tariffing requirements and other regulation.
STATE INTERCONNECTION REQUIREMENTS. Illinois statutory law does not
explicitly regulate the terms of interconnection between telecommunications
carriers. The ICC, however, has adopted detailed regulations to implement
interconnection under Section 252 of the Communications Act. Specifically, the
ICC is required to arbitrate interconnection agreements between competitive
local exchange providers, such as the Company, and incumbent local exchange
providers.
STATE UNIVERSAL SERVICE REQUIREMENTS. Similar to the universal service fund
mandated by the FCC, the ICC established a Universal Service Telephone Service
Assistance Program whereby providers of local exchange services pay into a fund
designed to subsidize local service for low-income residents of the state. Such
funds are available to providers that service such customers.
LOCAL FEES AND TAXES. All providers operating in the City of Chicago are
required to remit a fee of 2 percent of all gross charges paid to the provider
for telecommunications received or originated within the City. The fee is for
the use of the public ways within the City. Providers, such as the Company, are
required to pass the fee on to customers, and are permitted to retain up to 2
percent of the total amounts collected to reimburse themselves for expenses
incurred in submitting this fee to the City. In addition, a tax of 5 percent of
all gross charges for all
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telecommunications originated within the City of Chicago must be remitted to the
City. Providers may charge customers directly for this tax, and may keep up to
1.75 percent of the amounts collected to reimburse themselves for the expenses
of collecting such taxes.
LOCAL EMERGENCY SYSTEM REQUIREMENTS. The City of Chicago imposes upon every
network connection within the City's corporate limits a monthly rate of $1.25
per network connection to support the City's Emergency Telephone System. Each
carrier, such as the Company, is required to collect this amount from each
subscriber as a separate billed amount on a monthly basis. Carriers, such as the
Company, can deduct three percent of the gross amount collected to reimburse
themselves for the expenses of collecting and accounting for these charges.
Carriers must remit the amount collected to the Chicago Emergency Telephone
System Board monthly.
To the best of the Company's knowledge, there exist no local or city
regulations which materially affect the Company's planned offerings of
telecommunications services.
FEDERAL AND STATE REGULATION OF INTERNET SERVICES
Internet services, including Internet access, have traditionally been deemed
an "enhanced" or "information" service and, as such, neither Federal nor
state telecommunications regulations apply. As a matter of Federal policy, the
FCC does not regulate the provision of "information" and "enhanced"
services, and preempts certain state regulation of such services that would
frustrate the Federal deregulatory policy. However, it is likely that, in the
next year, the FCC will investigate the status of Internet services to discern,
among other things, whether some or all Internet services should be classified
as "telecommunications" and not as "information" or "enhanced" services.
At this time, the Company cannot estimate whether the FCC's future proceeding
will lead to a change of regulatory treatment of Internet services, or what
impact such a change would have on the Company's business plans for providing
Internet services.
The Communications Decency Act ("CD Act") would make it unlawful to: (i)
knowingly send to a minor or display in a manner available to a minor
"obscene", "indecent" or "patently offensive" communications using a
telecommunications device or on-line service; (ii) send such a communication to
anyone with the intent to annoy, threaten or harass; or (iii) allow a
telecommunications facility under one's control to be used for such purpose. A
preliminary injunction against enforcement of the CD Act with respect to
indecent or patently offensive communications has been affirmed by the United
States Supreme Court, which found the CD Act's provisions to violate the First
Amendment. Although it is unlikely that the enjoined provisions of the CD Act
will ever become effective, there can be no assurance that information content
made available on or through the Company's offerings, by the Company or by users
of those offerings would not violate the CD Act, if it were to become effective,
or similar legislation that Congress might enact in the future, or that attempts
to implement defenses to such legislation would not adversely affect the
Company's business or operations. Federal laws dealing with obscenity and child
pornography as well as various state laws similar to those laws or to the CD Act
may also apply to information content available on or through the Company's
offerings. There is no assurance that those laws will not be applied in a manner
that will adversely affect the Company's business or operations.
Proposals for additional or revised statutory or regulatory requirements are
considered by Congress, the FCC and state and local governments from time to
time, and a number of such proposals are under consideration at this time. It is
possible that certain of the provisions and requirements described herein are
now, and in the future may be, the subject of federal or state legislation,
agency proceedings or court litigation. It is not possible to predict what
legislative, regulatory or judicial changes, if any, may occur or their impact
on the Company's business or operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are listed below.
Directors of the Company are elected at the annual meeting of shareholders and
officers of the Company are appointed at the first meeting of the Board of
Directors after each annual meeting of shareholders. Directors and executive
officers of the Company are elected to serve until they resign or are removed,
are otherwise disqualified to serve or until their successors are elected and
qualified. The ages of the persons set forth below are as of December 31, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- ----------------------------- --- -------------------------------------------
<S> <C> <C>
Glenn W. Milligan........... 50 Chairman of the Board and Chief Executive
Officer
Robert J. Currey............ 52 President, Chief Operating Officer and
Director
Ronald D. Webster........... 48 Chief Financial Officer
Jay E. Carlson.............. 36 Chief Technical Officer
Richard Wiegand-Moss........ 50 Senior Vice President of Customer
Operations
Stephen Lee................. 41 Senior Vice President of Internet and Data
Services
Susan R. Quandt............. 43 Senior Vice President of Corporate
Marketing
John Brouse................. 49 Vice President of Network Operations
Eric D. Kurtz............... 33 Vice President of Corporate Development
and Regulatory Affairs
Roxanne Jackson............. 33 Vice President of Human Resources
Donna Clayburn.............. 40 Vice President of Marketing
Edward T. Joyce............. 55 Director
Dr. Charles E. Kaegi........ 47 Director
James H. Lowry.............. 58 Director
David Kronfeld.............. 50 Director
Thomas Neustaetter.......... 45 Director
</TABLE>
GLENN W. MILLIGAN, the Company's founder, has been Chairman of the Board and
Chief Executive Officer of the Company since its inception in October 1992.
Prior to founding the Company, Mr. Milligan was President and Chief Executive
Officer of 21st Century Technology Group, Inc. from April 1986 to October 1992.
From July 1985 until March 1986, Mr. Milligan served as Regional Director for
the Walt Disney Company, where he was responsible for sales and marketing in
eight midwestern states. From March 1984 to March 1985, Mr. Milligan served as
Area Manager of the Midwest offices of Showtime Networks, Inc. and Regional
Sales Director of their North Central offices from March 1985 to June 1985. From
July 1979 to November 1983, Mr. Milligan was the Chief Executive Officer of
DAEOC, Inc., a diversified government contractor.
ROBERT J. CURREY has served as a Director of the Company since February 1997
and was named President and Chief Operating Officer on March 1, 1998. Mr. Currey
served as Group President of Telecommunications Services for McLeod USA, a
wholly owned subsidiary of McLeod, Inc., from September 1997 through February
1998. Mr. Currey continues to serve on the board of directors of McLeod USA.
From March 1990 until September 1997, he served as President and Chief Executive
Officer of Consolidated Communications. From 1988 to 1990, Mr. Currey served as
Senior Vice President of Operations and Engineering at Citizens Utilities
Company in Stanford, CT. From 1987 to 1988, Mr. Currey served as Executive Vice
President at US Sprint in Kansas City, MO.
RONALD D. WEBSTER joined the Company as Chief Financial Officer in September
1997. He was previously Vice President and Treasurer at Telephone Data Systems,
Inc., where he served from April 1988 until August 1997. Prior thereto, he held
executive positions with Ideal School Supply Corp. and Trans Union Corporation.
JAY E. CARLSON has served as the Company's Chief Technical Officer since March
1997. From October 1989 to March 1997, Mr. Carlson was the Fund Engineering
Director for Jones Intercable, Inc. where he was responsible for
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engineering operations in the Western region. He was also instrumental in the
design and construction of Jones Intercable's Alexandria, Virginia HFC broadband
network, which was one of the first platforms to simultaneously carry
residential and commercial telephony, video and data.
RICHARD WIEGAND-MOSS joined the Company in May 1996 and serves as Senior Vice
President of Customer Operations. Prior to joining the Company, from May 1994 to
April 1996, Mr. Wiegand-Moss was Vice President of Customer Operations for Time
Warner Entertainment Co. L.P. From October 1993 to April 1994, he was Senior
Consultant/Project Manager for International Profit Associates, a management
consulting firm providing turnaround services for companies in financial trouble
and from January 1991 to September 1993, Mr. Wiegand-Moss was General Manager
and Chief Operating Officer of TCI Chicago. From August 1982 until December
1990, Mr. Wiegand-Moss was Vice President and District Manager for Continental
Cablevision.
STEPHEN LEE joined the Company in January 1997 as Senior Vice President of
Internet and Data Services. Mr. Lee was the Director of the Central Region Sales
for MFS Datanet, Inc. from October 1993 to April 1996. From April 1996 to
January 1997, Mr. Lee served as a technical consultant to the Company. From
October 1983 until October 1993, Mr. Lee held various managerial positions at
Graphnet, Inc. From January 1979 to October 1983, Mr. Lee was the Major Account
Manager/Systems Sales Engineer for ITT World Communications, Inc.
SUSAN R. QUANDT has served as the Company's Senior Vice President of Corporate
Marketing since December 1997. From December 1994 to December 1997, Ms. Quandt
served as Executive Vice President of Taylor-Winfield, an information technology
market consulting and executive recruiting firm. From January 1992 to September
1994, Ms. Quandt served as Vice President of Marketing and Product Development
of Call-Net Enterprises Inc., a national long-distance telephone company owned
by Sprint Canada. From January 1989 to December 1991, Ms. Quandt served as Vice
President of Marketing for Schneider Communications, Inc., a regional long-
distance telephone company.
JOHN BROUSE has served as the Company's Vice President of Network Operations
since April 1997. Prior to that time, Mr. Brouse was Operations Engineering
Director for Jones Intercable, Inc. from June 1988 to April 1997. Mr. Brouse
received the cable industry's prestigious Polaris Award in 1996.
ERIC D. KURTZ has served as the Company's Vice President of Corporate
Development and Regulatory Affairs since March 1997. From April 1989 until July
1996, Mr. Kurtz was a General Manager with Time Warner's Milwaukee & Chicago
Divisions. During this time span he also served as a board member of the
Wisconsin Cable Communications Association and as its President from September
1994 to September 1996.
ROXANNE JACKSON has served as the Company's Vice President of Human Resources
since May 1996. Prior to that time, from January 1994 to May 1996, Ms. Jackson
was the Human Resources Director for Metz Baking Group. From August 1992 until
January 1994, Ms. Jackson served as the Director of Human Resources for Fox
Television Stations, Inc.
DONNA CLAYBURN has served as the Company's Vice President of Marketing since
March 1997. Prior to joining the Company, from November 1994 until September
1996, Ms. Clayburn was a Senior Vice President, Affiliate Sales & Marketing and
later a Marketing Consultant for Scholastic, Inc., a book and magazine
publishing company. From March 1993 to November 1994, Ms. Clayburn was the Vice
President, Affiliate Sales & Marketing with World African Network. From April
1989 until February 1993, she was the National Accounts Director for ESPN. From
October 1986 to April 1989, Ms. Clayburn was Account Executive for Turner
Broadcasting. Ms. Clayburn served as HBO Manager, BET Marketing with Time Warner
from December 1982 to October 1986.
EDWARD T. JOYCE has served as a Director of the Company since the Company's
inception in October 1992. Mr. Joyce founded his own firm in 1971, now known as
Edward T. Joyce and Associates, P.C., a law firm dealing with commercial
litigation.
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<PAGE>
DR. CHARLES E. KAEGI has served as a Director of the Company since the
Company's inception in October 1992. Dr. Kaegi has been in private practice of
medicine since July 1979. From November 1979 to present, Dr. Kaegi has held the
following positions at Ravenswood Hospital Medical Center: Attending Physician
(November 1979 to present); Medical Director, Alcohol & Drug Abuse Program (July
1994 to present); Medical Director, Community Mental Health Center (November
1994 to present); Medical Education (January 1980 to present); Secretary of the
Department of Psychiatry (January 1993-present); and Consultant to Community
Mental Health Center (March 1980 to August 1985). Dr. Kaegi is the cousin of Mr.
Glenn Milligan.
JAMES H. LOWRY has served as a Director of the Company since February 1997.
Mr. Lowry serves as President and Chief Executive Officer of James H. Lowry &
Associates ("JHLA"), a consulting company established in 1975. Prior to
establishing JHLA, Mr. Lowry served as the Director of Public Service Practice
for McKinsey & Company from 1967 to 1975.
DAVID KRONFELD has served as a Director of the Company since February 1997.
Mr. Kronfield founded JK&B Capital in January 1996 and has been its general
partner since that time. Before founding JK&B Capital, Mr. Kronfield was a
General Partner at Boston Capital Ventures from August 1989 to October 1995,
where he specialized in the telecommunications and software industries. From
October 1984 to August 1989, Mr. Kronfield served as Vice President of
Acquisitions and Venture Investments at Ameritech.
THOMAS NEUSTAETTER has served as a Director of the Company since February
1997. Mr. Neustaetter has been an officer of the Chatterjee Management Group, a
division of Chatterjee Management Company, since January 1996. From January 1995
to January 1996, Mr. Neustaetter was the Managing Director for Bancroft Capital
Corporation in New York City, a company he founded. From August 1986 to December
1994, Mr. Neustaetter was employed at Chemical Banking Corporation in New York
City.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board currently has two committees, the Executive Committee and the
Compensation Committee. The Executive Committee makes recommendations to the
Board of Directors regarding issues such as finance, strategic planning and
long-range goals for the Company. The current members of the Executive Committee
are Glenn Milligan, Edward Joyce and David Kronfeld.
The Compensation Committee reviews and recommends the compensation and bonus
arrangements for executive level management of the Company and administers the
Company's stock option plans. The current members of the Compensation Committee
are Glenn Milligan, Edward Joyce and Thomas Neustaetter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As stated above, the current members of the Compensation Committee are Messrs.
Milligan, Joyce and Neustaetter. Mr. Milligan is also the Chief Executive
Officer of the Company.
TRANSACTION WITH 21ST CENTURY TECHNOLOGY GROUP, INC. Messrs. Milligan, Joyce
and Kaegi served as executive officers and directors of 21st Century Technology
Group, Inc. As of March 26, 1996 the Company entered into an Asset Purchase
Agreement with 21st Century Technology Group, Inc. pursuant to which the Company
acquired (i) the contract rights to service 1,734 cable television subscribers,
(ii) contracts pertaining to subscriber lists and (iii) certain electronic
equipment in exchange for the purchase price of $3,381,300. On March 26, 1996
Messrs. Milligan, Joyce and Kaegi beneficially owned approximately 15%, 27% and
24%, respectively, of the common stock of 21st Century Technology Group, Inc.
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<PAGE>
PAYMENT OF LEGAL FEES TO EDWARD JOYCE. In January 1997, the Company paid
approximately $459,000 of accrued legal fees to Edward Joyce, either
individually or to entities controlled by him, for legal services rendered by
Mr. Joyce to the Company in connection with the Company's cable service offering
and its obtaining the Chicago franchise. Mr. Joyce continues from time to time
to perform legal services for the Company.
SALE OF CAPITAL STOCK. In June 1996, the Company entered into a loan
agreement with LaSalle Northwest National Bank (the "Bank") pursuant to which
the Bank agreed to make certain loans available to the Company on a revolving
credit basis in the maximum principal amount of $5.0 million. In order to induce
the Bank to enter into this agreement, the Bank required that the loan be
unconditionally guaranteed by certain directors of the Company. Messrs.
Milligan, Kaegi and Joyce agreed to be guarantors in exchange for the right and
option to acquire up to an aggregate of 1,250,000 shares of Common Stock of the
Company at $4 per share for a period of 10 years.
In January 1997, pursuant to the Stock Purchase Agreement dated January 30,
1997, the Company issued an aggregate of 1,380.3 shares of Class A Convertible
8% Cumulative Preferred Stock at a price of $15,793.84 per share, and warrants
to purchase up to 1,161,307.6 shares of Common Stock at a price of $.000001 per
share, of which 19.2 shares of Class A Convertible 8% Cumulative Preferred Stock
and warrants to purchase up to 16,141.1 shares of Common Stock were issued to
Mr. Joyce.
In January 1998, the Company agreed to issue to Messrs. Milligan, Kaegi and
Joyce 4.7, 6.3 and 31.7 shares of Class A Convertible 8% Cumulative Preferred
Stock, respectively, at a price of $15,793.84 per share, and warrants to
purchase up to 3,995.3, 5,327.1 and 26,635.5 shares of Common Stock,
respectively, at a price of $.000001 per share.
See also "Executive Compensation--Employment Agreements" for a description
of employment agreements between the Company and Messrs. Milligan, Wiegand-Moss
and Day.
See also "Certain Transactions--Sale of Capital Stock" for a description of
the issuance of Common Stock and non-voting Common Stock in January 1998 to
Messrs. Neustaetter, Joyce, Kronfeld, Currey, Milligan and Kaegi.
DIRECTOR COMPENSATION
Directors of the Company receive no directors' fees. Directors are reimbursed
for their reasonable out-of-pocket travel expenditures incurred in connection
with their service as directors.
COMPENSATION PLAN
1997 STOCK OPTION PLAN. The Company's Stock Option Plan (the "Stock Option
Plan") provides for the grant of options that are not intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), to key employees. The Compensation Committee of
the Board of Directors administers the Stock Option Plan and grants options to
purchase Common Stock thereunder.
The aggregate number of shares of Common Stock that may be issued under
options under the Stock Option Plan may not exceed 728,667.7 shares. Reserved
shares may be either authorized but unissued shares or treasury shares, and will
be distributed at the discretion of the Board of Directors.
The Compensation Committee has the exclusive authority to establish, amend and
rescind appropriate rules and regulations relating to the Stock Option Plan.
Each participant's option will expire as of the earliest of : (i) the date on
which it is forfeited under the provisions of the Stock Option Plan; (ii) ten
years from the option date; and (iii) the date on which it expires pursuant to
the relevant option agreement. The option price may be greater than, less
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<PAGE>
than or equal to the fair market value on the option date as determined in the
sole discretion of the Compensation Committee.
An option participant may not exercise an option or any portion thereof until
such option or such portion thereof has become fully vested. Pursuant to the
Stock Option Plan, options generally vest 1/48th each month and are fully
vested after four years. All options become 100% vested and immediately
exercisable prior to a Change in Control (as such term is defined in the Stock
Option Plan).
On October 14, 1997, the Compensation Committee granted Messrs. Milligan and
Wiegand-Moss options to acquire 131,160.3 and 109,300.0 shares of Common Stock,
respectively. Each of such options vests 1/48th per month from the optionee's
date of employment with the Company, even if such employment precedes the date
of grant. During October and December 1997, the Compensation Committee granted
options to acquire an aggregate of 488,207.4 shares of Common Stock to other
current executive officers of the Company.
As of December 31, 1997, options to acquire 728,667.7 shares of Common Stock
were outstanding pursuant to the Stock Option Plan.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information for the Company's fiscal year ended
March 31, 1997 concerning compensation of (i) all individuals serving as the
Company's Chief Executive Officer during the fiscal year ended March 31, 1997
and (ii) each other executive officer of the Company whose total annual salary
and bonus equaled or exceeded $100,000 in the fiscal year ended March 31, 1997
(collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
- ------------------------------------ ------------------------------
SALARY BONUS OTHER(1)
- ------------------------------------ -------- ------ ----------
<S> <C> <C> <C>
Glenn W. Milligan(2)............... $170,833 $6,875 $ 4,000
Chairman of the Board, President
and Chief Executive Officer (as of
March 31, 1997)
Richard Wiegand-Moss(3)............ 117,709 5,729 13,750(4)
Chief Operating Officer (as of
March 31, 1997)
Daniel O. Day(5)................... 116,041 5,208 2,500
Chief Financial Officer (as of
March 31, 1997)
- --------------
</TABLE>
(1) These amounts represent automobile allowances paid to the Named Executive
Officers in the fiscal year ended March 31, 1997.
(2) Mr. Milligan currently serves as the Company's Chairman of the Board and
Chief Executive Officer.
(3) Mr. Wiegand-Moss currently serves as the Company's Senior Vice President of
Customer Operations.
(4) This amount represents automobile allowances and relocation expenses paid in
fiscal year ended March 31, 1997.
(5) Mr. Day's employment with the Company was terminated in February 1998.
EMPLOYMENT AGREEMENTS
GLENN W. MILLIGAN. Mr. Milligan entered into an employment agreement with
the Company as of August 1996 for a five-year term, which will be automatically
renewed for consecutive five-year terms unless either party elects not to renew
the agreement. Pursuant to the employment agreement, Mr. Milligan is entitled to
an initial annual base salary of $165,000 which was increased to $200,000 on
February 1, 1997 upon the consummation of the Company's initial private
preferred stock offering and will increase by ten percent annually. In addition,
if the Company obtains a new franchise and finances its construction, Mr.
Milligan's annual base salary will be increased
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in an amount equal to $.20 times the number of new homes passed by the Company
in the new franchise area. Mr. Milligan is entitled to an annual bonus, based
upon a bonus plan to be developed by management and approved by the Board of
Directors, in a minimum amount of 1/24th of his annual base salary. Mr.
Milligan is also entitled annually to receive shares of the Company's common
stock in an amount equal to 5,000 shares or such other number of shares as is
necessary to provide him with .261% of the outstanding shares of common stock
and to receive stock options covering such number of shares pursuant to a
separate agreement. The agreement provides that Mr. Milligan is entitled to
various fringe benefits, including a monthly automobile allowance in an amount
equal to 1% of his annual base salary. Mr. Milligan has agreed not to disclose
confidential information relating to the Company and has agreed not to compete
with, or solicit employees or customers of, the Company during specified periods
following discontinuance of his employment for any reason. Upon a termination of
the employment agreement, Mr. Milligan is generally entitled to severance
benefits, including continuation of health benefits for Mr. Milligan and his
family for three years, outplacement services, such vested stock and stock
options to which Mr. Milligan would have been entitled during the remaining
contract term had the employment agreement not been terminated and a lump-sum
payment, the amount of which is dependent upon the reason for termination. In
addition, upon a termination of the employment agreement for any reason, Mr.
Milligan has the right to require the Company to repurchase all shares of the
Company's capital stock then beneficially owned by him for their fair market
value.
RICHARD WIEGAND-MOSS. Mr. Wiegand-Moss entered into an employment agreement
with the Company as of August 1996 for a five-year term, which will be
automatically renewed for consecutive four-year terms unless either party elects
not to renew the agreement. Pursuant to the employment agreement, Mr. Wiegand-
Moss is entitled to an initial annual base salary of $137,500 which will
increase by ten percent annually. In addition, if the Company obtains a new
franchise and finances its construction, Mr. Wiegand-Moss's annual base salary
will be increased in an amount equal to $.165 times the number of new homes
passed by the Company in the new franchise area. Mr. Wiegand-Moss is entitled to
an annual bonus, based upon a bonus plan to be developed by management and
approved by the Board of Directors, in a minimum amount of 1/24th of his annual
base salary. Mr. Wiegand-Moss is also entitled annually to receive shares of the
Company's common stock in an amount equal to 4,000 shares or such other number
of shares as is necessary to provide him with .2088% of the outstanding shares
of common stock and to receive stock options covering such number of shares
pursuant to a separate agreement. The agreement provides that Mr. Wiegand-Moss
is entitled to various fringe benefits, including a monthly automobile allowance
in an amount equal to 1% of his annual base salary. Mr. Wiegand-Moss has agreed
not to disclose confidential information relating to the Company and has agreed
not to compete with, or solicit employees or customers of, the Company during
specified periods following discontinuance of his employment for any reason.
Upon a termination of the employment agreement, Mr. Wiegand-Moss is generally
entitled to severance benefits, including continuation of health benefits for
Mr. Wiegand-Moss and his family for three years, outplacement services and a
lump-sum payment, the amount of which is dependent upon the reason for
termination. In addition, upon a termination of the employment agreement for any
reason, Mr. Wiegand-Moss has the right to require the Company to repurchase all
shares of the Company's capital stock then beneficially owned by him for their
fair market value.
DANIEL O. DAY. Mr. Day's employment with the Company was terminated in
February 1998. Mr. Day entered into an employment agreement with the Company as
of August 1996 for a four-year term. Mr. Day has agreed not to disclose
confidential information relating to the Company and has agreed not to compete
with, or solicit employees or customers of, the Company during specified periods
following discontinuance of his employment for any reason. Upon a termination of
the employment agreement, Mr. Day is generally entitled to severance benefits,
including continuation of health benefits for Mr. Day and his family for three
years, outplacement services and a lump-sum payment, the amount of which is
dependent upon the reason for termination. In addition, upon a termination of
the employment agreement for any reason, Mr. Day has the right to require the
Company to repurchase all shares of the Company's capital stock then
beneficially owned by him for their fair market value.
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<PAGE>
CERTAIN TRANSACTIONS
TRANSACTION WITH JAMES LOWRY & ASSOCIATES
On December 9, 1997 the Board of Directors of the Company authorized the
Company to enter into a contract whereby James Lowry & Associates would assist
the Company in the development of a plan to meet Chicago's Minority Business
Enterprise/Women Business Enterprise certification requirements. The contract
calls for payment for services rendered on an hourly basis, but not to exceed
$200,000 per annum. Mr. Lowry, who became a Director of the Company in February
1997, is the President and Chief Executive Officer and the sole beneficial owner
of James Lowry & Associates.
SALE OF CAPITAL STOCK
In September 1997, pursuant to a Purchase, Joinder and Waiver Agreement (the
"Purchase Agreement"), the Company issued 63.3 shares of Class A Convertible
8% Cumulative Preferred Stock at a price of $15,793.84 per share, and warrants
to purchase up to 53,271 shares of Common Stock at a price of $.000001 per share
to Consolidated Communications, whose President and Chief Executive Officer at
such time was Mr. Currey, a Director of the Company at that time and currently
the Company's President and Chief Operating Officer.
In November 1997, pursuant to a Purchase, Joinder and Waiver Agreement, the
Company issued 9.5 shares of Class A Convertible 8% Cumulative Preferred Stock
at a price of $15,793.84 per share, and warrants to purchase up to 7,990.6
shares of Common Stock at a price of $.000001 per share to Mr. Webster, the
Company's Chief Financial Officer.
In January 1998, the Company agreed to issue an aggregate of 550,362.2 shares
of Common Stock and an equal number of shares of non-voting Common Stock, for a
total of 1,100,724.3 shares. These shares were issued in exchange for the
initial and debt warrants which arose from the purchase of Class A Convertible
8% Cumulative Preferred Stock and were assigned a value of $2,343,746. The
beneficial owners of such shares included Purnendu Chattenjee, JK&B Capital,
William Farley, Boston Capital Ventures III, L.P., Thomas Neustaetter, Edward T.
Joyce, David Kronfeld, Robert Currey, Glenn W. Milligan and Charles E. Kaegi,
MD. The number of shares issued to each of these beneficial owners is set forth
in the principal shareholders table. In April 1998, pursuant to a Purchase,
Joinder & Waiver Agreement, the Company issued 6.3316 shares of Class A
Convertible 8% Cumulative Preferred Stock at a price of $15,793.84 per share and
a warrant to purchase 5327.1 shares of Common Stock at a price of $.000001 per
share to Wendy Dietze, Managing Director of Credit Suisse First Boston
Corporation.
TRANSACTION WITH 21ST CENTURY TECHNOLOGY GROUP, INC.
Glenn Milligan, Edward Joyce and charles Kaegi served as executive officers
and directors of 21st Century Technology Group, Inc. ("Technology"), a related
party through both common ownership and common management. As of March 26, 1996
the Company entered into an Asset Purchase Agreement with technology pursuant
to which the Company acquired (i) the contract rights to service 1,734 cable
television subscribers, (ii) contracts pertaining to subscriber lists and (iii)
certain electronic equipment in exchange for the purchase price of $3,381,300.
On March 26, 1996 Messrs. Milligan, Joyce and Kaegi beneficially owned
approximately 15%, 27% and 24%, respectively, of the common stock of
Technology.
From inception to March 31, 1996, operating expenses, except interest and
amortization, had been allocated from Technology based on estimates of time
spent by management and employees of Technology on Company activities. The
Company's Board of Directors approved these allocations. Technology's Board of
Directors did not formally approve these allocations. However, at the time the
allocations were made, the Company's and Technology's Boards contained
substantially the same individuals. For the years ended March 31, 1995 and 1996,
the Company also recognized 100% of expenses paid by Technology on behalf of the
Company, as well as 100% of expenses incurred by the Company. Effective April 1,
1996, the Company began recognizing and paying substantially all of its own
expenses. Therefore, for the year ended March 31, 1997, there were no
significant allocations from Technology or payments made by Technology on the
Company's behalf.
The Company believes that all transactions set forth above were made on terms
no less favorable to the Company than would have been obtained from unaffiliated
third parties. The Company has adopted a policy whereby all future transactions
between the Company and its officers, directors and affiliates will be on terms
no less favorable to the Company than could be obtained from unrelated third
parties and will be approved by a majority of the disinterested members of the
Board of Directors.
See also "Management--Compensation Committee Interlocks and Insider
Participation" for a description of certain other transactions with officers
and directors of the Company.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information at January 15, 1998,
regarding beneficial ownership of the capital stock of the Company by (i) each
person known by the Company to beneficially own more than 5% of the outstanding
capital stock of the Company, (ii) each director of the Company, (iii) each
Named Executive Officer of the Company and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
---------------------
CLASS A CONVERTIBLE
---------------------
NUMBER OF SHARES OF 8% CUMULATIVE
--------------------- ---------------------
COMMON STOCK PREFERRED STOCK PERCENT OF AGGREGATE
--------------------- --------------------- -----------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(2) VOTING RIGHTS(3)
- ---------------------------------------- --------------------- --------------------- -----------------------
<S> <C> <C> <C>
Purnendu Chatterjee(4).................. 757,744.7 633.2 31.1%
JK&B Capital(5)......................... 378,872.4 316.6 16.5
William Farley(6)....................... 303,097.7 249.3 13.3
Myron M. Cherry(7)...................... 274,066.6 12.7 7.1
Boston Capital Ventures III, L.P.(8).... 151,549.0 126.6 6.9
Elske Bolitho(9)........................ 305,000.0 -- 7.7
Thomas Neustaetter(4)(10)............... 757,744.7 633.2 31.1
Charles E. Kaegi, M.D.(11)(18).......... 934,700.7 6.3 14.3
Edward T. Joyce(12)(18)................. 768,714.4 50.8 19.1
David Kronfeld(13)...................... 530,421.4 443.2 22.6
Glenn W. Milligan(14)(18)............... 661,925.1 4.7 15.4
James H. Lowry(18)...................... 19,000.0 -- *
Robert J. Currey(15).................... 75,774.5 63.3 3.5
Richard Wiegand-Moss(16)(18)............ 52,813.6 -- 1.2
Daniel O. Day(17)(18)................... 16,673.6 -- *
All executive officers and directors as
a group (17 persons)(19)............... 3,493,703.7 1,211.1 73.5
- --------------
</TABLE>
* Less than 1%.
(1) The persons named in this table have sole voting power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable and except as indicated in the
other footnotes to this table. Beneficial ownership is determined in
accordance with the rules of the SEC. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options and warrants held by that person
that are currently exercisable or exercisable within 60 days after January
15, 1998, are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Each share of Class A Convertible 8% Cumulative Preferred Stock converts
into one thousand shares of Common Stock at the option of the shareholder.
(3) Percent of Aggregate Voting Rights, for each beneficial owner, was
determined based upon a fraction. The numerator of such fraction is the sum
of (a) the number of outstanding shares of Common Stock beneficially owned
by such owner, plus (b) the number of shares of Common Stock into which the
number of shares of Class A Convertible 8% Cumulative Preferred Stock
beneficially owned by such owner are convertible, plus (c) the number of
shares of Common Stock issuable upon exercise of options and warrants
beneficially owned by such owner and which are exercisable within 60 days of
January 15, 1998. The denominator of such fraction is the sum of (a) the
aggregate number of shares of Common Stock outstanding on January 15, 1998,
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<PAGE>
plus (b) the number of shares of Common Stock into which the aggregate
number of shares of Class A Convertible 8% Cumulative Preferred Stock
outstanding on January 15, 1998 are convertible, plus (c) the aggregate
number of shares of Common Stock issuable upon exercise of options and
warrants beneficially owned by such owner and which are exercisable within
60 days of January 15, 1998.
(4) Represents 112,517.4 shares of Common Stock, 266,354.9 shares of Common
Stock issuable upon exercise of warrants and 316.6 shares of Class A
Convertible 8% Cumulative Preferred Stock held by Quantum Industrial
Partners LDC ("QIP"). The address of QIP is c/o Curacao Corporation Company,
Kaya Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. Also includes
65,260.1 shares of Common Stock, 154,485.9 shares of Common Stock issuable
upon exercise of warrants and 183.6 shares of Class A Convertible 8%
Cumulative Preferred Stock held by S-C Phoenix Holdings, L.L.C. ("S-C
Phoenix"). The address of S-C Phoenix is c/o Chatterjee Management Company,
888 Seventh Avenue, New York, New York 10106. This total also includes 45.2
shares of Class A Convertible 8% Cumulative Preferred Stock, 16,067.5 shares
of Common Stock and 38,035.5 shares of Common Stock issuable upon exercise
of warrants held by Winston Partners II, LLC and 87.8 shares of Class A
Convertible 8% Cumulative Preferred Stock, 31,189.8 shares of Common Stock
and 73,833.6 shares of Common Stock issuable upon exercise of warrants held
by Winston Partners II, LDC (Winston Partners II, LLC and Winston Partners
II, LDC, collectively "Winston Partners"). The address of Winston Partners
II, LLC is c/o Chatterjee Management Company, 888 Seventh Avenue, New York,
New York 10106. The address of Winston Partners II, LDC is c/o Curacao
Corporation Company, Kaya Flamboyan 9, Willemstad, Curacao, Netherlands
Antilles. QIP, S-C Phoenix and Winston Partners are associated with
Chatterjee Management Company. Chatterjee Management Company is managed and
controlled by Purnendu Chatterjee. Dr. Chatterjee may be deemed to have the
power to direct the voting and disposition of the shares owned by QIP, S-C
Phoenix and Winston Partners. Dr. Chatterjee and Mr. George Soros may each
be deemed to have the power to direct the voting and disposition of the
shares owned by S-C Phoenix. In addition, Mr. Soros, Mr. Stanley F.
Druckenmiller and Soros Fund Management LLC may be deemed to have the power
to direct the voting and disposition of the shares owned by QIP. The Percent
of Aggregate Voting Rights excludes 225,034.8 shares of non-voting Common
Stock beneficially owned by Purnendu Chatterjee which the Company has agreed
to issue.
(5) Represents 221.6 shares of Class A Convertible 8% Cumulative Preferred
Stock, 78,762.2 shares of Common Stock and 186,448.5 shares of Common Stock
issuable upon exercise of warrants held by JK&B Capital, L.P. and 95.0
shares of Class A Convertible 8% Cumulative Preferred Stock, 33,755.2 shares
of Common Stock and 79,906.5 shares of Common Stock issuable upon exercise
of warrants held by JK&B Capital II, L.P. (JK&B Capital, L.P. and JK&B
Capital II, L.P., collectively "JK&B Capital"). The address of JK&B Capital
is 205 North Michigan, Suite 800, Chicago, IL 60601. The Percent of
Aggregate Voting Rights excludes 112,517.4 shares of non-voting Common Stock
beneficially owned by JK&B Capital which the Company has agreed to issue.
(6) Represents the following securities held by the following entities, all of
which are beneficially owned by Mr. Farley: 73.9 shares of Class A
Convertible 8% Cumulative Preferred Stock, 26,254.0 shares of Common Stock
and 62,149.4 shares of Common Stock issuable upon exercise of warrants held
by Farley, Inc. of which Mr. Farley is the sole owner, and 105.5 shares of
Class A Convertible 8% Cumulative Preferred Stock, 37,505.8 shares of Common
Stock and 88,785.0 shares of Common Stock issuable upon exercise of warrants
held by The Retirement Program of Farley, Inc. of which Mr. Farley is the
sole member of the Pension Investment Committee of the Retirement Program of
Farley, Inc. Also includes 42.2 shares of Class A Convertible 8% Cumulative
Preferred Stock, 15,002.3 shares of Common Stock and 35,514 shares of Common
Stock issuable upon exercise of warrants held by FTL Investments Inc. of
which Mr. Farley is Chairman and Chief Executive Officer, and 31.7 shares of
Class A Convertible 8% Cumulative Preferred Stock, 11,251.7 shares of Common
Stock and 26,635.5 shares of Common Stock issuable upon exercise of warrants
held by Union Underwear Pension Plan of which Mr. Farley is the sole member
of the Pension Investment Committee of the Fruit of the Loom Board of
Directors. The address of Mr. Farley is 233 South
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Wacker Drive, Chicago, Illinois, 60606. The Percent of Aggregate Voting
Rights excludes 90,013.8 shares of non-voting Common Stock beneficially
owned by Mr. Farley which the Company has agreed to issue.
(7) Includes 72,223.3 shares of Common Stock issuable upon exercise of options.
The address of Mr. Cherry is 30 North LaSalle, #2300, Chicago, Illinois
60602. The Percent of Aggregate Voting Rights excludes 4,500.7 shares of
non-voting Common Stock beneficially owned by Mr. Cherry which the Company
has agreed to issue.
(8) Includes 106,542.0 shares of Common Stock issuable upon exercise of
warrants. The address of Boston Capital Ventures III, L.P. is Old City
Hall, 45 School Street, Boston, MA 02108. The Percent of Aggregate Voting
Rights excludes 45,007.0 shares of non-voting Common Stock beneficially
owned by Boston Capital Ventures III, L.P. which the Company has agreed to
issue.
(9) Represents 153,000 shares of Common Stock held by Elske Bolitho, Trustee of
Robert W. Bolitho Trust, and 152,000 shares of Common Stock held by Elske
Bolitho, Trustee of Elske Bolitho Trust. The address of Ms. Bolitho is
13376 185th Place N, Jupiter, Florida 33478.
(10) All of such shares are beneficially owned by Purnendu Chatterjee. Mr.
Neustaetter is an officer of the Chatterjee Management Group, a division of
Chatterjee Management Company. Mr. Neustaetter is an officer of Chatterjee
Management Company. Mr. Neustaetter disclaims beneficial ownership of these
shares, over which he does not have dispositive or voting control. The
business address of Mr. Neustaetter is c/o Chatterjee Management Company,
888 Seventh Avenue, New York, NY 10106.
(11) Includes 172,202.2 shares of Common Stock and 376,721.8 shares of Common
Stock issuable upon exercise of options held by Charles E. Kaegi, M.D.,
S.C., Defined Contribution Pension Plan and Trust, 26,990.0 shares of
Common Stock held by Charles E. Kaegi, M.D., S.C., Defined Benefit Pension
Plan and Trust, 1,700.0 shares of Common Stock held by Charles E. Kaegi,
M.D., S.C. Profit Sharing Pension Plan and Trust, 321,240.0 shares of
Common Stock held jointly with Mr. Kaegi's wife, and 17,470.0 shares of
non-voting Common Stock owned by Mr. Kaegi's wife. The Percent of Aggregate
Voting Rights excludes 2,250.4 shares of non-voting Common Stock held by
Mr. Kaegi which the Company has agreed to issue.
(12) Includes 269,516.5 shares of Common Stock issuable upon exercise of options
held by Mr. Joyce, 96,620.0 shares of Common Stock and 52,291.5 shares of
Common Stock issuable upon exercise of options held by Mr. Joyce's wife,
1.864.5 shares of Common Stock issuable upon exercise of warrants held by
Mr. Joyce, 12.9 shares of Class A Convertible 8% Cumulative Preferred Stock
and 10,867.3 shares of Common Stock issuable upon exercise of warrants held
by Edward T. Joyce, as Trustee of the Edward T. Joyce Ltd. Employees'
Profit Sharing Plan, and 4.1 shares of Convertible Class A Preferred Stock
and 3,409.3 shares of Common Stock issuable upon exercise of warrants held
by Edward T. Joyce, as Trustee of the Individual Retirement Account for
Edward T. Joyce. The Percent of Aggregate Voting Rights excludes 18,070.2
shares of non-voting Common Stock beneficially owned by Mr. Joyce which the
Company has agreed to issue.
(13) All such shares are held of record by JK&B Capital and Boston Capital
Ventures III, L.P. Mr. Kronfeld is a Manager of JK&B Management, L.L.C. and
General Partner of JK&B Capital, L.P. and JK&B Capital II, L.P. The
business address of Mr. Kronfeld is c/o JK&B Capital, 205 North Michigan,
Suite 800, Chicago, IL 60601.
(14) Includes 316,060.3 shares of Common Stock issuable upon exercise of options
held by Mr. Milligan, and 93,750.0 shares of Common Stock and 61,225.5
shares of Common Stock issuable upon exercise of options held by Mr.
Milligan's wife. The Percent of Aggregate Voting Rights excludes 1,687.8
shares of non-voting Common Stock beneficially owned by Mr. Milligan which
the Company has agreed to issue.
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(15) All of such Shares are held of record by Consolidated Communications. Mr.
Currey, a Director of the Company and its current President and Chief
Operating Officer, was formerly Group President of Telecommunications
Services for McLeod USA. Consolidated Communication and McLeod USA are both
wholly owned subsidiaries of McLeod, Inc. The Percent of Aggregate Voting
Rights excludes 22,503.5 shares of non-voting Common Stock beneficially
owned by Consolidated Communications which the Company has agreed to issue.
(16) Includes 47,818.7 shares of Common Stock issuable upon exercise of options.
(17) Includes 3,527.2 shares of Common Stock issuable upon exercise of options.
(18) The address of each such person is c/o the Company, 350 N. Orleans Street,
Suite 600, Chicago, IL 60654.
(19) Includes the aggregate of 1,216,271.6 shares of Common Stock issuable upon
exercise of options and 1,018,967.5 shares of Common Stock issuable upon
exercise of warrants. See notes 10, 11, 12, 13, 14, 15, 16 and 17 above.
The Percent of Aggregate Voting Rights excludes 428,758.8 shares of non-
voting Common Stock which the Company has agreed to issue.
DESCRIPTION OF CERTAIN INDEBTEDNESS
BANK CREDIT FACILITY
The Company has received a commitment letter (the "Commitment Letter") from
BankBoston, N.A. and Bank of America National Trust and Savings Association
(collectively, the "Senior Lenders") pursuant to which the Senior Lenders have
agreed, subject to the terms and conditions set forth in the Commitment Letter
(including the negotiation of definitive loan documents and satisfactory
completion by the Senior Lenders of their due diligence review), to provide a
senior secured revolving credit facility (the "Bank Credit Facility") of up to
$50.0 million to a subsidiary of the Company that will own the assets used in
Chicago's Area 1 (the "Borrower"), which will be guaranteed by the Company, to
be used for working capital and other general corporate purposes, except that
prior to the time that the Borrower has at least 30,000 total subscribers and
has expended at least $75 million of proceeds from the Company to expand network
operations, all borrowings under the Bank Credit Facility will be required to be
fully cash collateralized in accounts maintained by the Senior Lenders. The
Borrower will be permitted to make available to the Company a portion of the
Bank Credit Facility to finance the Company's expansion of its operations to
markets outside of Chicago's Area 1. There are currently no outstanding amounts
under the Bank Credit Facility.
The following summary of the material provisions of the Commitment Letter does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Commitment Letter, a copy of which is available from the
Company upon request. Defined terms that are used but not defined in this
section have the meanings given to such terms in the Commitment Letter. Because
the terms, conditions and covenants of the Bank Credit Facility are subject to
the negotiation, execution and delivery of the definitive loan documents,
certain of the actual terms, conditions and covenants thereof may differ from
those described below.
The Bank Credit Facility will mature in 2003. Borrowings under the Bank Credit
Facility will be subject to a borrowing base determined on the basis of 7.5
times the prior three months' collected revenues. Amounts drawn under the Bank
Credit Facility will bear interest, at the Borrower's option, at either (i) a
base rate equal to the higher of (x) BankBoston, N.A.'s prime rate and (y) .50%
plus the Federal funds rate or (ii) the LIBOR rate, plus, in each case, an
Applicable Margin. The Applicable Margin will be an annual rate which will
fluctuate based on the Borrower's Total Leverage Ratio (as defined below) and
which will be between .50% and 2.00% for base rate borrowings and between 2.00%
and 3.50% for LIBOR rate borrowings.
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The Bank Credit Facility will begin amortizing by equal quarterly installments
of $3,125,000 beginning on the last day of the first quarter after the second
anniversary of its closing plus a final payment of $12,500,000. The Commitment
Letter contemplates that the Borrower will be required to repay indebtedness
outstanding under the Bank Credit Facility with (i) the net cash proceeds in
excess of $1 million from sales of assets, (ii) the net cash proceeds from
certain issuances of debt (iii) the net cash proceeds from certain issuances of
equity, (iv) the net cash proceeds in excess of $1 million from insurance
recoveries and (v) 50% of annual Excess Cash Flow (as defined below) beginning
on the third anniversary of the closing of the Bank Credit Facility if the
leverage is greater than 4.5 to 1.0.
The Commitment Letter contemplates that, subject to customary exceptions, the
Borrowers' obligations under the Bank Credit Facility will be secured by a first
priority security interest in all tangible and intangible assets of the Borrower
and any of its subsidiaries, including the Area 1 franchise, the CTA attachment
agreement and the pole attachment agreements with Commonwealth Edison and
Ameritech and that the Company's obligations under its guarantee will be secured
by a pledge of the stock of the Borrower.
The Commitment Letter contemplates that the Bank Credit Facility will contain
a number of negative covenants, including, among others, covenants limiting the
ability of the Borrower, subject to customary exceptions, to incur debt, create
liens, pay dividends, make distributions, make guarantees, sell assets and
engage in mergers. In addition, the Commitment Letter contemplates that the Bank
Credit Facility will contain usual and customary affirmative covenants,
including the delivery of financial and other information.
The Commitment Letter contemplates that the Borrower will be required to
comply with certain financial tests and to maintain certain financial ratios on
a consolidated basis. The Borrower must maintain (i) a Total Leverage Ratio, as
of the end of any fiscal quarter beginning with the fiscal quarter ending
December 31, 2000, no greater than 10.0 to 1.0 initially, with subsequent step-
downs, (ii) a Senior Leverage Ratio, as of the end of any fiscal quarter
beginning with the fiscal quarter ending December 31, 2000, no greater than 4.25
to 1.0 initially, with subsequent step-downs, (iii) a Fixed Charge Coverage
Ratio, as of the end of each fiscal quarter beginning with the fiscal quarter
ending December 31, 2001, no less than 1.0 to 1.0, (iv) an Interest Coverage
Ratio, as of the end of any fiscal quarter beginning with the fiscal quarter
ending December 21, 2000, no less than 2.0 to 1.0 and (v) a minimum number of
subscribers to be agreed upon and a maximum level of EBITDA losses to be agreed
upon, as of the end of each fiscal quarter beginning after the closing.
Total Leverage Ratio means the ratio of total funded debt consisting of senior
funded debt (including amounts outstanding under the Bank Credit Facility,
capitalized leases and the Notes to Annualized EBITDA. Annualized EBITDA means
EBITDA for the two most recent fiscal quarters multiplied by two. EBITDA means
consolidated net income, plus depreciation, amortization, any non-cash charges,
interest expense and tax expense deducted in calculating net income. Senior
Leverage Ratio means the ratio of total funded debt consisting of senior funded
debt (including amounts outstanding under the Bank Credit Facility and
capitalized leases to Annualized EBITDA. Fixed Charge Coverage Ratio means the
ratio of EBITDA to the sum of interest expense which is paid or payable in cash,
distributions made to the Company for payment of cash interest on the Notes,
income taxes paid or payable in cash, capital expenditures, required principal
payments and required capital lease payments. Excess Cash Flow means EBITDA
minus the sum of cash taxes, capital expenditures, required principal
repayments, interest expense paid or payable in cash, distributions made to the
Company for payment of cash interest on the Notes and the increase in working
capital calculated quarterly (net of cash or cash equivalents). Interest
Coverage Ratio means the ratio of EBITDA to the sum of interest expense on total
debt and dividends which is paid or payable in cash for the succeeding four
fiscal quarters.
The Commitment Letter contemplates that the Bank Credit Facility will include
usual and customary events of default.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes have been, and the New Notes will be, issued under an Indenture,
dated as of February 15, 1998 (the "Indenture"), between the Company and State
Street Bank and Trust Company, as Trustee (the "Trustee"). The following is a
summary of certain provisions of the Indenture and the New Notes, a copy of
which Indenture and the form of New Notes is available upon request to the
Company at the address set forth under "Available Information". The following
summary of certain provisions of the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended. For the definition of certain capitalized terms used in the following
summary, see "--Certain Definitions."
The New Notes will be issued only in fully registered form, without coupons,
in denominations of principal amount at maturity of $1,000 and any integral
multiple of $1,000. No service charge shall be made for any registration of
transfer or exchange of New Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
TERMS OF THE NEW NOTES
The New Notes will be unsecured senior obligations of the Company, initially
limited to $363,135,000 aggregate principal amount at maturity, and will mature
on February 15, 2008. Except as described under "Exchange Offer--Acceptance of
Old Securities for Exchange; Delivery of New Securities", no cash interest will
accrue on the Notes prior to February 15, 2003, although for U.S. Federal income
tax purposes a significant amount of OID will be recognized by a Holder as such
discount accrues. See "Certain United States Federal Income Tax Consequences"
for a discussion regarding the taxation of such OID. Cash interest will accrue
on the Notes at the rate per annum shown on the front cover of this Prospectus
from February 15, 2003, or from the most recent date to which interest has been
paid or provided for, payable semiannually on February 15 and August 15 of each
year, commencing August 15, 2003 to holders of record at the close of business
on the February 1 or August 1 immediately preceding the interest payment date.
The Company will pay interest on overdue principal at 1% per annum in excess of
such rate, and it will pay interest on overdue installments of interest at such
higher rate applicable to overdue principal to the extent lawful. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
The interest rate on the New Notes is subject to increase in certain
circumstances if the Company does not file a registration statement relating to
the Exchange Offer or if the registration statement is not declared effective on
a timely basis or if certain other conditions are not satisfied, all as further
described under "Exchange Offer."
Subject to the covenants described below under "--Certain Covenants" and
applicable law, the Company may issue additional Notes under the Indenture in an
unlimited principal amount at maturity. The Old Notes, the New Notes offered
pursuant to the Exchange Offer and any additional Notes subsequently issued
would be treated as a single class for all purposes under the Indenture.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph the New Notes will not be
redeemable at the option of the Company prior to February 15, 2003. Thereafter,
the New Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, upon not less than 30 nor more than 60 days'
prior notice mailed by first-class mail to each Holder's registered address, at
the following redemption prices (expressed in percentages of Accreted Value),
plus accrued interest to the redemption date (subject to the right of Holders of
record on the
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relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing on February 15 of the
years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
-----------
PERIOD PRICE
- ------------ -----------
<S> <C>
2003.................... 106.1250%
2004.................... 104.0833
2005.................... 102.0417
2006 and thereafter..... 100.0000
</TABLE>
In addition, at any time and from time to time prior to February 15, 2001, the
Company may redeem in the aggregate up to 35% of the original principal amount
at maturity of the New Notes with the proceeds (to the extent received by the
Company) of one or more Equity Offerings following which there is a Public
Market at a redemption price (expressed as a percentage of Accreted Value) of
112 1/4% plus accrued interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that at least $236.0 million
aggregate principal amount at maturity of the Notes must remain outstanding
after each such redemption.
In the case of any partial redemption, selection of the New Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no New Note of $1,000 in principal amount at maturity or
less shall be redeemed in part. If any New Note is to be redeemed in part only,
the notice of redemption relating to such New Note shall state the portion of
the principal amount thereof to be redeemed. A different New Note in principal
amount at maturity equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original New Note.
RANKING
The indebtedness evidenced by the New Notes will be senior unsecured
obligations of the Company, will rank pari passu in right of payment with all
existing and future senior indebtedness of the Company and will be senior in
right of payment to all future subordinated indebtedness of the Company. As of
December 31, 1997, after giving effect to the Private Placement and the
application of the proceeds therefrom, the Company's total indebtedness
outstanding would have been approximately $200.2 million.
Substantially all the operations of the Company are or will be conducted
through one or more of its subsidiaries. The Company currently has three wholly-
owned subsidiaries: 21st Century Cable TV of Illinois, Inc.; 21st Century
Telecom of Illinois, Inc.; and 21st Century Telecom Group of Michigan, Inc.
Moreover, 21st Century Telecom Group of Michigan, Inc. has two wholly-owned
subidiaries: 21st Century Cable TV of Grand Rapids, Inc. and 21st Century
Telecom of Michigan, Inc. The Company intends to transfer substantially all its
assets to newly formed Restricted Subsidiaries, and thereafter the Company will
be a holding company with no assets other than the capital stock of its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including holders of the New Notes. The New Notes, therefore, will be
effectively subordinated to creditors (including trade creditors) and preferred
stockholders (if any) of subsidiaries of the Company. Although the Indenture
limits the incurrence of Indebtedness and preferred stock of certain of the
Company's subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by such subsidiaries of liabilities that are not considered
Indebtedness or Preferred Stock under the Indenture. See "--Certain Covenants--
Limitation on Indebtedness."
CHANGE OF CONTROL
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Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's New Notes at a purchase price in cash equal to 101% of
the Accreted Value thereof on the date of purchase, plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
(i) Prior to the earlier to occur of (A) the first public offering of
common stock of Parent or (B) the first public offering of common stock of the
Company, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Company, whether as a result of issuance of securities of
the Parent or the Company, any merger, consolidation, liquidation or
dissolution of the Parent or the Company, any direct or indirect transfer of
securities by Parent or otherwise (for purposes of this clause (i) and clause
(ii) below, the Permitted Holders shall be deemed to beneficially own any
Voting Stock of a corporation (the "specified corporation") held by any
other corporation (the "parent corporation") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
corporation);
(ii) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above, except that for purposes of
this clause (ii) such person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly
or indirectly, of more than 35% of the total voting power of the Voting Stock
of the Company; provided, however, that the Permitted Holders beneficially own
(as defined in clause (i) above), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of the Company
than such other person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors (for the purposes of this clause (ii), such other person
shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other person is the
beneficial owner (as defined in this clause (ii)), directly or indirectly, of
more than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders beneficially own (as defined in clause
(i) above), directly or indirectly, in the aggregate a lesser percentage of
the voting power of the Voting Stock of such parent corporation and do not
have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
corporation);
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election or appointment by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved
by a vote of 66 2/3% of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(iv) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale of all
or substantially all the assets of the Company to another Person (other than a
Person that is controlled by the Permitted Holders), and, in the case of any
such merger or consolidation, the securities of the Company that are
outstanding immediately prior to such transaction and which represent 100% of
the aggregate voting power of the Voting Stock of the Company are changed into
or exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition to
any other consideration, securities of the surviving corporation that
represent immediately after such transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving corporation.
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Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's New Notes at a purchase price in cash equal to 101% of
the Accreted Value thereof on the date of purchase plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest on the relevant interest
payment date); (2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such Change of Control); (3) the
purchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its New Notes purchased.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of New Notes pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between the
Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenants described under "--Certain Covenants--Limitation on Indebtedness,"
"--Limitation on Liens" and "--Limitation on Sale/Leaseback Transactions."
Such restrictions can only be waived with the consent of the holders of a
majority in principal amount at maturity of the Notes (including both Old Notes
and New Notes) then outstanding. Except for the limitations contained in such
covenants, however, the Indenture will not contain any covenants or provisions
that may afford holders of the New Notes protection in the event of a highly
leveraged transaction.
Future indebtedness of the Company may contain prohibitions on the occurrence
of certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of their right to require the Company to repurchase the New Notes
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the holders of New Notes following
the occurrence of a Change of Control may be limited by the Company's then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases. The
provisions under the Indenture relative to the Company's obligation to make an
offer to repurchase the New Notes as a result of a Change of Control may be
waived or modified with the written consent of the holders of a majority in
principal amount at maturity of the outstanding Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not Incur, and shall not
permit any of its Restricted Subsidiaries to Incur, directly or indirectly, any
Indebtedness, except that the Company may Incur Indebtedness if, on the date of
such Incurrence and after giving effect thereto, the Consolidated Leverage Ratio
would be less than 6.0 to 1.0, for Indebtedness Incurred prior to or on December
31, 1999, and less than 5.0 to 1.0 for Indebtedness Incurred thereafter.
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(b) Notwithstanding the foregoing paragraph (a), the Company and (except as
specified below) any Restricted Subsidiary may Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement; provided,
however, that the aggregate amount of such Indebtedness, when taken together
with all other Indebtedness Incurred pursuant to this clause (1) and then
outstanding, does not exceed the remainder of (x) $50 million minus (y) the
sum of all principal payments with respect to the permanent retirement of such
Indebtedness pursuant to paragraph (a)(ii)(A) of the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock;"
(2) Indebtedness owed to and held by the Company or a Restricted
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Company or another Restricted Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the issuer thereof;
(3) the Notes;
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this covenant);
(5) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) or pursuant to clause (3) or (4) above, this clause (5) or
clauses (7), (8) or (11) below; provided, however, that to the extent such
Refinancing Indebtedness directly or indirectly Refinances Indebtedness of a
Restricted Subsidiary described in clause (11), such Refinancing Indebtedness
shall be Incurred only by such Restricted Subsidiary;
(6) Hedging Obligations consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company or any
Restricted Subsidiary pursuant to paragraphs (a) or (b) hereof;
(7) Indebtedness, including Indebtedness of a Restricted Subsidiary
Incurred and outstanding on or prior to the date on which such Subsidiary was
acquired by the Company, Incurred to finance the cost (including the cost of
design, development, acquisition, construction, installation, improvement,
transportation or integration) to acquire equipment, inventory or network
assets (including real estate) (including acquisitions by way of capital lease
and acquisitions of the Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the fair market value of the equipment, inventory
or networks assets so acquired) by the Company or a Restricted Subsidiary
after the Issue Date for use in a Related Business;
(8) Indebtedness of the Company in an amount which, when taken together
with the amount of Indebtedness Incurred pursuant to this clause (8) and then
outstanding, does not exceed two times the Net Cash Proceeds received by the
Company after the Issue Date as a capital contribution from, or from the
issuance and sale of its Capital Stock (other than Disqualified Stock) to, a
Person that is not a Subsidiary of the Company, to the extent such Net Cash
Proceeds have not been used pursuant to paragraph (a)(3)(B) or paragraph
(b)(i) of the covenant described under "--Limitation on Restricted Payments"
to make a Restricted Payment; provided, however, that such Indebtedness does
not mature prior to the Stated Maturity of the Notes and has an Average Life
longer than the Average Life of the Notes;
(9) Indebtedness in respect of performance, surety or appeal bonds or
similar obligations, in each case Incurred in the ordinary course of business
of the Company and its Restricted Subsidiaries and Indebtedness due and owing
to governmental entities in connection with any licenses and franchises issued
by a governmental entity and necessary or desirable to conduct a Related
Business;
(10) Guarantees of the Notes issued by any Restricted Subsidiary;
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(11) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Subsidiary was acquired by the Company (other
than Indebtedness Incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by the Company); provided, however, that on the
date of such acquisition and after giving effect thereto, the Company would
have been able to Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (a) hereof; and
(12) Indebtedness Incurred in an aggregate amount which, when taken
together with the aggregate amount of all other Indebtedness of the Company
and its Restricted Subsidiaries outstanding on the date of such Incurrence
(other than Indebtedness permitted by clauses (1) through (11) above or
paragraph (a)) does not exceed the greater of (a) $10 million and (b) an
amount equal to 5% of the Company's Consolidated Net Tangible Assets as of
such date.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Notes to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (i) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
(e) For the purposes of determining the amount of Indebtedness outstanding at
any time, Guarantees with respect to Indebtedness otherwise included in the
determination of such amount shall not be included.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness;" or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments (the amount of any Restricted Payment,
if other than in cash, to be determined in good faith by the Board of Directors
and to be evidenced by a resolution of such Board set forth in an Officer's
Certificate delivered to the Trustee) since the Issue Date would exceed the sum
of, without duplication:
(A) the remainder of (x) cumulative EBITDA during the period (taken as a
single accounting period) beginning on the first day of the fiscal quarter of
the Company beginning after the Issue Date and ending on the last day of the
most recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination minus (y) the product of 1.5 times cumulative
Consolidated Interest Expense during such period;
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a Subsidiary
of the Company and other than an issuance or sale to an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of
the Company convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of
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the Company (less the amount of any cash, or the fair value of any other
property, distributed by the Company upon such conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from payments of interest, dividends,
repayments of loans or advances or other transfers of assets, in each case to
the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and
(ii) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of an Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments previously made
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any acquisition of any Capital Stock of the Company or any Restricted
Subsidiary or any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made out of
the proceeds of the substantially concurrent sale of, or made by exchange for,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary of the Company or an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); provided, however, that (A)
such acquisition of Capital Stock or of Subordinated Obligations shall be
excluded in the calculation of the amount of Restricted Payments pursuant to
clause (3) of paragraph (a) above and (B) the Net Cash Proceeds from such sale
shall be excluded from the calculation of amounts under clause (3)(B) of
paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations in whole or in part
(including premium, if any, and accrued and unpaid interest) made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to the
covenant described under "--Limitation on Indebtedness;" provided, however,
that such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a) above;
(iii) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant; provided, however, that at the time of payment of such dividend, no
other Default shall have occurred and be continuing (or result therefrom);
provided further, however, that such dividend shall be included in the
calculation of the amount of Restricted Payments pursuant to clause (3) of
paragraph (a) above;
(iv) the purchase, redemption, retirement, repurchase or other acquisition
of shares of, or options to purchase shares of, Capital Stock (other than
Disqualified Stock) of the Company or Capital Stock (other than Preferred
Stock) of any of its Subsidiaries from employees, former employees, directors
or former directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former directors
including their estates or beneficiaries under their estates), (a) upon their
death, disability, retirement or termination of employment or (b) otherwise
pursuant to the terms of agreements (including employment agreements) or plans
(or amendments thereto) approved by the Board of Directors under which such
individuals received such Capital Stock; provided, however, that the aggregate
amount of consideration paid for such purchases, redemptions, retirements,
repurchases and other acquisitions made pursuant to this clause (iv) shall not
exceed $500,000 in any calendar year; provided further, however, that such
purchases, redemptions, retirements, repurchases and other acquisitions
pursuant to this clause shall be excluded in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a) above;
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(v) any purchase or redemption of Subordinated Obligations in whole or in
part (including premium, if any, and accrued and unpaid interest) from Net
Available Cash to the extent permitted by the covenant described under "--
Limitation on Sales of Assets and Subsidiary Stock;" provided, however, that
such purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments pursuant to clause (3) of paragraph (a) above;
(vi) the purchase, redemption, acquisition, cancelation or other retirement
for value of shares of Capital Stock of the Company or any of its Restricted
Subsidiaries to the extent necessary, as determined in good faith by a
majority of the disinterested members of the Board of Directors, to prevent
the loss or to secure the renewal or reinstatement of any license or franchise
held by the Company or any Restricted Subsidiary from any governmental entity;
provided, however, that such purchase or redemption shall be included in the
calculation of the amount of Restricted Payments pursuant to clause (3) of
paragraph (a) above;
(vii) any purchase or redemption of Subordinated Obligations or Preferred
Stock following a Change of Control pursuant to an obligation in the
instruments governing such Subordinated Obligations or Preferred Stock to
purchase or redeem such Subordinated Obligations or Preferred Stock as a
result of such Change of Control; provided, however, that no such purchase or
redemption shall be permitted until the Company has completely discharged its
obligations described under "--Change of Control" (including the purchase of
all Notes tendered for purchase by holders) arising as a result of such Change
of Control; provided further, however, that such purchase or redemption shall
be included in the calculation of the amount of Restricted Payments pursuant
to clause (3) of paragraph (a) above; or
(viii) cash dividends paid after February 15, 2003 in respect of the
Exchangeable Preferred Stock in an aggregate amount in any twelve month period
not to exceed 13 3/4% of the aggregate liquidation preference outstanding at
the beginning of such twelve month period; provided, however, that at the time
of payment of any such dividends, no Default shall have occurred and be
continuing; provided further, however, that all such dividends shall be
included in the calculation of the amount of Restricted Payments pursuant to
clause (3) of paragraph (a) above.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary, (b) pay any Indebtedness owed to the
Company, (c) make any loans or advances to the Company or (d) transfer any of
its property or assets to the Company, except:
(i) any encumbrance or restriction pursuant to the Indenture, the
Exchangeable Preferred Stock or any other agreement in effect at or entered
into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement or instrument
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement or instrument referred to in clause
(i) or (ii) of this covenant or this clause (iii); provided, however, that the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no less favorable
to the
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Noteholders than encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such predecessor agreements;
(iv) any such encumbrance or restriction consisting of customary non-
assignment or anti-alienation provisions in (a) leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease or
the property leased thereunder or subletting and (b) licenses or franchises to
the extent such provisions restrict the transfer of the license or franchise;
(v) in the case of clause (d) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to
the extent such restrictions restrict the transfer of the property subject to
such security agreements or mortgages;
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and
(vii) any encumbrance or restriction contained in the terms of any
Indebtedness or any agreement pursuant to which such Indebtedness was Incurred
if the Board of Directors determines in good faith that any such encumbrance
or restriction will not materially affect the Company's ability to pay
principal or interest on the Notes when due and such encumbrance or
restriction by its terms expressly permits such Restricted Subsidiary, (A) in
the absence of a payment default in respect of such Indebtedness or other
agreement, to make cash payments to the Company (in any form) sufficient to
pay when due all amounts of principal and interest on the Notes and (B)
following the occurrence and during the continuance of a payment default in
respect of such Indebtedness or other agreement, to resume making cash
payments to the Company (in any form) sufficient to pay when due all amounts
of principal and interest on the Notes upon the earlier of the cure of such
payment default and the lapse of 179 consecutive days following the date when
such encumbrance or restriction became operative to prohibit or limit such
Restricted Subsidiary from making such payments to the Company; provided,
however, that no Restricted Subsidiary shall be affected by the operation of
any such encumbrances or restrictions following the occurrence of a payment
default on more than one occasion in any consecutive 360-day period.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be):
(A) first, to the extent the Company elects in its sole discretion (or is
required by the terms of any Indebtedness), to prepay, repay, redeem or
purchase Senior Indebtedness or Indebtedness (other than any Disqualified
Stock) of a Restricted Subsidiary (in each case other than Indebtedness owed
to the Company or an Affiliate of the Company) within one year from the later
of the date of such Asset Disposition or the receipt of such Net Available
Cash;
(B) second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), to the extent the Company elects in
its sole discretion, to acquire Additional Assets within one year after the
receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to the
holders of the Notes (and to holders of other Senior Indebtedness
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designated by the Company) to purchase Notes (and such other Senior
Indebtedness) pursuant to and subject to the conditions contained in the
Indenture; and
(D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), for the general
corporate and working capital purposes of the Company and its Restricted
Subsidiaries;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) or (C) above, the Company or such
Restricted Subsidiary shall permanently retire such Indebtedness and shall cause
the related loan commitment (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid or purchased. Notwithstanding
the foregoing provisions of this paragraph, the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this paragraph except to the extent that the aggregate Net Available Cash
from all Asset Dispositions occurring after the Issue Date which are not applied
in accordance with this paragraph exceeds $5 million. Pending application of Net
Available Cash pursuant to this covenant, such Net Available Cash shall be
invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or cash
equivalents: (x) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition, (y)
securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash; and (z) Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Indebtedness) pursuant to clause (a) (ii) (C) above, the
Company will be required to purchase Notes tendered pursuant to an offer by the
Company for the Notes (and other Senior Indebtedness) at a purchase price of
100% of their Accreted Value (in the case of Notes) or 100% of their principal
amount (in the case of other Senior Indebtedness) plus accrued but unpaid
interest, if any, to the date of purchase (or, in respect of such other Senior
Indebtedness, such lesser price, if any, as may be provided for by the terms of
such Senior Indebtedness) in accordance with the procedures (including prorating
in the event of oversubscription) set forth in the Indenture. If the aggregate
purchase price of Notes (and any other Senior Indebtedness) tendered pursuant to
such offer is less than the Net Available Cash allotted to the purchase thereof,
the Company will be required to apply the remaining Net Available Cash in
accordance with clause (a) (ii) (D) above. The Company shall not be required to
make such an offer to purchase Notes (and other Senior Indebtedness) pursuant to
this covenant if the Net Available Cash available therefor is less than $5.0
million (which lesser amount shall be carried forward for purposes of
determining whether such an offer is required with respect to the Net Available
Cash from any subsequent Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, license, lease or exchange of any
property, employee compensation arrangements or the rendering of any service)
with any Affiliate of the Company (an "Affiliate Transaction") unless the
terms thereof (1) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (2) if such
Affiliate Transaction involves an amount in excess of $1.0 million, (i) are set
forth in writing and (ii) have been approved by a majority of the members of the
Board of Directors having no personal stake in such Affiliate Transaction and
(3) if such Affiliate Transaction involves an amount in excess of $5.0 million,
have been determined by a nationally recognized investment banking firm or other
qualified
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appraiser under the relevant circumstances to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Permitted Investment or any Restricted Payment permitted to be paid pursuant to
the covenant described under "--Limitation on Restricted Payments," (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors, (iii) the
grant of stock options or similar rights to employees and directors of the
Company pursuant to plans approved by the Board of Directors, (iv) loans or
advances to employees in the ordinary course of business in accordance with the
past practices of the Company or its Restricted Subsidiaries, but in any event
not to exceed $500,000 in the aggregate outstanding at any one time, (v) the
payment of reasonable fees to directors of the Company and its Restricted
Subsidiaries who are not employees of the Company or its Restricted
Subsidiaries, (vi) any Affiliate Transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries; provided, however,
that no beneficial owner (as defined in Rule 13d-1 and 13d-5 of the Exchange
Act) of 5% or more of the Capital Stock of the Company holds, directly or
indirectly, any Investments in any such Restricted Subsidiary (other than
indirectly through the Company), (vii) the issuance or sale of any Capital Stock
(other than Disqualified Stock) of the Company and (viii) any transaction
pursuant to an agreement or arrangement in effect on the Issue Date.
Limitation on the Sale or Issuance of Capital Stock of Certain Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any Capital
Stock (other than Qualified Preferred Stock) of an Existing Restricted
Subsidiary, and shall not permit any Existing Restricted Subsidiary, directly or
indirectly, to issue or sell or otherwise dispose of any of its Capital Stock
(other than Qualified Preferred Stock), except (i) to the Company or a Wholly
Owned Subsidiary, (ii) if, immediately after giving effect to such issuance,
sale or other disposition, neither the Company nor any of its Subsidiaries own
any Capital Stock of such Restricted Subsidiary, (iii) if, immediately after
giving effect to such issuance, sale or other disposition, such Existing
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any
Investment in such Person remaining after giving effect thereto would have been
permitted to be made under the covenant described under "--Limitation on
Restricted Payments" if made on the date of such issuance, sale or other
disposition, (iv) to directors of directors' qualifying shares of common stock
of any Restricted Subsidiary, to the extent mandated by applicable law, or (v)
the issuance or sale of Capital Stock of a Restricted Subsidiary that has a
class of equity security registered under Section 12 of the Exchange Act
pursuant to an employee stock option plan approved by the Board of Directors.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any of its properties (including Capital Stock
of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, other than Permitted Liens, without effectively providing that the
Notes shall be secured equally and ratably with (or, if the obligation or
liability to be secured by such Lien is subordinated in respect of payment to
the Notes, prior to) the obligations so secured for so long as such obligations
are so secured; provided, however, that the Company and its Restricted
Subsidiaries may Incur other Liens to secure Indebtedness as long as the amount
of outstanding Indebtedness secured by Liens Incurred pursuant to this proviso
at any time does not exceed $5.0 million.
Limitation on Sale/Leaseback Transactions. The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Company or such
Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to the
Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to
the covenant described under "--Limitation on Indebtedness" and (B) create a
Lien on such property securing such Attributable Debt without equally and
ratably securing the Notes pursuant to the covenant described under "--
Limitation on Liens," (ii) the net proceeds received by the Company or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair value (as determined by the Board of Directors) of such
property and (iii) the Company applies the proceeds of such transaction in
compliance with the covenant described under "--Limitation on Sale of Assets
and Subsidiary Stock."
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Limitation on Market Swaps. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any Market Swaps, unless:
(i) at the time of entering into the agreement to swap markets and
immediately after giving effect to the proposed Market Swap, no Default shall
have occurred and be continuing;
(ii) the respective fair market values of the markets and other assets (to
be determined in good faith by the Board of Directors and to be evidenced by a
resolution of such Board set forth in an Officer's Certificate delivered to
the Trustee) being purchased and sold by the Company or any of its Restricted
Subsidiaries are substantially the same at the time of entering into the
agreement to swap markets; and
(iii) the cash payments, if any, received by the Company or such Restricted
Subsidiary in connection with such Market Swap are treated as Net Available
Cash received from an Asset Disposition.
Limitation on Lines of Business. The Company shall not, and shall not permit
any Restricted Subsidiary to, engage in any trade or business other than a
Related Business.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Notes and the Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing,
(iii) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of the covenant described under "--Limitation on
Indebtedness;"
(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less than
the Consolidated Net Worth of the Company immediately prior to such
transaction;
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture; and
(vi) the Company shall have delivered to the Trustee an Opinion of Counsel
to the effect that the holders of the Notes will not recognize income, gain or
loss for Federal income tax purposes as a result of such transaction and will
be subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such transaction had not
occurred.
The Successor Company shall be the successor to the Company and shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Indenture, but the predecessor Company in the
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case of a conveyance, transfer or lease shall not be released from the
obligation to pay the principal of and interest on the Notes.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the SEC and provide the Trustee and Noteholders with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections, such information, documents and other reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections if it were subject thereto (unless the
Commission will not accept such a filing, in which case the Company shall
provide such documents to the Trustee). In addition, for so long as any of the
Notes are outstanding, the Company will make available to any prospective
purchaser of the Notes or beneficial owner thereof (upon written request to the
Company) in connection with any sales thereof the information required by Rule
144A(d) (4) under the Securities Act.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company to comply with its obligations under "--
Certain Covenants--Merger and Consolidation" above, (iv) the failure by the
Company to comply for 30 days after the notice described below with any of its
obligations in the covenants described above under "--Change of Control"
(other than a failure to purchase Notes) or under "--Certain Covenants" under
"--Limitation on Indebtedness," "--Limitation on Restricted Payments," "--
Limitation on Restrictions on Distributions from Restricted Subsidiaries," "--
Limitation on Sales of Assets and Subsidiary Stock" (other than a failure to
purchase Notes), "--Limitation on Affiliate Transactions," "--Limitation on
the Sale or Issuance of Capital Stock of Certain Restricted Subsidiaries," "--
Limitation on Liens," "--Limitation on Sale/Leaseback Transactions,"
"Limitation on Market Swaps," "Limitation on Lines of Business" or "--SEC
Reports," (v) the failure by the Company to comply for 60 days after the notice
described below with its other agreements contained in the Indenture, (vi)
Indebtedness of the Company or any Significant Subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the holders
thereof because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10 million and such non-payment continues, or such
acceleration is not rescinded, within 10 days after notice (the "cross
acceleration provision"), (vii) certain events of bankruptcy, insolvency or
reorganization of the Company or a Significant Subsidiary (the "bankruptcy
provisions") or (viii) any judgment or decree (not covered by insurance or
indemnification by a Person other than the Company or a Restricted Subsidiary,
which indemnity party is solvent and has acknowledged responsibility) for the
payment of money in excess of $10 million is entered against the Company or a
Significant Subsidiary, remains outstanding for a period of 60 days following
such judgment and is not discharged, waived, bonded over or stayed within 10
days after notice (the "judgment default provision") . However, a default
under clauses (iv), (v), (vi) and (viii) will not constitute an Event of Default
until the Trustee or the holders of 25% in principal amount at maturity of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified herein after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders of
at least 25% in principal amount at maturity of the outstanding Notes may
declare the Accreted Value of and accrued but unpaid interest on all the Notes
to be due and payable (collectively, the "Default Amount"). Upon such a
declaration, the Default Amount shall be due and payable immediately. If an
Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs and is continuing, the Default Amount on
all the Notes will ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holders of the
Notes. Under certain circumstances, the holders of a majority in principal
amount at maturity of the outstanding Notes may rescind any such acceleration
with respect to the Notes and its consequences. Subject to the provisions of the
Indenture relating to the duties of the Trustee, in case an Event of Default
occurs and is continuing,
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the Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the holders of the
Notes unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no holder
of a Note may pursue any remedy with respect to the Indenture or the Notes
unless (i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount at
maturity of the outstanding Notes have requested the Trustee to pursue the
remedy, (iii) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense, (iv) the Trustee has not
complied with such request within 60 days after the receipt thereof and the
offer of security or indemnity and (v) the holders of a majority in principal
amount at maturity of the outstanding Notes have not given the Trustee a
direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the holders of a majority in principal amount at maturity
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder of a Note or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is known
to the Trustee, the Trustee must mail to each holder of the Notes notice of the
Default within 90 days after it occurs. Except in the case of a Default in the
payment of principal of or interest on any Note, the Trustee may withhold notice
if and so long as a committee of its trust officers determines that withholding
notice is not opposed to the interest of the holders of the Notes. In addition,
the Company is required to deliver to the Trustee, within 120 days after the end
of each fiscal year, a certificate indicating whether the signers thereof know
of any Default that occurred during the previous year. The Company also is
required to deliver to the Trustee, within 30 days after the Company becomes
aware of the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action the Company is taking
or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of a majority in principal amount at maturity of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount at maturity of the Notes then outstanding. However, without the consent
of each holder of an outstanding Note affected thereby, no amendment may, among
other things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the amount payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "--Optional
Redemption," (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes or (vii) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions.
Without the consent of any holder of the Notes, the Company and Trustee may
amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Company for the benefit of the holders of the
Notes or to surrender any right or power conferred upon the Company, to make any
change that does not adversely affect the rights of any holder of the Notes or
to comply with any requirement of the SEC in connection with the qualification
of the Indenture under the Trust Indenture Act.
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The consent of the holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A holder may transfer or exchange the New Notes in accordance with the
Exchange Offer and the Indenture. The Company, the Registrar and the Trustee
may require a holder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a holder to pay any taxes and
fees required by law or permitted by the Indenture.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes and
the Indenture ("legal defeasance"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes
and to maintain a registrar and paying agent in respect of the Notes. The
Company at any time may terminate its obligations under "--Change of Control"
and under the covenants described under "--Certain Covenants" (other than the
covenant described under "--Merger and Consolidation"), the operation of the
cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under "--
Defaults" above and the limitations contained in clauses (iii) and (iv) under
"--Certain Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If the Company exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "--Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) under "--Certain
Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay principal and interest on the Notes when due (whether at
scheduled maturity or upon redemption as to which irrevocable instructions have
been given to the Trustee) in accordance with the terms of the Indenture and the
Notes (the value of such money or U.S. Government Obligations may not be
sufficient to pay the Default Amount at any particular point in time) and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amounts and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
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State Street Bank and Trust Company is the Trustee under the Indenture and has
been appointed by the Company as Registrar and Paying Agent with regard to the
Notes.
The Holders of a majority in principal amount at maturity of the outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions, including furnishing the Trustee with indemnity satisfactory
to it. The Indenture provides that if an Event of Default occurs (and is not
cured), the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent man in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Accreted Value" means, as of any date (the "Specified Date"), the amount
provided below for each $1,000 principal amount at maturity of Notes:
(i) if the Specified Date occurs on one of the following dates (each, a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL
- -------------------------
ACCRUAL DATE ACCRETED VALUE
- ------------------------- --------------
<S> <C>
Issue Date............. $ 550.76
August 15, 1998........ 585.69
February 15, 1999...... 621.56
August 15, 1999........ 659.63
February 15, 2000...... 700.03
August 15, 2000........ 742.91
February 15, 2001...... 788.41
August 15, 2001........ 836.70
February 15, 2002...... 887.95
August 15, 2002........ 942.34
February 15, 2003...... 1,000.00
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the Accreted Value will equal the sum of (a) the Accreted Value for the Semi-
Annual Accrual Date immediately preceding such Specified Date and (b) an
amount equal to the product of (1) the Accreted Value for the immediately
following Semi-Annual Accrual Date less the Accreted Value for the immediately
preceding Semi-Annual Accrual Date multiplied by (2) a fraction, the numerator
of which is the number of days elapsed from the immediately preceding Semi-
Annual Accrual Date to the Specified Date, using a 360-day year of 12 30-day
months, and the denominator of which is 180 (or, if the Semi-Annual Accrual
Date immediately preceding the Specified Date is the Issue Date, the
denominator of which is 186); or
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(iii) if the Specified Date occurs after the last Semi-Annual Accrual Date,
the Accreted Value will equal $1,000.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is or becomes a Restricted Subsidiary; provided, however, that any such
Restricted Subsidiary described in clauses (ii) or (iii) above is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
For purposes of the provisions described under "--Certain Covenants--Limitation
on Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Annualized EBITDA" as of any date of determination means EBITDA for the
most recent two consecutive fiscal quarters for which financial statements have
been made publicly available but in no event ending more than 135 days prior to
the date of such determination multiplied by two.
"Area 1 Franchise" means the Company's cable television franchise pursuant
to a Franchise Agreement between the Company and the City of Chicago in effect
on the Issue Date.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) (that is not for
security purposes) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (i) any
shares of Capital Stock (other than Qualified Preferred Stock) of a Restricted
Subsidiary (other than directors' qualifying shares or shares required by
applicable law to be held by a Person other than the Company or a Restricted
Subsidiary), (ii) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary or (iii) any other assets
(other than Capital Stock or other Investments in an Unrestricted Subsidiary) of
the Company or any Restricted Subsidiary outside of the ordinary course of
business of the Company or such Restricted Subsidiary (other than, in the case
of (i), (ii) and (iii) above, (a) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to another Restricted
Subsidiary, (b) for purposes of the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition that (x) constitutes a Permitted Investment or a Restricted Payment
permitted by the covenant described under "--Certain Covenants--Limitation on
Restricted Payments," (y) complies with the covenant described under "--Certain
Covenants--Merger and Consolidation" or (z) constitutes a Market Swap permitted
by the covenant described under "--Certain Covenants--Limitation on Market
Swaps" and (c) a disposition of assets with a fair market value of less than
$250,000).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
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"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years (calculated to the nearest one-twelfth) from
the date of determination to the dates of each successive scheduled principal
payment of such Indebtedness or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of each such principal payment by
(ii) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means any day other than a Saturday, Sunday or day on which
banking institutions are not required to be open in the States of New York,
Illinois and Massachusetts.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated, whether voting or nonvoting) equity of such Person,
including any common stock and Preferred Stock, whether outstanding on the Issue
Date or issued after the Issue Date, but excluding any debt securities
convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"consolidated" means the consolidation of accounts of the Company and its
Subsidiaries in accordance with GAAP.
"Consolidated Current Liabilities" as of the date of determination means the
aggregate amount of liabilities of the Company and its Restricted Subsidiaries
which may properly be classified as current liabilities (including taxes accrued
as estimated), on a consolidated basis, after eliminating (i) all intercompany
items between the Company and any Restricted Subsidiary and (ii) all current
maturities of long-term Indebtedness, all as determined in accordance with GAAP
consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred in such period by the Company or its Restricted Subsidiaries, without
duplication, (i) interest expense attributable to capital leases and the
interest expense attributable to leases constituting part of a Sale/Leaseback
Transaction, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) net costs associated with Hedging Obligations
(including amortization of fees), (vii) Preferred Stock dividends in respect of
all Preferred Stock held by Persons other than the Company or a Restricted
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations, (ix) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by (or secured by the
assets of) the Company or any Restricted Subsidiary and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust; excluding, however, (y) a proportional amount of any of
the foregoing items or other interest expense incurred by a Restricted
Subsidiary in such period to the extent the net income of such Restricted
Subsidiary is excluded in the calculation of Consolidated Net Income pursuant to
clause (iii) of the definition thereof and (z) any fees or debt issuance costs
(and any amortization thereof) payable in connection with the sale of the Notes
and Units on the Issue Date.
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"Consolidated Leverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries calculated on a consolidated basis as of the end of the
most recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination to (ii) Annualized EBITDA as of such date of
determination; provided, however, that
(1) if the transaction giving rise to the need to calculate the
Consolidated Leverage Ratio is an Incurrence of Indebtedness, the amount of
Indebtedness outstanding at the end of such fiscal quarter shall be calculated
after giving effect on a pro forma basis to the Incurrence of such
Indebtedness as if such Indebtedness had been outstanding as of the end of
such fiscal quarter and to the discharge of any other Indebtedness to the
extent it was outstanding as of the end of such fiscal quarter and is to be
repaid, repurchased, defeased or otherwise discharged with the proceeds of
such new Indebtedness as if such Indebtedness had been discharged as of the
end of such fiscal quarter,
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness that was outstanding as of
the end of such fiscal quarter or if any Indebtedness that was outstanding as
of the end of such fiscal quarter is to be repaid, repurchased, defeased or
otherwise discharged on the date of the transaction giving rise to the need to
calculate the Consolidated Leverage Ratio, the aggregate amount of
Indebtedness outstanding as of the end of such fiscal quarter shall be
calculated on a pro forma basis as if such discharge had occurred as of the
end of such fiscal quarter and EBITDA shall be calculated as if the Company or
such Restricted Subsidiary had not earned the interest income, if any,
actually earned during the period of the most recent two consecutive fiscal
quarters for which financial statements have been made publicly available but
in no event ending more than 135 days prior to the date of such determination
(the "Reference Period") in respect of cash or Temporary Cash Investments
used to repay, repurchase, defease or otherwise discharge such Indebtedness,
(3) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for
the Reference Period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for the Reference Period, or increased by an amount equal to
the EBITDA (if negative), directly attributable thereto for the Reference
Period,
(4) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment
in any Restricted Subsidiary (or any person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of assets
occurring in connection with a transaction requiring a calculation to be made
hereunder, which constitutes all or substantially all an operating unit of a
business, EBITDA for the Reference Period shall be calculated after giving pro
forma effect thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of the Reference Period,
(5) if since the beginning of the Reference Period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such Reference
Period) shall have made any Asset Disposition, any Investment or acquisition
of assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during the Reference
Period, EBITDA for the Reference Period shall be calculated after giving pro
forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of the Reference Period; and
(6) the aggregate amount of Indebtedness outstanding at the end of such
most recent fiscal quarter will be deemed to include the total principal
amount of funds outstanding or available to be borrowed on the date of
determination under any revolving credit or similar facilities of the Company
or its Restricted Subsidiaries.
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For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets or the amount of income or earnings relating thereto, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company.
"Consolidated Net Income" means, for any period, the aggregate net income of
the Company and its consolidated Subsidiaries for such period; provided,
however, that the following shall not be included in such Consolidated Net
Income:
(i) any net income (or loss) of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that subject to the exclusion
contained in clause (iv) below, the Company's equity in the net income of any
such Person for such period shall be included in such Consolidated Net Income
up to the aggregate amount of cash actually distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid to
a Restricted Subsidiary, to the limitations contained in clause (iii) below);
(ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to the Company, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the Company's
equity in a net loss of any such Restricted Subsidiary for such period shall
be included in determining such Consolidated Net Income;
(iv) the after-tax gain or loss realized upon the sale or other disposition
of any assets of the Company, its consolidated Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement) which is not
sold or otherwise disposed of in the ordinary course of business and the
after-tax gain or loss realized upon the sale or other disposition of any
Capital Stock of any Person;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants--Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any payments of interest, dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
interest, dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Tangible Assets" as of any date of determination, means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a balance sheet of the Company
and its Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP, and after giving effect to purchase accounting and after
deducting therefrom Consolidated Current Liabilities and, to the extent
otherwise included, the amounts of: (i) minority interests in consolidated
Subsidiaries held by Persons other than the Company or a Restricted Subsidiary;
(ii) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors; (iii) any revaluation or
other write-up in book value of assets subsequent to the Issue Date as a result
of a change in the method of valuation in accordance with GAAP consistently
applied; (iv) unamortized debt discount
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and expenses and other unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, copyrights, licenses, organization or
developmental expenses and other intangible items; (v) treasury stock; (vi) cash
set apart and held in a sinking or other analogous fund established for the
purpose of redemption or other retirement of Capital Stock to the extent such
obligation is not reflected in Consolidated Current Liabilities; and (vii)
Investments in and assets of Unrestricted Subsidiaries.
"Consolidated Net Worth" means, at any date of determination, the total of
the amounts shown on the balance sheet of the Company and its consolidated
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of the Company for which financial
statements have been made publicly available but in no event ending more than
135 days prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Credit Agreement" means one or more term loans or revolving credit or
working capital facilities (including any letter of credit subfacility) with one
or more banks or other institutional lenders in favor of the Company or any
Restricted Subsidiary.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable or must be purchased, upon the occurrence of certain events
or otherwise, by such Person at the option of the holder thereof, in whole or in
part, in each case on or prior to the first anniversary of the Stated Maturity
of the Notes; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to purchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to
the first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if (x) the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the terms applicable to the Notes and described under "--
Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" and "--
Change of Control" and (y) any such requirement only becomes operative after
compliance with such terms applicable to the Notes, including the purchase of
any Notes tendered pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(a) Consolidated Interest Expense, (b) all income tax expense of the Company and
its consolidated Restricted Subsidiaries, (c) depreciation expense of the
Company and its consolidated Restricted Subsidiaries, (d) amortization expense
of the Company and its consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period) and (e) all other non-cash charges of the Company and its
consolidated Restricted Subsidiaries (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash expenditures in any
future period), in each case for such period, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and non-cash charges of, a
Restricted Subsidiary shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that
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has not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to such Restricted Subsidiary or its stockholders.
"Equity Offering" means either (a) an underwritten primary public offering
of common stock of Parent or the Company pursuant to an effective registration
statement under the Securities Act or (b) a primary offering of Capital Stock
(other than Disqualified Stock) of the Company to one or more Persons primarily
engaged in a Related Business.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Restricted Subsidiary" means any Restricted Subsidiary in
existence on the Issue Date and any Restricted Subsidiary formed after the Issue
Date which thereafter conducts all or any portion of the Company's business
pertaining to its Area 1 Franchise in Chicago, as in effect on the Issue Date.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning. The term "Guarantor"
shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when
used as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable, including, in each case, any premium on such indebtedness to the
extent such premium has become due and payable;
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(ii) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i) through (iii) above) entered into in
the ordinary course of business of such Person to the extent such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the tenth Business Day following payment on the
letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person (including any Restricted
Subsidiary), the liquidation preference with respect to, any Preferred Stock
(but excluding, in each case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v) of
other Persons and all dividends of other Persons for the payment of which, in
either case, such Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any Guarantee;
(vii) all obligations of the type referred to in clauses (i) through (vi)
of other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the fair value of such property or
assets or the amount of the obligation so secured, in each case as of the date
of determination; and
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap, floor, collar or forward interest rate
agreement or other financial agreement or arrangement designed to protect such
Person against fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extensions
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary
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shall be valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Old Notes were issued under the
Indenture.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Market Assets" means assets used or useful in the ownership or operation of
a Related Business, including any and all licenses, franchises and assets
related thereto.
"Market Swap" means the execution of a definitive agreement, subject only to
governmental approval and other customary closing conditions, that the Company
in good faith believes will be satisfied, for a substantially concurrent
purchase and sale, or exchange, of Market Assets between the Company or any of
its Restricted Subsidiaries and another Person or group of Persons; provided
that any amendment to or waiver of any closing condition which individually or
in the aggregate is material to the Market Swap will be deemed to be a new
Market Swap; provided, however, that the Market Assets to be sold by the Company
or its Restricted Subsidiaries in connection with a Market Swap do not include
assets used in or necessary for the ownership or operation of the Company's
business pertaining to its Area 1 franchise in Chicago; provided further,
however, that the cash and other assets to be received by the Company or its
Restricted Subsidiaries which do not constitute Market Assets do not constitute
more than 15% of the total consideration to be received by the Company or its
Restricted Subsidiaries in such Market Swap.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries as a result of such Asset Disposition and
(iv) the deduction of appropriate amounts provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Disposition and retained by the Company or
any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the proceeds of such issuance or sale in the form of cash or cash
equivalents including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in such form of cash or cash equivalents and the conversion of
other property received when converted to such form of cash or cash equivalents,
net of any and all issuance costs, including attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Parent" means any Person that owns directly or indirectly all the Voting
Stock of the Company.
"Permitted Holders" means Purnendu Chatterjee, JK&B Capital, William Farley,
Boston Capital Ventures II, L.P., Glenn W. Milligan, Edward T. Joyce and each of
their affiliates.
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"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) commissions, payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary; (vii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments; (viii) any Person to the
extent such Investment represents either the non-cash portion of the
consideration received for an Asset Disposition as permitted pursuant to the
covenant described under "--Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock" or the consideration not constituting Market Assets
received in a Market Swap as permitted pursuant to the covenant described under
"--Certain Covenants--Limitation on Market Swaps;" and (ix) any Person
principally engaged in a Related Business if (a) the Company or a Restricted
Subsidiary, after giving effect to such Investment, will own at least 20% of the
Voting Stock of such Person and (b) the amount of such Investment, when taken
together with the aggregate amount of all Investments made pursuant to this
clause (ix) and then outstanding, does not exceed $10.0 million.
"Permitted Liens" means, with respect to any Person,
(a) pledges or deposits by such Person under worker's compensation laws,
unemployment insurance laws or similar legislation and other types of social
security, or good faith deposits in connection with bids, tenders, contracts
(other than for the payment of Indebtedness) or leases to which such Person is
a party, or deposits to secure public or statutory or regulatory obligations
of such Person or deposits of cash, cash equivalents or United States
government bonds to secure surety or appeal bonds to which such Person is a
party, or deposits as security for contested taxes or import duties or for the
payment of rent, in each case Incurred in the ordinary course of business;
(b) Liens imposed by law, such as carriers', landlords', warehousemen's and
mechanics', suppliers', repairmen's or other similar Liens, in each case for
sums not yet due or being contested in good faith by appropriate proceedings
or other Liens arising out of judgments or awards against such Person with
respect to which such Person shall then be proceeding with an appeal or other
proceedings for review and Liens in favor of customs and revenue authorities
to secure payment of customs duties;
(c) Liens for taxes, assessments, governmental charges or claims subject to
penalties for non-payment or which are being contested in good faith and by
appropriate proceedings;
(d) Liens in favor of issuers of surety or payment and performance bonds or
letters of credit and bankers' acceptances issued pursuant to the request of
and for the account of such Person in the ordinary course of its business;
provided, however, that such letters of credit and bankers' acceptances do not
constitute Indebtedness;
(e) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, licenses, rights-of-way, pole attachment, use of
conduit, use of trenches, or similar rights, sewers, electric lines, telegraph
and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real property or Liens incidental to the conduct
of the business of such Person or to the ownership of its properties or other
municipal and zoning ordinances, title defects or other irregularities which
were not Incurred in connection with
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Indebtedness and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of
the business of such Person;
(f) Liens securing Indebtedness Incurred after the Issue Date pursuant to
clause (b) (7) of the covenant described under "--Limitation on
Indebtedness" or otherwise Incurred to finance the construction, purchase or
lease of, or repairs, improvements or additions to, property of such Person;
provided, however, that the Liens securing such Indebtedness may not extend to
any property owned by such Person or any of its Subsidiaries at the time the
Lien is Incurred other than the property financed with the proceeds of such
Indebtedness and the proceeds thereof, and the Indebtedness (other than any
interest thereon) secured by the Lien may not be Incurred more than 180 days
after the later of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the property
subject to the Lien;
(g) Liens to secure Indebtedness permitted under the provisions described
in clause (b)(1) under "--Certain Covenants--Limitation on Indebtedness;"
(h) Liens existing on the Issue Date;
(i) Liens on property or shares of Capital Stock of another Person at the
time such other Person becomes a Subsidiary of such Person; provided, however,
that such Liens are not created, incurred or assumed in connection with, or in
contemplation of, such other Person becoming such a Subsidiary; provided
further, however, that such Lien may not extend to any other property owned by
such Person or any of its Subsidiaries;
(j) Liens on property at the time such Person or any of its Subsidiaries
acquires the property, including any acquisition by means of a merger or
consolidation with or into such Person or a Subsidiary of such Person;
provided, however, that such Liens are not created, incurred or assumed in
connection with, or in contemplation of, such acquisition; provided further,
however, that the Liens may not extend to any other property owned by such
Person or any of its Subsidiaries;
(k) Liens securing Indebtedness or other obligations of a Subsidiary of
such Person owing to such Person or a Subsidiary of such Person;
(l) Liens securing Hedging Obligations so long as such Hedging Obligations
relate to Indebtedness that is, and is permitted to be under the Indenture,
secured by a Lien on the same property securing such Hedging Obligations; and
(m) Liens arising from filing Uniform Commercial Code financing statements
regarding leases;
(n) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company or any
of its Restricted Subsidiaries in the ordinary course of business; and
(o) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Indebtedness secured by any Lien referred to in the
foregoing clauses (f), (h), (i) and (j); provided, however, that (I) such new
Lien shall be limited to all or part of the same property that secured the
original Lien (plus improvements to or on such property) and (II) the
Indebtedness secured by such Lien at such time is not increased to any amount
greater than the sum of (A) the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under clauses (f), (h), (i) or
(j) at the time the original Lien became a Permitted Lien and (B) an amount
necessary to pay any accrued and unpaid interest, fees and expenses, including
premiums, related to such refinancing, refunding, extension, renewal or
replacement.
Notwithstanding the foregoing, "Permitted Liens" will not include any Lien
described in clauses (f), (i) or (j) above to the extent such Lien applies to
any Additional Assets acquired directly or indirectly from Net Available Cash
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pursuant to the covenant described under "--Certain Covenants--Limitation on
Sales of Assets and Subsidiary Stock." For purposes of this definition, the
term "Indebtedness" shall be deemed to include interest on such Indebtedness.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated, whether voting or
nonvoting) which is preferred as to the payment of dividends or distributions,
or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of Capital Stock of any
other class of such Person.
"principal" of a Note means the Accreted Value of the Note plus the premium,
if any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"principal amount at maturity" of a Note means the amount specified as such
on the face of such Note.
"Public Market" means any time after (x) a Public Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of Parent or the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Public Offering" means an underwritten primary public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act.
"Qualified Preferred Stock" of a Restricted Subsidiary means a series of
Preferred Stock of such Restricted Subsidiary which (i) has a fixed liquidation
preference that is no greater in the aggregate than the sum of (x) the fair
market value (as determined in good faith by the Board of Directors at the time
of the issuance of such series of Preferred Stock) of the consideration received
by such Restricted Subsidiary for the issuance of such series of Preferred Stock
and (y) accrued and unpaid dividends to the date of liquidation, (ii) has a
fixed annual dividend and has no right to share in any dividend or other
distributions based on the financial or other similar performance of such
Restricted Subsidiary and (iii) does not entitle the holders thereof to vote in
the election of directors, managers or trustees of such Restricted Subsidiary
unless such Restricted Subsidiary has failed to pay dividends on such series of
Preferred Stock for a period of at least 12 consecutive calendar months.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus accrued and unpaid interest, fees and expenses,
including any premium and defeasance costs) under the Indebtedness being
Refinanced; provided further, however, that Refinancing Indebtedness shall not
include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the
Company or (y) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
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"Related Business" means the businesses of the Company and the Restricted
Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Restricted Payment" with respect to any Person means
(i) the declaration or payment of any dividends or any other distributions
of any sort (including any payment in connection with any merger or
consolidation involving such Person) in respect of its Capital Stock held by
Persons other than the Company or any Restricted Subsidiary or similar payment
to the direct or indirect holders (other than the Company or a Restricted
Subsidiary) of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock), and other
than pro rata dividends or other distributions made by a Subsidiary that is
not a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other than a
corporation)),
(ii) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company held by any Person or of any Capital Stock
of a Restricted Subsidiary held by any Affiliate of the Company (other than a
Restricted Subsidiary), including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock),
(iii) the purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other than the
purchase, repurchase, redemption or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of
the date of such purchase, repurchase, redemption or acquisition) or
(iv) the making of any Investment (other than a Permitted Investment) in
any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means Indebtedness (including interest on such
Indebtedness) of the Company, whether outstanding on the Issue Date or
thereafter Incurred, unless in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such obligations
are subordinate in right of payment to the Notes; provided, however, that Senior
Indebtedness shall not include (1) any obligation of the Company to any
Subsidiary, (2) any liability for Federal, state, local or other taxes owed or
owing by the Company, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities), (4) any Indebtedness of the
Company (and any accrued and unpaid interest in respect thereof) which is
subordinate or junior in any respect to any other Indebtedness or other
obligation of the Company or (5) that portion of any Indebtedness which at the
time of Incurrence is Incurred in violation of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory
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redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is expressly
subordinate or junior in right of payment to the Notes pursuant to a written
agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Voting Stock is at the time owned or controlled, directly or
indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of
such Person or (iii) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of America
or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 365 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50,000,000 (or the
foreign currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered into
with a bank meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than 270 days after
the date of acquisition, issued by a corporation (other than an Affiliate of
the Company) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with
a rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Group,
(v) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States of America, or by any political subdivision
or taxing authority thereof, and rated at least "A" by Standard & Poor's
Ratings Group or "A" by Moody's Investors Service, Inc., and
(vi) investments in money-market funds (other than single-state funds) that
make investments in instruments of the type described in clause (i)-(v) above
in accordance with the regulations of the Securities and Exchange Commission
under the Investment Company Act of 1940, as amended.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under
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"--Certain Covenants--Limitation on Restricted Payments." The Board of Directors
may designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided, however, that immediately after giving effect to such designation (x)
the Company could Incur $1.00 of additional Indebtedness under paragraph (a) of
the covenant described under "--Certain Covenants--Limitation on Indebtedness"
and (y) no Default shall have occurred and be continuing. Any such designation
by the Board of Directors shall be evidenced to the Trustee by promptly filing
with the Trustee a copy of the resolution of the Board of Directors giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
DESCRIPTION OF THE NEW EXCHANGEABLE PREFERRED STOCK
The following is a summary of certain provisions of the New Exchangeable
Preferred Stock and the Amendment to the Articles of Incorporation (the
"Amended Articles") setting forth the rights and privileges of the New
Exchangeable Preferred Stock. A copy of the Amended Articles and the form of New
Exchangeable Preferred Stock is available upon request to the Company at the
address set forth under "Available Information." The following summary of
certain provisions of the Amended Articles does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all the
provisions of the Amended Articles. The definitions of certain capitalized terms
used but not defined in the following summary are set forth under "Description
of the Exchange Debentures--Certain Definitions." Other capitalized terms used
but not defined herein and not otherwise defined under "Description of the
Exchange Debentures--Certain Definitions" are defined in the Amended Articles.
GENERAL
At the consummation of the Exchange Offer, the Company will issue up to
51,833.33 shares of its registered 13 3/4% Senior Cumulative Exchangeable
Preferred Stock Due 2010, $0.01 par value per share, designated as "13 3/4%
Senior Cumulative Exchangeable Preferred Stock Due 2010," in exchange for an
equal number shares of its outstanding 13 3/4% Senior Cumulative Exchangeable
Preferred Stock Due 2010, $0.01 par value per share. Subject to certain
conditions, the New Exchangeable Preferred Stock will be exchangeable for the
Exchange Debentures at the option of the Company on any scheduled dividend
payment date on or after the date of issuance of the New Exchangeable Preferred
Stock. When issued, the New Exchangeable Preferred Stock will be validly issued,
fully paid and nonassessable. The holders of the New Exchangeable Preferred
Stock will have no preemptive or preferential right to purchase or subscribe for
stock, obligations, warrants, or other securities of the Company of any
class.
RANKING
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The Exchangeable Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding-up and dissolution, rank (i) senior to all
classes of common stock and to each other class of Capital Stock or series of
Preferred Stock outstanding on the Issue Date (including the Class A Preferred
Stock and the Class B Preferred Stock) and each other class or series
established hereafter by the Board of Directors the terms of which do not
expressly provide that it ranks senior to, or on a parity with, the Exchangeable
Preferred Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the Company (collectively referred to, together with all classes
of common stock of the Company, as "Junior Stock"); (ii) subject to certain
conditions, on a parity with each class of Capital Stock or series of Preferred
Stock established hereafter by the Board of Directors, the terms of which
expressly provide that such class or series will rank on a parity with the
Exchangeable Preferred Stock as to dividend rights and rights on liquidation,
winding-up and dissolution (collectively referred to as "Parity Stock"); and
(iii) subject to certain conditions, junior to each class of Capital Stock or
series of Preferred Stock established hereafter by the Board of Directors, the
terms of which expressly provide that such class or series will rank senior to
the Exchangeable Preferred Stock as to dividend rights and rights upon
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Senior Stock").
While any shares of Exchangeable Preferred Stock are outstanding, the Company
may not authorize, create or increase the authorized amount of any class or
series of stock that ranks senior to or on parity with the Exchangeable
Preferred Stock with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up without the consent of the holders of a
majority of the outstanding shares of Exchangeable Preferred Stock. However,
without the consent of any holder of Exchangeable Preferred Stock, the Company
may create additional classes of stock, increase the authorized number of shares
of preferred stock or issue series of a stock that ranks junior to the
Exchangeable Preferred Stock with respect, in each case, to the payment of
dividends and amounts upon liquidation, dissolution and winding up. See "--
Voting Rights."
Substantially all the operations of the Company are or will be conducted
through one or more of its subsidiaries. The Company currently has three wholly-
owned subsidiaries: 21st Century Cable TV of Illinois, Inc.; 21st Century
Telecom of Illinois, Inc.; and 21st Century Telecom Group of Michigan, Inc.
Moreover, 21st Century Telecom Group of Michigan, Inc. has two wholly-owned
subidiaries: 21st Century Cable TV of Grand Rapids, Inc. and 21st Century
Telecom of Michigan, Inc. The Company intends to transfer substantially all its
assets to newly formed Restricted Subsidiaries, and thereafter the Company will
be a holding company with no assets other than the capital stock of its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including holders of the Exchangeable Preferred Stock. The Exchangeable
Preferred Stock, therefore, will be effectively subordinated to creditors
(including trade creditors) and preferred stockholders (if any) of subsidiaries
of the Company. Although the Amended Articles limit the incurrence of
Indebtedness and preferred stock of certain of the Company's subsidiaries, such
limitation is subject to a number of significant qualifications. Moreover, the
Amended Articles does not impose any limitation on the incurrence by such
subsidiaries of liabilities that are not considered Indebtedness or Preferred
Stock under the Amended Articles. See "--Certain Covenants--Limitation on
Indebtedness."
DIVIDENDS
The holders of shares of New Exchangeable Preferred Stock will be entitled to
receive, when, as and if dividends are declared by the Board of Directors out of
funds of the Company legally available therefor, cumulative preferential
dividends from the Issue Date accruing at the rate per share of 13 3/4% per
annum, payable quarterly in arrears on each of February 15, May 15, August 15
and November 15 or, if any such date is not a Business Day, on the next
succeeding Business Day, to the holders of record as of the next preceding
February 1, May 1, August 1 and November 1. Dividends will be payable in cash,
except that on each dividend payment date occurring on or prior to the fifth
anniversary of the Issue Date, dividends may be paid, at the Company's option,
by the issuance of additional shares of New Exchangeable Preferred Stock
(including fractional shares) having an aggregate liquidation preference equal
to the amount of such dividends. The issuance of such additional shares of New
Exchangeable Preferred Stock will constitute "payment" of the related dividend
for all purposes of the Amended Articles. The first dividend payment of New
Exchangeable Preferred Stock will be payable on May 15, 1998.
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Dividends payable on the New Exchangeable Preferred Stock will be computed on a
basis of the 360-day year consisting of twelve 30-day months and will be deemed
to accrue on a daily basis. For a discussion of certain Federal income tax
considerations relevant to the payment of dividends on the New Exchangeable
Preferred Stock, see "Certain United States Federal Income Tax Consequences."
Dividends on the New Exchangeable Preferred Stock will accrue whether or not
the Company has earnings or profits, whether or not there are funds legally
available for the payment of such dividends and whether or not dividends are
declared. Dividends will accumulate to the extent they are not paid on the
Dividend Payment Date for the period to which they relate. The Amended Articles
will provide that the Company will take all actions required or permitted under
the Illinois Business Corporation Act (the "IBCA") to permit the payment of
dividends on the Exchangeable Preferred Stock, including through the revaluation
of its assets in accordance with the IBCA.
No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of the New Exchangeable
Preferred Stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid or declared and a
sufficient sum set apart (or, on or prior to February 15, 2003, shares of New
Exchangeable Preferred Stock for which have been issued and are held for holders
by the Transfer Agent) for the payment of such dividend, upon all outstanding
shares of New Exchangeable Preferred Stock.
Except as provided in the next sentence, no dividend will be declared or paid
on any Parity Stock unless full cumulative dividends have been paid on the New
Exchangeable Preferred Stock for all prior dividend periods. If accrued
dividends on the New Exchangeable Preferred Stock for all prior dividend periods
have not been paid in full then any dividend declared on the New Exchangeable
Preferred Stock for any dividend period and on any Parity Stock will be declared
ratably in proportion to accrued and unpaid dividends on the New Exchangeable
Preferred Stock and such Parity Stock.
The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Stock or (ii)
redeem, purchase or otherwise acquire for consideration any Junior Stock through
a sinking fund or otherwise, unless (A) all accrued and unpaid dividends with
respect to the New Exchangeable Preferred Stock and any Parity Stock at the time
such dividends are payable have been paid or funds have been set apart (or, on
or prior to February 15, 2003, shares of New Exchangeable Preferred Stock for
which have been issued and are held for holders by the Transfer Agent) for
payment of such dividends and (B) sufficient funds have been paid or set apart
(or, on or prior to February 15, 2003, shares of New Exchangeable Preferred
Stock for which have been issued and are held for holders by the Transfer Agent)
for the payment of the dividend for the current dividend period with respect to
the New Exchangeable Preferred Stock and any Parity Stock.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Exchangeable Preferred
Stock will not be redeemable at the option of the Company prior to February 15,
2003. Thereafter, the Exchangeable Preferred Stock will be redeemable, at the
Company's option, in whole or in part, at any time or from time to time, upon
not less than 30 nor more than 60 days' prior notice mailed by first-class mail
to each Holder's registered address, at the following redemption prices
(expressed in percentages of the liquidation preference thereof), plus
accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for any partial dividend period) (subject to the rights of
holders of record on the relevant record date to receive dividends due on the
relevant dividend payment date), if redeemed during the 12-month period
commencing on February 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
----------
PERIOD PRICE
- ---------- -----
<S> <C>
2003..................... 106.8750%
2004..................... 104.5833
</TABLE>
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<TABLE>
<S> <C>
2005..................... 102.2917
2006 and thereafter...... 100.0000
</TABLE>
In the case of any partial redemption, selection of the Exchangeable Preferred
Stock for redemption will be made on a pro rata basis.
In addition, at any time prior to February 15, 2001, the Company may redeem
the Exchangeable Preferred Stock, in whole, but not in part, with the proceeds
(to the extent received by the Company) of an Equity Offering, at a redemption
price of 113 3/4% of the liquidation preference thereof, plus accumulated and
unpaid dividends (including an amount in cash equal to a prorated dividend for
any partial dividend period) (subject to the rights of holders of record on the
relevant record date to receive dividends due on the relevant dividend payment
date).
MANDATORY REDEMPTION
On February 15, 2010, the Company will be required to redeem (subject to the
legal availability of funds therefor) all outstanding shares of Exchangeable
Preferred Stock at a price in cash equal to the liquidation preference thereof,
plus accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for any partial dividend period), if any, to the date of
redemption (subject to the rights of holders of record on the relevant record
date to receive dividends on the relevant dividend payment date). The Company
will not be required to make sinking fund payments with respect to the
Exchangeable Preferred Stock. The Amended Articles will provide that the Company
will take all actions required or permitted under the IBCA to permit such
redemption.
EXCHANGE
The Company may, at its option, subject to certain conditions, on any
scheduled dividend payment date, exchange the Exchangeable Preferred Stock, in
whole, but not in part, for the Exchange Debentures; provided, however, that (i)
on the date of such exchange there are no accumulated and unpaid dividends on
the Exchangeable Preferred Stock (including the dividend payable on such date)
or other contractual impediments to such exchange; (ii) there shall be funds
legally available sufficient therefor; (iii) immediately after giving effect to
such exchange, no Default (as defined in the Exchange Indenture) shall have
occurred and be continuing; and (iv) the Company shall have delivered to the
Trustee under the Exchange Indenture an opinion of counsel with respect to the
due authorization and issuance of the Exchange Debentures.
Upon any exchange pursuant to the preceding paragraph, holders of outstanding
shares of Exchangeable Preferred Stock will be entitled to receive, subject to
the second succeeding sentence, $1.00 principal amount of Exchange Debentures
for each $1.00 liquidation preference of Exchangeable Preferred Stock held by
them. The Exchange Debentures will be issued in registered form, without
coupons. Exchange Debentures issued in exchange for Exchangeable Preferred Stock
will be issued in principal amounts of $1,000 and integral multiples thereof to
the extent possible, and will also be issued in principal amounts less than
$1,000 so that each holder of Exchangeable Preferred Stock will receive
certificates representing the entire amount of Exchange Debentures to which such
holder's shares of Exchangeable Preferred Stock entitle such holder; provided,
however, that the Company may pay cash in lieu of issuing an Exchange Debenture
in a principal amount less than $1,000. The Company will send a written notice
of exchange by mail to each holder of record of shares of Exchangeable Preferred
Stock not fewer than 30 days nor more than 60 days before the date fixed for
such exchange. On and after the Exchange Date, dividends will cease to accrue on
the outstanding shares of Exchangeable Preferred Stock, and all rights of the
holders of Exchangeable Preferred Stock (except the right to receive the
Exchange Debentures, an amount in cash (or, prior to February 15, 2003, at the
option of the Company, in Exchange Debentures), in each case, to the extent
applicable, equal to the accumulated and unpaid dividends to the exchange date
and, if the Company so elects, cash in lieu of any Exchange Debenture that is in
a principal amount that is not an integral multiple of $1,000) will
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terminate. The person entitled to receive the Exchange Debentures issuable upon
such exchange will be treated for all purposes as the registered holder of such
Exchange Debentures. See "Description of the Exchange Debentures."
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, each holder of Exchangeable Preferred Stock will be entitled to be
paid, out of the assets of the Company available for distribution to
stockholders, an amount equal to the liquidation preference per share of
Exchangeable Preferred Stock held by such holder, plus accumulated and unpaid
dividends thereon to the date fixed for liquidation, dissolution or winding-up
before any distribution is made on any Junior Stock, including the Class A
Preferred Stock, the Class B Preferred Stock and the common stock of the
Company. If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the amounts payable with respect to the Exchangeable
Preferred Stock and all other Parity Stock are not paid in full, the holders of
the Exchangeable Preferred Stock and the Parity Stock will share equally and
ratably in any distribution of assets of the Company in proportion to the full
liquidation preference and accumulated and unpaid dividends to which each is
entitled. After payment of the full amount of the liquidation preference and
accumulated and unpaid dividends to which they are entitled, the holders of
shares of Exchangeable Preferred Stock will not be entitled to any further
participation in any distribution of assets of the Company. However, neither the
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all the property or assets of the
Company nor the consolidation or merger of the Company with one or more entities
shall be deemed to be a liquidation, dissolution or winding-up of the Company.
The Amended Articles will not contain any provision requiring funds to be set
aside to protect the liquidation preference of the Exchangeable Preferred Stock,
although such liquidation preference will be substantially in excess of the par
value of such shares of Exchangeable Preferred Stock.
VOTING RIGHTS
The holders of Exchangeable Preferred Stock, except as otherwise required
under Illinois law or as provided in the Amended Articles, shall not be entitled
or permitted to vote on any matter required or permitted to be voted upon by the
stockholders of the Company.
The Amended Articles will provide that if (i) dividends on the Exchangeable
Preferred Stock are in arrears and unpaid for six or more dividend periods
(whether or not consecutive); (ii) the Company fails to redeem the Exchangeable
Preferred Stock on February 15, 2010, or fails to otherwise discharge any
redemption obligation with respect to the Exchangeable Preferred Stock; (iii) a
breach or violation of any of the provisions described under the captions "--
Change of Control" or "--Certain Covenants" occurs and the breach or
violation continues for a period of 30 days or more after the Company receives
notice thereof specifying the default from the holders of at least 25% of the
shares of Exchangeable Preferred Stock then outstanding; or (iv) the Company
fails to pay at final maturity (giving effect to any applicable grace period)
the principal amount of any Indebtedness of the Company or any Significant
Subsidiary or the final maturity of any such Indebtedness is accelerated because
of a default and the total amount of such Indebtedness unpaid or accelerated
exceeds $10 million and such nonpayment continues, or such acceleration is not
rescinded, within 10 days, then the holders of the outstanding shares of
Exchangeable Preferred Stock, voting together as a single class, will be
entitled to elect to serve on the Board of Directors the lesser of (x) two
additional members to the Board of Directors or (y) that number of directors
constituting 25% of the members of the Board of Directors, and the number of
members of the Board of Directors will be immediately and automatically
increased by such number. Such voting rights of the Exchangeable Preferred Stock
will continue until such time as, in the case of a dividend default, all
dividends in arrears on the Exchangeable Preferred Stock are paid in full in
cash (or, if prior to February 15, 2003, in shares of Exchangeable Preferred
Stock) and, in all other cases, any failure, breach or default giving rise to
such voting rights is remedied or waived by the holders of a majority of the
shares of Exchangeable Preferred Stock then outstanding, at which time the term
of any directors elected
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pursuant to the provisions of this paragraph (subject to the rights of holders
of any other preferred stock to elect such directors) shall terminate. Each such
event described in clauses (i) through (iv) above is referred to herein as a
"Voting Rights Triggering Event."
The Amended Articles will also provide that the Company will not authorize,
create or increase the authorized amount of any class of Senior Stock or Parity
Stock without the affirmative vote or consent of holders of a majority of the
shares of Exchangeable Preferred Stock then outstanding, voting or consenting,
as the case may be, as one class. In addition, the Amended Articles will provide
that the Company may not authorize the issuance of any additional shares of
Exchangeable Preferred Stock without the affirmative vote or consent of the
holders of a majority of the then outstanding shares of Exchangeable Preferred
Stock, voting or consenting, as the case may be, as one class. The Amended
Articles will also provide that, except as set forth above, (a) the creation,
authorization or issuance of any shares of Junior Stock, or (b) the increase or
decrease in the amount of authorized Capital Stock of any class, including any
preferred stock, shall not require the consent of the holders of Exchangeable
Preferred Stock and shall not be deemed to affect adversely the rights,
preferences, privileges or voting rights of shares of Exchangeable Preferred
Stock.
CHANGE OF CONTROL
The Amended Articles will provide that upon the occurrence of a Change of
Control, the Company shall offer to repurchase the Exchangeable Preferred Stock
at a purchase price in cash equal to 101% of the liquidation preference thereof
plus accumulated and unpaid dividends, if any, to the date of purchase (subject
to the rights of holders of record on the relevant record date to receive
dividends due on the relevant dividend payment date), as described below.
A Change of Control will be deemed to have occurred upon the occurrence of any
of the following events (each a "Change of Control"):
(i) Prior to the earlier to occur of (A) the first public offering of
common stock of Parent or (B) the first public offering of common stock of the
Company, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Company, whether as a result of issuance of securities of
the Parent or the Company, any merger, consolidation, liquidation or
dissolution of the Parent or the Company, any direct or indirect transfer of
securities by Parent or otherwise (for purposes of this clause (i) and clause
(ii) below, the Permitted Holders shall be deemed to beneficially own any
Voting Stock of a corporation (the "specified corporation") held by any
other corporation (the "parent corporation") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
corporation);
(ii) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above, except that for purposes of
this clause (ii) such person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly
or indirectly, of more than 35% of the total voting power of the Voting Stock
of the Company; provided, however, that the Permitted Holders beneficially own
(as defined in clause (i) above), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of the Company
than such other person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors (for the purposes of this clause (ii), such other person
shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other person is the
beneficial owner (as defined in this clause (ii)), directly or indirectly, of
more than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders beneficially own (as defined in clause
(i) above), directly or indirectly, in the aggregate a lesser percentage of
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the voting power of the Voting Stock of such parent corporation and do not
have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
corporation);
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election or appointment by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved
by a vote of 66 2/3% of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(iv) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale of all
or substantially all the assets of the Company to another Person (other than a
Person that is controlled by the Permitted Holders), and, in the case of any
such merger or consolidation, the securities of the Company that are
outstanding immediately prior to such transaction and which represent 100% of
the aggregate voting power of the Voting Stock of the Company are changed into
or exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition to
any other consideration, securities of the surviving corporation that
represent immediately after such transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving Person.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder stating: (1) that a Change of Control has occurred and
that such Holder has the right to require the Company to purchase such Holder's
Exchangeable Preferred Stock at a purchase price in cash equal to 101% of the
aggregate liquidation preference thereof plus accumulated and unpaid dividends,
if any, thereon to the date of purchase; (2) the circumstances and relevant
facts regarding such Change of Control (including information with respect to
pro forma historical income, cash flow and capitalization after giving effect to
such Change of Control); (3) the purchase date (which shall be no earlier than
30 days nor later than 60 days from the date such notice is mailed); and (4) the
instructions determined by the Company, consistent with the covenant described
hereunder, that a Holder must follow in order to have its Exchangeable Preferred
Stock purchased.
In the event the Company is prohibited by applicable law or by the terms of
Indebtedness of the Company from making the offer described above or from
purchasing Exchangeable Preferred Stock pursuant to such offer then, within 60
days of the occurrence of the Change of Control, holders of a majority of the
Exchangeable Preferred Stock may designate an Independent Financial Advisor to
determine, within 20 days of such designation, in the opinion of such firm, the
appropriate dividend rate (the "reset rate") that the Exchangeable Preferred
Stock should bear so that, after the dividend rate on the shares of Exchangeable
Preferred Stock is reset to such reset rate, the Exchangeable Preferred Stock
would have a market value of 101% of the liquidation preference; provided,
however, that no such reset shall be required to be made if such Independent
Financial Advisor determines that the Exchangeable Preferred Stock, after giving
effect to the Change of Control, has a market value of 101% of the liquidation
preference thereof or greater. Upon the determination of the reset rate, the
Exchangeable Preferred Stock shall accrue and accumulate dividends at the reset
rate as of the date of occurrence of the Change of Control; provided, however,
that the reset rate shall in no event be less than 13 3/4% per annum (the
initial dividend rate on the Exchangeable Preferred Stock) or greater than 15%
per annum. The reasonable fees and expenses, including reasonable fees and
expenses of legal counsel, if any, and customary indemnification, of the above-
referenced Independent Financial Advisor shall be borne by the Company.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Exchangeable Preferred Stock pursuant to the
covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable
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securities laws and regulations and shall not be deemed to have breached its
obligations under the covenant described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between the
Company and the Initial Purchasers. The Company has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control, but that could increase the
amount of indebtedness outstanding at such time or otherwise affect the
Company's capital structure or credit ratings. Restrictions on the ability of
the Company and its Restricted Subsidiaries to incur additional indebtedness are
contained in the covenant described under "--Certain Covenants--Limitation on
Indebtedness." Such restrictions can only be waived with the consent of the
holders of a majority of the outstanding shares of the Exchangeable Preferred
Stock. Except for the limitations contained in such covenants, however, the
Amended Articles of Designation will not contain any covenants or provisions
that may afford holders of the Exchangeable Preferred Stock protection in the
event of a highly leveraged transaction.
Future indebtedness of the Company may contain, prohibitions on the occurrence
of certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. Moreover, the Company's
ability to pay cash to the holders of Exchangeable Preferred Stock following the
occurrence of a Change of Control may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any repurchases. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing
Exchangeable Preferred Stock, the Company could seek the consent of its lenders
to make such purchase, or could attempt to refinance the borrowings that contain
such prohibitions. If the Company does not obtain such consent or repay such
borrowings, the Company would be required to utilize the reset provision
described herein.
CERTAIN COVENANTS
The Amended Articles contains covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company shall not Incur, and shall not
permit any of its Restricted Subsidiaries to Incur, directly or indirectly, any
Indebtedness, except that the Company may Incur Indebtedness if, on the date of
such Incurrence and after giving effect thereto, the Consolidated Leverage Ratio
would be less than 6.0 to 1.0, for Indebtedness Incurred prior to or on December
31, 1999, and less than 5.0 to 1.0 for Indebtedness Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and (except as
specified below) any Restricted Subsidiary may Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement; provided,
however, that the aggregate amount of such Indebtedness, when taken together
with all other Indebtedness Incurred pursuant to this clause (1) and then
outstanding, does not exceed the remainder of (x) $50 million minus (y) the
sum of all principal payments with respect to the permanent retirement of such
Indebtedness pursuant to paragraph (a)(ii)(A) of the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock;"
(2) Indebtedness owed to and held by the Company or a Restricted
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Company or another Restricted Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the issuer thereof;
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(3) the Notes;
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this covenant);
(5) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) or pursuant to clause (3) or (4) above, this clause (5) or
clauses (7), (8) or (11) below; provided, however, that to the extent such
Refinancing Indebtedness directly or indirectly Refinances Indebtedness of a
Restricted Subsidiary described in clause (11), such Refinancing Indebtedness
shall be Incurred only by such Restricted Subsidiary;
(6) Hedging Obligations consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company or any
Restricted Subsidiary pursuant to paragraphs (a) or (b) hereof;
(7) Indebtedness, including Indebtedness of a Restricted Subsidiary
Incurred and outstanding on or prior to the date on which such Subsidiary was
acquired by the Company, Incurred to finance the cost (including the cost of
design, development, acquisition, construction, installation, improvement,
transportation or integration) to acquire equipment, inventory or network
assets (including real estate) (including acquisitions by way of capital lease
and acquisitions of the Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the fair market value of the equipment, inventory
or networks assets so acquired) by the Company or a Restricted Subsidiary
after the Issue Date for use in a Related Business;
(8) Indebtedness of the Company in an amount which, when taken together
with the amount of Indebtedness Incurred pursuant to this clause (8) and then
outstanding, does not exceed two times the Net Cash Proceeds received by the
Company after the Issue Date as a capital contribution from, or from the
issuance and sale of its Capital Stock (other than Disqualified Stock) to, a
Person that is not a Subsidiary of the Company, to the extent such Net Cash
Proceeds have not been used pursuant to paragraph (a) (3) (B) or paragraph (b)
(i) of the covenant described under "--Limitation on Restricted Payments" to
make a Restricted Payment; provided, however, that such Indebtedness does not
mature prior to the Stated Maturity of the Exchangeable Preferred Stock and
has an Average Life longer than the Average Life of the Exchangeable Preferred
Stock;
(9) Indebtedness in respect of performance, surety or appeal bonds or
similar obligations, in each case Incurred in the ordinary course of business
of the Company and its Restricted Subsidiaries and Indebtedness due and owing
to governmental entities in connection with any licenses and franchises issued
by a governmental entity and necessary or desirable to conduct a Related
Business;
(10) Guarantees of the Notes issued by any Restricted Subsidiary;
(11) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Subsidiary was acquired by the Company (other
than Indebtedness Incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by the Company); provided, however, that on the
date of such acquisition and after giving effect thereto, the Company would
have been able to Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (a) hereof; and
(12) Indebtedness Incurred in an aggregate amount which, when taken
together with the aggregate amount of all other Indebtedness of the Company
and its Restricted Subsidiaries outstanding on the date of such Incurrence
(other than Indebtedness permitted by clauses (1) through (11) above or
paragraph (a)) does not exceed the greater of (a) $10 million and (b) an
amount equal to 5% of the Company's Consolidated Net Tangible Assets as of
such date.
(c) For purposes of determining compliance with the foregoing covenant, (i) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its
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sole discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above.
(d) For the purposes of determining the amount of Indebtedness outstanding at
any time, Guarantees with respect to Indebtedness otherwise included in the
determination of such amount shall not be included.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay
any dividend or make any distribution (including any payment in connection with
any merger or consolidation involving the Company) on or in respect of, in the
case of the Company, any Junior Stock or, in the case of any Restricted
Subsidiary, any Capital Stock, in each case held by Persons other than the
Company or any Restricted Subsidiary or similar payment to the direct or
indirect holders (other than the Company or a Restricted Subsidiary) of any such
Stock (other than dividends or distributions payable solely in Junior Stock
(other than Disqualified Stock) and other than pro rata dividends or other
distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to
minority stockholders (or owners of an equivalent interest in the case of a
Subsidiary that is an entity other than a corporation)), (ii) purchase, redeem
or otherwise acquire or retire for value any Junior Stock of the Company or any
Capital Stock of any direct or indirect parent of the Company, or (iii) make any
Investment (other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, other acquisition, retirement or investment
being herein referred to as a "Restricted Payment") if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment: (1) any accrued and
payable dividends (including dividends for the then current dividend period)
with respect to the Exchangeable Preferred Stock or any Parity Stock have not
been paid in full and funds for such payment have not been set apart (or, if on
or prior to February 15, 2003, shares of Exchangeable Preferred Stock have not
been issued in payment of such dividends and are not held by the Transfer
Agent); (2) the Company is not able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "--Limitation on
Indebtedness;" or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments (the amount of any Restricted Payments, if other than
in cash, to be determined in good faith by the Board of Directors and to be
evidenced by a resolution of such Board set forth in an Officer's Certificate
delivered to the Transfer Agent) since the Issue Date would exceed the sum of,
without duplication:
(A) the remainder of (x) cumulative EBITDA during the period (taken as a
single accounting period) beginning on the first day of the fiscal quarter of
the Company beginning after the Issue Date and ending on the last day of the
most recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination minus (y) the product of 1.5 times cumulative
Consolidated Interest Expense during such period;
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Junior Stock (in each case other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company and other than an issuance or sale to an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of
the Company convertible or exchangeable for Junior Stock (in each case other
than Disqualified Stock) of the Company (less the amount of any cash, or the
fair value of any other property, distributed by the Company upon such
conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from payments of interest, dividends,
repayments of loans or advances or other transfers of assets, in each case to
the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and
(ii) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of an Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary;
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provided, however, that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted Subsidiary
in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any acquisition of Junior Stock made out of the proceeds of the
substantially concurrent sale of, or any acquisition of any Junior Stock of
the Company made by exchange for, other Junior Stock of the Company (in each
case other than Disqualified Stock and other than Junior Stock issued or sold
to a Subsidiary of the Company or an employee stock ownership plan or to a
trust established by the Company or any of its Subsidiaries for the benefit of
their employees); provided, however, that (A) such acquisition of Junior Stock
shall be excluded in the calculation of the amount of Restricted Payments and
(B) the Net Cash Proceeds from such sale shall be excluded from the
calculation of amounts under clause (3)(B) of paragraph (a) above;
(ii) dividends paid within 60 days after the date of declaration thereof if
at such date of declaration such dividend would have complied with this
covenant; provided, however, that at the time of payment of such dividend, all
accumulated dividends on the Exchangeable Preferred Stock have been paid in
full and no other Default shall have occurred and be continuing (or result
therefrom); provided further, however, that such dividend shall be included in
the calculation of the amount of Restricted Payments;
(iii) the purchase, redemption, retirement, repurchase or other acquisition
of shares of, or options to purchase shares of, Junior Stock (other than
Disqualified Stock) of the Company or Capital Stock (other than Preferred
Stock) of any of its Subsidiaries from employees, former employees, directors
or former directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former directors
including their estates or beneficiaries under their estates), (a) upon their
death, disability, retirement or termination of employment or (b) otherwise
pursuant to the terms of agreements (including employment agreements) or plans
(or amendments thereto) approved by the Board of Directors under which such
individuals received such Capital Stock; provided, however, that the aggregate
amount of consideration paid for such purchases, redemptions, retirements,
repurchases and other acquisitions made pursuant to this clause (iv) shall not
exceed $500,000 in any calendar year; provided further, however, that such
purchases, redemptions, retirements, repurchases and other acquisitions
pursuant to this clause shall be excluded in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a) above;
(iv) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Junior Stock of the Company or Capital Stock
of any of its Restricted Subsidiaries to the extent necessary, as determined
in good faith by a majority of the disinterested members of the Board of
Directors, to prevent the loss or to secure the renewal or reinstatement of
any license or franchise held by the Company or any Restricted Subsidiary from
any governmental entity; provided, however, that such purchase or redemption
shall be included in the calculation of the amount of Restricted Payments
pursuant to clause (3) of paragraph (a) above; or
(v) any purchase or redemption of Junior Stock following a Change of
Control pursuant to an obligation in the instruments governing such Junior
Stock to purchase or redeem such Junior Stock as a result of such Change of
Control; provided, however, that no such purchase or redemption shall be
permitted until the Company has completely discharged its obligations
described under "--Change of Control" (including the purchase of all
Exchangeable Preferred Stock tendered for purchase by holders) arising as a
result of such Change of Control; provided further, however, that such
purchase or redemption shall be included in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a) above.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any
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other distributions on its Capital Stock to the Company or a Restricted
Subsidiary, (b) pay any Indebtedness owed to the Company, (c) make any loans or
advances to the Company or (d) transfer any of its property or assets to the
Company, except:
(i) any encumbrance or restriction pursuant to the Indenture, the Amended
Articles or any other agreement in effect at or entered into on the Issue
Date;
(ii) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement or instrument
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement or instrument referred to in clause
(i) or (ii) of this covenant or this clause (iii); provided, however, that the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no less favorable
to the holders of the Exchangeable Preferred Stock than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in such
predecessor agreements;
(iv) any such encumbrance or restriction consisting of customary non-
assignment or anti-alienation provisions in (a) leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease or
the property leased thereunder or subletting and (b) licenses or franchises to
the extent such provisions restrict the transfer of the license or franchise;
(v) in the case of clause (d) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to
the extent such restrictions restrict the transfer of the property subject to
such security agreements or mortgages;
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and
(vii) any encumbrance or restriction contained in the terms of any
Indebtedness or any agreement pursuant to which such Indebtedness was Incurred
if the Board of Directors determines in good faith that any such encumbrance
or restriction will not materially affect the Company's ability to pay the
mandatory redemption price and dividends on the Exchangeable Preferred Stock
when due and such encumbrance or restriction by its terms expressly permits
such Restricted Subsidiary, (A) in the absence of a payment default in respect
of such Indebtedness or other agreement, to make cash payments to the Company
(in any form) sufficient to pay when due all amounts of the mandatory
redemption price and dividends on the Exchangeable Preferred Stock and (B)
following the occurrence and during the continuance of a payment default in
respect of such Indebtedness or other agreement, to resume making cash
payments to the Company (in any form) sufficient to pay when due all amounts
of the mandatory redemption price and dividends on the Exchangeable Preferred
Stock upon the earlier of the cure of such payment default and the lapse of
179 consecutive days following the date when such encumbrance or restriction
became operative to prohibit or limit such Restricted Subsidiary from making
such payments to the Company; provided, however, that no Restricted Subsidiary
shall be affected by the operation of such encumbrances or restrictions
following the occurrence of a payment default on more than one occasion in any
consecutive 360-day period.
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Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be)
(A) first, to the extent the Company elects in its sole discretion (or is
required by the terms of any Indebtedness), to prepay, repay, redeem or
purchase Indebtedness (other than any Disqualified Stock) of the Company or a
Restricted Subsidiary (in each case other than Indebtedness owed to the
Company or an Affiliate of the Company) within one year from the later of the
date of such Asset Disposition or the receipt of such Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), to the extent the Company elects in
its sole discretion, to acquire Additional Assets within one year after the
receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to the
holders of the Exchangeable Preferred Stock (and to holders of Parity Stock
designated by the Company) to purchase Exchangeable Preferred Stock (and such
Parity Stock) pursuant to and subject to the conditions contained in the
Amended Articles; and
(D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), for the general
corporate and working capital purposes of the Company and its Restricted
Subsidiaries;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) above, the Company or such Restricted
Subsidiary shall permanently retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this paragraph, the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this paragraph except to the extent that the aggregate Net Available Cash
from all Asset Dispositions occurring after the Issue Date which are not applied
in accordance with this paragraph exceeds $5 million. Pending application of Net
Available Cash pursuant to this covenant, such Net Available Cash shall be
invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or cash
equivalents: (x) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition, (y)
securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash; and (z) Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase of
Exchangeable Preferred Stock (and Parity Stock) pursuant to clause (a)(ii)(C)
above, the Company will be required to purchase Exchangeable Preferred Stock
tendered pursuant to an offer by the Company for the Exchangeable Preferred
Stock (and Parity Stock) at a purchase price of 100% of their liquidation
preference plus accrued but unpaid dividends, if any, to the date of purchase
(or, in respect of such Parity Stock, such lesser price, if any, as may be
provided for by the terms of such Parity Stock) in accordance with the
procedures (including prorating in the event of oversubscription) set forth in
the Amended Articles. If the aggregate purchase price of Exchangeable Preferred
Stock (and any Parity Stock) tendered pursuant to such offer is less than the
Net Available Cash allotted to the purchase thereof, the Company will be
required to apply the remaining Net Available Cash in accordance with clause
(a)(ii)(D) above. The
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Company shall not be required to make such an offer to purchase Exchangeable
Preferred Stock (and Parity Stock) pursuant to this covenant if the Net
Available Cash available therefor is less than $5.0 million (which lesser amount
shall be carried forward for purposes of determining whether such an offer is
required by this covenant or by the covenant in the Exchange Indenture described
under "Description of the Exchange Debentures--Certain Covenants--Limitation on
Sales of Assets and Subsidiary Stock" with respect to the Net Available Cash
from any subsequent Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Exchangeable Preferred Stock
pursuant to this covenant. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this covenant, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, license, lease or exchange of any
property, employee compensation arrangements or the rendering of any service)
with any Affiliate of the Company (an "Affiliate Transaction") unless the
terms thereof (1) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (2) if such
Affiliate Transaction involves an amount in excess of $1.0 million, (i) are set
forth in writing and (ii) have been approved by a majority of the members of the
Board of Directors having no personal stake in such Affiliate Transaction and
(3) if such Affiliate Transaction involves an amount in excess of $5.0 million,
have been determined by a nationally recognized investment banking firm or other
qualified appraiser under the relevant circumstances to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Permitted Investment or any Restricted Payment permitted to be paid pursuant to
the covenant described under "--Limitation on Restricted Payments," (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors, (iii) the
grant of stock options or similar rights to employees and directors of the
Company pursuant to plans approved by the Board of Directors, (iv) loans or
advances to employees in the ordinary course of business in accordance with the
past practices of the Company or its Restricted Subsidiaries, but in any event
not to exceed $500,000 in the aggregate outstanding at any one time, (v) the
payment of reasonable fees to directors of the Company and its Restricted
Subsidiaries who are not employees of the Company or its Restricted
Subsidiaries, (vi) any Affiliate Transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries; provided, however,
that no beneficial owner (as defined in Rule 13d-1 and 13d-5 of the Exchange
Act) of 5% or more of the Capital Stock of the Company holds, directly or
indirectly, any Investments in any such Restricted Subsidiary (other than
indirectly through the Company), (vii) the issuance or sale of any Capital Stock
(other than Disqualified Stock) of the Company and (viii) any transaction
pursuant to an agreement or arrangement in effect on the Issue Date.
Limitation on the Sale or Issuance of Capital Stock of Certain Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any Capital
Stock (other than Qualified Preferred Stock) of an Existing Restricted
Subsidiary, and shall not permit any Existing Restricted Subsidiary, directly or
indirectly, to issue or sell or otherwise dispose of any of its Capital Stock
(other than Qualified Preferred Stock), except (i) to the Company or a Wholly
Owned Subsidiary, (ii) if, immediately after giving effect to such issuance,
sale or other disposition, neither the Company nor any of its Subsidiaries own
any Capital Stock of such Restricted Subsidiary, (iii) if, immediately after
giving effect to such issuance, sale or other disposition, such Existing
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any
Investment in such Person remaining after giving effect thereto would have been
permitted to be made under the covenant described under "--Limitation on
Restricted Payments" if made on the date of such issuance, sale or other
disposition, (iv) to directors of directors' qualifying shares of common stock
of any Restricted Subsidiary, to the extent mandated by applicable law, or (v)
the issuance or sale of Capital
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Stock of a Restricted Subsidiary that has a class of equity security registered
under Section 12 of the Exchange Act pursuant to an employee stock option plan
approved by the Board of Directors.
Limitation on Market Swaps. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any Market Swaps, unless:
(i) at the time of entering into the agreement to swap markets and
immediately after giving effect to the proposed Market Swap, no Default shall
have occurred and be continuing;
(ii) the respective fair market values of the markets and other assets (to
be determined in good faith by the Board of Directors and to be evidenced by a
resolution of such Board set forth in an Officer's Certificate delivered to
the Transfer Agent) being purchased and sold by the Company or any of its
Restricted Subsidiaries are substantially the same at the time of entering
into the agreement to swap markets; and
(iii) the cash payments, if any, received by the Company or such Restricted
Subsidiary in connection with such Market Swap are treated as Net Available
Cash received from an Asset Disposition.
Limitation on Lines of Business. The Company shall not, and shall not permit
any Restricted Subsidiary to, engage in any trade or business other than a
Related Business.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume all the
obligations of the Company under the Exchangeable Preferred Stock and the
Amended Articles;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing,
(iii) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of the covenant described under "--Limitation on
Indebtedness;"
(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less than
the Consolidated Net Worth of the Company immediately prior to such
transaction;
(v) the Company shall have delivered to the Transfer Agent an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer comply with the Amended Articles; and
(vi) the Company shall have delivered to the Transfer Agent an Opinion of
Counsel to the effect that the holders of the Exchangeable Preferred Stock
will not recognize income, gain or loss for Federal income tax purposes as a
result of such transaction and will be subject to Federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such transaction had not occurred.
The Successor Company shall be the successor to the Company and shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Amended Articles, but the predecessor
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Company in the case of a conveyance, transfer or lease shall not be released
from the obligation to pay the liquidation preference of, the mandatory
redemption price of and dividends on the Exchangeable Preferred Stock.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the SEC and provide the holders of the Exchangeable Preferred
Stock with such annual reports and such information, documents and other reports
as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to
a U.S. corporation subject to such Sections, such information, documents and
other reports to be so filed and provided at the times specified for the filing
of such information, documents and reports under such Sections if it were
subject thereto (unless the SEC will not accept such a filing, in which case the
Company shall provide such documents to the Transfer Agent). In addition, for so
long as any of the Exchangeable Preferred Stock is outstanding, the Company will
make available to any prospective purchaser of the Exchangeable Preferred Stock
or beneficial owner thereof (upon written request to the Company) in connection
with any sales thereof the information required by Rule144A(d) (4) under the
Securities Act.
DESCRIPTION OF THE EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued under the Exchange
Indenture, to be dated as of February 15, 1998 (the "Exchange Indenture"),
between the Company and IBJ Schroder Bank and Trust Company, as Trustee (the
"Trustee"). The following is a summary of certain provisions of the Exchange
Indenture and the Exchange Debentures. A copy of the Exchange Indenture and the
form of Exchange Debentures are available upon request to the Company at the
address set forth under "Available Information." The following summary of
certain provisions of the Exchange Indenture does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all the
provisions of the Exchange Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended. The terms of the Notes limit the Company's ability to issue the
Exchange Debentures. For definition of certain capitalized terms used in the
following summary, see "Description of the New Notes--Certain Definitions."
The Exchange Debentures will be unsecured subordinated obligations of the
Company, limited in aggregate principal amount to the sum of the liquidation
preference of the Exchangeable Preferred Stock, plus, without duplication,
accumulated and unpaid dividends on the Exchange Date of the Exchangeable
Preferred Stock (plus any additional Exchange Debentures issued in lieu of cash
interest as described herein). The Exchange Debentures will be issued only in
fully registered form, without coupons, in denominations of $1,000 and any
integral multiple of $1,000 (other than as described in "--Exchangeable
Preferred Stock--Exchange" or with respect to additional Exchange Debentures
issued in lieu of cash interest as described herein). The Exchange Debentures
will be subordinated to all existing and future senior and senior subordinated
debt of the Company.
Principal of, premium, if any, and interest on the Exchange Debentures will be
payable, and the Exchange Debentures may be presented for registration of
transfer or exchange, at the office of the Paying Agent and Registrar. The
Trustee will initially act as Paying Agent and Registrar. The Company may change
any Paying Agent and Registrar without prior notice to holders of the Exchange
Debentures. Holders of the Exchange Debentures must surrender Exchange
Debentures to the Paying Agent to collect principal payments.
The Exchange Debentures will mature on February 15, 2010. Each Exchange
Debenture will bear interest at the rate of 13 3/4% per annum from the most
recent interest payment date to which interest has been paid or provided for or,
if no interest has been paid or provided for, from the Exchange Date. Interest
will be payable semiannually in cash (or, on or prior to February 15, 2003, in
additional Exchange Debentures, at the option of the Company) in arrears on each
February 15 and August 15, commencing with the first such date after the
Exchange Date. Interest on the Exchange Debentures will be computed on the basis
of a 360-day year comprised of twelve 30-day months and the actual number of
days elapsed.
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OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Exchange Debentures will
not be redeemable at the option of the Company prior to February 15, 2003.
Thereafter, the Exchange Debentures will be redeemable, at the Company's option,
in whole or in part, at any time or from time to time, upon not less than 30 nor
more than 60 days' prior notice mailed by first-class mail to each Holder's
registered address, at the following redemption prices (expressed in percentages
of principal amount), plus accrued interest to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date), if redeemed during the 12-month
period commencing on February 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
----------
PERIOD PRICE
- -------- -----
<S> <C>
2003....................... 106.8750%
2004....................... 104.5833
2005....................... 102.2917
2006 and thereafter........ 100.0000
</TABLE>
In addition, at any time and from time to time prior to February 15, 2001, the
Company may redeem the Exchange Debentures, in whole, but not in part, with the
proceeds of an Equity Offering at 113 3/4% of the principal amount thereof,
plus accrued and unpaid interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date).
RANKING
The indebtedness evidenced by the Exchange Debentures will be subordinated,
unsecured obligations of the Company. The payment of the principal of, premium
(if any) and interest on the Exchange Debentures is subordinate in right of
payment, as set forth in the Exchange Indenture, to the prior payment in full of
all Senior Indebtedness (including senior subordinated indebtedness) of the
Company, whether outstanding on the Issue Date or thereafter incurred.
As of December 31, 1997, after giving effect to the Private Placement and the
application of the proceeds thereof, the outstanding Senior Indebtedness of the
Company would have been approximately $200.2 million. Although the Exchange
Indenture contains limitations on the amount of additional Indebtedness that the
Company may incur, under certain circumstances the amount of such Indebtedness
could be substantial and, in any case, such Indebtedness may be Senior
Indebtedness. See "--Certain Covenants--Limitation on Indebtedness."
Substantially all the operations of the Company are or will be conducted
through one or more of its subsidiaries. The Company currently has three wholly-
owned subsidiaries: 21st Century Cable TV of Illinois, Inc.; 21st Century
Telecom of Illinois, Inc.; and 21st Century Telecom Group of Michigan, Inc.
Moreover, 21st Century Telecom Group of Michigan, Inc. has two wholly-owned
subidiaries: 21st Century Cable TV of Grand Rapids, Inc. and 21st Century
Telecom of Michigan, Inc. The Company intends to transfer substantially all its
assets to newly formed Restricted Subsidiaries, and thereafter the Company will
be a holding company with no assets other than the capital stock of its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including holders of the Exchange Debentures, even if such obligations do not
constitute Senior Indebtedness. The Exchange Debentures, therefore, will be
effectively subordinated to creditors (including trade creditors) and preferred
stockholders (if any) of subsidiaries of the Company. Although the Exchange
Indenture limits the incurrence of Indebtedness and preferred stock of certain
of the Company's subsidiaries, such limitation is subject to a number of
significant qualifications. Moreover, the Exchange Indenture does not impose any
limitation on the incurrence by such subsidiaries of liabilities that are not
considered Indebtedness or Preferred Stock under the Exchange Indenture. See "--
Certain Covenants--Limitation on Indebtedness."
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Only Indebtedness of the Company that is Senior Indebtedness (including senior
subordinated indebtedness) will rank senior to the Exchange Debentures in
accordance with the provisions of the Exchange Indenture. The Exchange
Debentures will in all respects rank pari passu with all other Subordinated
Indebtedness of the Company.
The Company may not pay principal of, premium (if any) or interest on, the
Exchange Debentures or make any deposit pursuant to the provisions described
under "Defeasance" below and may not repurchase, redeem or otherwise retire
any Exchange Debentures (collectively, "pay the Exchange Debentures") if (i)
any Designated Senior Indebtedness is not paid when due or (ii) any other
default on Designated Senior Indebtedness occurs and the maturity of such
Designated Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full. However, the Company may pay the Exchange Debentures without
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of the Designated Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) of the immediately preceding sentence has occurred and is continuing.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the second preceding sentence) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Exchange Debentures for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to the
Company) of written notice (a "Blockage Notice") of such default from the
Representative of the holders of such Designated Senior Indebtedness specifying
an election to effect a Payment Blockage Period and ending 179 days thereafter
(or earlier if such Payment Blockage Period is terminated (i) by written notice
to the Trustee and the Company from the Person or Persons who gave such Blockage
Notice, (ii) because the default giving rise to such Blockage Notice is no
longer continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full). Notwithstanding the provisions described in the immediately
preceding sentence (but subject to the provisions described in the first
sentence of this paragraph), unless the holders of such Designated Senior
Indebtedness or the Representative of such holders have accelerated the maturity
of such Designated Senior Indebtedness, the Company may resume payments on the
Exchange Debentures after the end of such Payment Blockage Period. The Exchange
Debentures shall not be subject to more than one Payment Blockage Period in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness during such period.
Upon any payment or distribution of the assets of the Company upon a total or
partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full of such Senior Indebtedness before the
holders of Exchange Debentures are entitled to receive any payment, and until
the Senior Indebtedness is paid in full, any payment or distribution to which
holders of Exchange Debentures would be entitled but for the subordination
provisions of the Exchange Indenture will be made to holders of such Senior
Indebtedness as their interests may appear. If a distribution is made to holders
of Exchange Debentures that, due to the subordination provisions, should not
have been made to them, such holders are required to hold it in trust for the
holders of Senior Indebtedness and pay it over to them as their interests may
appear.
If payment of the Exchange Debentures is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the holders of
Designated Senior Indebtedness or the Representative of such holders of the
acceleration.
By reason of the subordination provisions contained in the Exchange Indenture,
in the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness of the Company may recover more, ratably, than the holders of
Exchange Debentures, and creditors of the Company who are not holders of Senior
Indebtedness may recover less, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than holders of Exchange Debentures.
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The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Exchange
Debentures pursuant to the provisions described under "--Defeasance."
CHANGE OF CONTROL
The Exchange Indenture will provide that upon the occurrence of a Change of
Control (as defined under "Description of the New Exchangeable Preferred Stock-
- -Change of Control"), each holder of Exchange Debentures shall have the right
to require that the Company repurchase such holder's Exchange Debentures at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date).
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Exchange Debentures at a purchase price in cash equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of Control
(including information with respect to pro forma historical income, cash flow
and capitalization after giving effect to such Change of Control); (3) the
purchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its Exchange Debentures purchased.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Exchange Debentures pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between the
Company and the Initial Purchasers. The Company has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Exchange Indenture, but
that could increase the amount of indebtedness outstanding at such time or
otherwise affect the Company's capital structure or credit ratings. Restrictions
on the ability of the Company and its Restricted Subsidiaries to incur
additional Indebtedness are contained in the covenants described under "--
Certain Covenants--Limitation on Indebtedness." Such restrictions can only be
waived with the consent of the holders of a majority in principal amount of the
Exchange Debentures then outstanding. Except for the limitations contained in
such covenants, however, the Exchange Indenture will not contain any covenants
or provisions that may afford holders of the Exchange Debentures protection in
the event of a highly leveraged transaction.
Future indebtedness of the Company may contain, prohibitions on the occurrence
of certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of their right to require the Company to repurchase the Exchange
Debentures could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the holders of Exchange
Debentures following the occurrence of a Change of Control may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases.
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In the event a Change of Control occurs at a time when the Company is prohibited
from purchasing Exchange Debentures, the Company could seek the consent of its
lenders to make such purchase, or could attempt to refinance the borrowings that
contain such prohibitions. If the Company does not obtain such consent or repay
such borrowings, the Company will remain prohibited from purchasing Exchange
Debentures. The provisions under the Exchange Indenture relative to the
Company's obligation to make an offer to repurchase the Exchange Debentures as a
result of a Change of Control may be waived or modified with the written consent
of the holders of a majority in principal amount of the outstanding Exchange
Debentures.
CERTAIN COVENANTS
The Exchange Indenture contains covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company shall not Incur, and shall not
permit any of its Restricted Subsidiaries to Incur, directly or indirectly, any
Indebtedness, except that the Company may Incur Indebtedness if, on the date of
such Incurrence and after giving effect thereto, the Consolidated Leverage Ratio
would be less than 6.0 to 1.0, for Indebtedness Incurred prior to or on December
31, 1999, and less than 5.0 to 1.0 for Indebtedness Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and (except as
specified below) any Restricted Subsidiary may Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement; provided,
however, that the aggregate amount of such Indebtedness, when taken together
with all other Indebtedness Incurred pursuant to this clause (1) and then
outstanding, does not exceed the remainder of (x) $50 million minus (y) the
sum of all principal payments with respect to the permanent retirement of such
Indebtedness pursuant to paragraph (a) (ii) (A) of the covenant described
under "--Limitation on Sales of Assets and Subsidiary Stock;"
(2) Indebtedness owed to and held by the Company or a Restricted
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Company or another Restricted Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the issuer thereof;
(3) the Notes and the Exchange Debentures (including any Exchange
Debentures issued in lieu of cash interest payments with respect to the
Exchange Debentures);
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this covenant);
(5) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) or pursuant to clause (3) or (4) above, this clause (5) or
clauses (7), (8) or (11) below; provided, however, that to the extent such
Refinancing Indebtedness directly or indirectly Refinances Indebtedness of a
Restricted Subsidiary described in clause (11), such Refinancing Indebtedness
shall be Incurred only by such Restricted Subsidiary;
(6) Hedging Obligations consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company or any
Restricted Subsidiary pursuant to paragraphs (a) or (b) hereof;
(7) Indebtedness, including Indebtedness of a Restricted Subsidiary
Incurred and outstanding on or prior to the date on which such Subsidiary was
acquired by the Company, Incurred to finance the cost (including the cost of
design, development, acquisition, construction, installation, improvement,
transportation or integration) to acquire equipment, inventory or network
assets (including real estate) (including acquisitions by way of
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capital lease and acquisitions of the Capital Stock of a Person that becomes a
Restricted Subsidiary to the extent of the fair market value of the equipment,
inventory or networks assets so acquired) by the Company or a Restricted
Subsidiary after the Issue Date for use in a Related Business;
(8) Indebtedness of the Company in an amount which, when taken together
with the amount of Indebtedness Incurred pursuant to this clause (8) and then
outstanding, does not exceed two times the Net Cash Proceeds received by the
Company after the Issue Date as a capital contribution from, or from the
issuance and sale of its Capital Stock (other than Disqualified Stock) to, a
Person that is not a Subsidiary of the Company, to the extent such Net Cash
Proceeds have not been used pursuant to paragraph (a) (3) (B) or paragraph (b)
(i) of the covenant described under "--Limitation on Restricted Payments" to
make a Restricted Payment; provided, however, that such Indebtedness does not
mature prior to the Stated Maturity of the Exchange Debentures and has an
Average Life longer than the Average Life of the Exchange Debentures;
(9) Indebtedness in respect of performance, surety or appeal bonds or
similar obligations, in each case Incurred in the ordinary course of business
of the Company and its Restricted Subsidiaries and Indebtedness due and owing
to governmental entities in connection with any licenses and franchises issued
by a governmental entity and necessary or desirable to conduct a Related
Business;
(10) Guarantees of the Notes issued by any Restricted Subsidiary;
(11) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Subsidiary was acquired by the Company (other
than Indebtedness Incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by the Company); provided, however, that on the
date of such acquisition and after giving effect thereto, the Company would
have been able to Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (a) hereof; and
(12) Indebtedness Incurred in an aggregate amount which, when taken
together with the aggregate amount of all other Indebtedness of the Company
and its Restricted Subsidiaries outstanding on the date of such Incurrence
(other than Indebtedness permitted by clauses (1) through (11) above or
paragraph (a)) does not exceed the greater of (a) $10 million and (b) an
amount equal to 5% of the Company's Consolidated Net Tangible Assets as of
such date.
(c) Notwithstanding the foregoing, the Company shall not Incur (i) any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Exchange Debentures to at least
the same extent as such Subordinated Obligations or (ii) any Secured
Indebtedness that is not Senior Indebtedness unless contemporaneously therewith
effective provision is made to secure the Exchange Debentures equally and
ratably with such Secured Indebtedness for so long as such Secured Indebtedness
is secured by a Lien.
(d) For purposes of determining compliance with the foregoing covenant, (i) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
(e) For the purposes of determining the amount of Indebtedness outstanding at
any time, Guarantees with respect to Indebtedness otherwise included in the
determination of such amount shall not be included.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the
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Company is not able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of the covenant described under "--Limitation on Indebtedness;" or
(3) the aggregate amount of such Restricted Payment and all other Restricted
Payments (the amount of any Restricted Payment, if other than in cash, to be
determined in good faith by the Board of Directors and to be evidenced by a
resolution of such Board set forth in an Officer's Certificate delivered to the
Trustee) since the Issue Date would exceed the sum of, without duplication:
(A) the remainder of (x) cumulative EBITDA during the period (taken as a
single accounting period) beginning on the first day of the fiscal quarter of
the Company beginning after the Issue Date and ending on the last day of the
most recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination minus (y) the product of 1.5 times cumulative
Consolidated Interest Expense during such period;
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a Subsidiary
of the Company and other than an issuance or sale to an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of
the Company convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash, or the fair
value of any other property, distributed by the Company upon such conversion
or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from payments of interest, dividends,
repayments of loans or advances or other transfers of assets, in each case to
the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and
(ii) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of an Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments previously made
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any acquisition of any Capital Stock of the Company or any Restricted
Subsidiary or any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made out of
the proceeds of the substantially concurrent sale of, or made by exchange for,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary of the Company or an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); provided, however, that (A)
such acquisition of Capital Stock or of Subordinated Obligations shall be
excluded in the calculation of the amount of Restricted Payments pursuant to
clause (3) of paragraph (a) above and (B) the Net Cash Proceeds from such sale
shall be excluded from the calculation of amounts under clause (3) (B) of
paragraph(a) above;
(ii) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations in whole or in part
(including premium, if any, and accrued and unpaid interest) made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to the
covenant described under "--Limitation on Indebtedness;" provided, however,
that such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a) above;
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(iii) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant; provided, however, that at the time of payment of such dividend, no
other Default shall have occurred and be continuing (or result therefrom);
provided further, however, that such dividend shall be included in the
calculation of the amount of Restricted Payments pursuant to clause (3) of
paragraph (a) above;
(iv) the purchase, redemption, retirement, repurchase or other acquisition
of shares of, or options to purchase shares of, Capital Stock (other than
Disqualified Stock) of the Company or Capital Stock (other than Preferred
Stock) of any of its Subsidiaries from employees, former employees, directors
or former directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former directors
including their estates or beneficiaries under their estates), (a) upon their
death, disability, retirement or termination of employment or (b) otherwise
pursuant to the terms of agreements (including employment agreements) or plans
(or amendments thereto) approved by the Board of Directors under which such
individuals received such Capital Stock; provided, however, that the aggregate
amount of consideration paid for such purchases, redemptions, retirements,
repurchases and other acquisitions made pursuant to this clause (iv) shall not
exceed $500,000 in any calendar year; provided further, however, that such
purchases, redemptions, retirements, repurchases and other acquisitions
pursuant to this clause shall be excluded in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a) above;
(v) any purchase or redemption of Subordinated Obligations in whole or in
part (including premium, if any, and accrued and unpaid interest) from Net
Available Cash to the extent permitted by the covenant described under "--
Limitation on Sales of Assets and Subsidiary Stock;" provided, however, that
such purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments pursuant to clause (3) of paragraph (a) above;
(vi) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company or any of its
Restricted Subsidiaries to the extent necessary, as determined in good faith
by a majority of the disinterested members of the Board of Directors, to
prevent the loss or to secure the renewal or reinstatement of any license or
franchise held by the Company or any Restricted Subsidiary from any
governmental entity; provided, however, that such purchase or redemption shall
be included in the calculation of the amount of Restricted Payments pursuant
to clause (3) of paragraph (a) above; or
(vii) any purchase or redemption of Subordinated Obligations or Preferred
Stock following a Change of Control pursuant to an obligation in the
instruments governing such Subordinated Obligations or Preferred Stock to
purchase or redeem such Subordinated Obligations or Preferred Stock as a
result of such Change of Control; provided, however, that no such purchase or
redemption shall be permitted until the Company has completely discharged its
obligations described under "--Change of Control" (including the purchase of
all Exchange Debentures tendered for purchase by holders) arising as a result
of such Change of Control; provided further, however, that such purchase or
redemption shall be included in the calculation of the amount of Restricted
Payments pursuant to clause (3) of paragraph (a) above.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary, (b) pay any Indebtedness owed to the
Company, (c) make any loans or advances to the Company or (d) transfer any of
its property or assets to the Company, except:
(i) any encumbrance or restriction pursuant to the Indenture, the Exchange
Indenture or any other agreement in effect at or entered into on the Issue
Date;
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(ii) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement or instrument
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement or instrument referred to in clause
(i) or (ii) of this covenant or this clause (iii); provided, however, that the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no less favorable
to the Noteholders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such predecessor agreements;
(iv) any such encumbrance or restriction consisting of customary non-
assignment or anti-alienation provisions in (a) leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease or
the property leased thereunder or subletting and (b) licenses or franchises to
the extent such provisions restrict the transfer of the license or franchise;
(v) in the case of clause (d) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to
the extent such restrictions restrict the transfer of the property subject to
such security agreements or mortgages;
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and
(vii) any encumbrance or restriction contained in the terms of any
Indebtedness or any agreement pursuant to which such Indebtedness was Incurred
if the Board of Directors determines in good faith that any such encumbrance
or restriction will not materially affect the Company's ability to pay
principal or interest on the Exchange Debentures when due and such encumbrance
or restriction by its terms expressly permits such Restricted Subsidiary, (A)
in the absence of a payment default in respect of such Indebtedness or other
agreement, to make cash payments to the Company (in any form) sufficient to
pay when due all amounts of principal and interest on the Exchange Debentures
and (B) following the occurrence and during the continuance of a payment
default in respect of such Indebtedness or other agreement, to resume making
cash payments to the Company (in any form) sufficient to pay when due all
amounts of principal and interest on the Exchange Debentures upon the earlier
of the cure of such payment default and the lapse of 179 consecutive days
following the date when such encumbrance or restriction became operative to
prohibit or limit such Restricted Subsidiary from making such payments to the
Company; provided, however, that no restricted Subsidiary shall be affected by
the operation of any such encumbrances or restrictions following the
occurrence of a payment default on more than one occasion in any consecutive
360-day period.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be)
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(A) first, to the extent the Company elects in its sole discretion (or is
required by the terms of any Indebtedness), to prepay, repay, redeem or
purchase Indebtedness (other than any Disqualified Stock) of the Company or a
Restricted Subsidiary (in each case other than Indebtedness owed to the
Company or an Affiliate of the Company) within one year from the later of the
date of such Asset Disposition or the receipt of such Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), to the extent the Company elects in
its sole discretion, to acquire Additional Assets within one year after the
receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to the
holders of the Exchange Debentures to purchase Exchange Debentures pursuant to
and subject to the conditions contained in the Exchange Indenture; and
(D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), for the general
corporate and working capital purposes of the Company and its Restricted
Subsidiaries;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) above, the Company or such Restricted
Subsidiary shall permanently retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this paragraph, the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this paragraph except to the extent that the aggregate Net Available Cash
from all Asset Dispositions occurring after the Issue Date which are not applied
in accordance with this paragraph or with the covenant in the Amended Articles
described under "Description of Exchangeable Preferred Stock--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" exceeds $5
million. Pending application of Net Available Cash pursuant to this covenant,
such Net Available Cash shall be invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or cash
equivalents: (x) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition, (y)
securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash; and (z) Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase of the
Exchange Debentures pursuant to clause (a) (ii) (C) above, the Company will be
required to purchase Exchange Debentures tendered pursuant to an offer by the
Company for the Exchange Debentures at a purchase price of 100% of their
principal amount plus accrued but unpaid interest, if any, to the date of
purchase in accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Exchange Indenture. If the aggregate purchase
price of Exchange Debentures tendered pursuant to such offer is less than the
Net Available Cash allotted to the purchase thereof, the Company will be
required to apply the remaining Net Available Cash in accordance with clause (a)
(ii) (D) above. The Company shall not be required to make such an offer to
purchase Exchange Debentures pursuant to this covenant if the Net Available Cash
available therefor (including any Net Available Cash that was not required to be
applied to make on an offer under the corresponding provisions of the Amended
Articles) is less than $5.0 million (which lesser amount shall be carried
forward for purposes of determining whether such an offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Exchange Debentures pursuant to
this covenant. To the extent that the provisions of any securities laws or
regulations conflict
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with provisions of this covenant, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, license, lease or exchange of any
property, employee compensation arrangements or the rendering of any service)
with any Affiliate of the Company (an "Affiliate Transaction") unless the
terms thereof (1) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (2) if such
Affiliate Transaction involves an amount in excess of $1.0 million, (i) are set
forth in writing and (ii) have been approved by a majority of the members of the
Board of Directors having no personal stake in such Affiliate Transaction and
(3) if such Affiliate Transaction involves as amount in excess of $5.0 million,
have been determined by a nationally recognized investment banking firm or other
qualified appraiser under the relevant circumstances to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Permitted Investment or any Restricted Payment permitted to be paid pursuant to
the covenant described under "--Limitation on Restricted Payments," (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors, (iii) the
grant of stock options or similar rights to employees and directors of the
Company pursuant to plans approved by the Board of Directors, (iv) loans or
advances to employees in the ordinary course of business in accordance with the
past practices of the Company or its Restricted Subsidiaries, but in any event
not to exceed $500,000 in the aggregate outstanding at any one time, (v) the
payment of reasonable fees to directors of the Company and its Restricted
Subsidiaries who are not employees of the Company or its Restricted
Subsidiaries, (vi) any Affiliate Transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries; provided, however,
that no beneficial owner (as defined in Rule 13d-1 and 13d-5 of the Exchange
Act) of 5% or more of the Capital Stock of the Company holds, directly or
indirectly, any Investments in any such Restricted Subsidiary (other than
indirectly through the Company), (vii) the issuance or sale of any Capital Stock
(other than Disqualified Stock) of the Company and (viii) any transaction
pursuant to an agreement or arrangement in effect on the Issue Date.
Limitation on the Sale or Issuance of Capital Stock of Certain Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any Capital
Stock (other than Qualified Preferred Stock) of an Existing Restricted
Subsidiary, and shall not permit any Existing Restricted Subsidiary, directly or
indirectly, to issue or sell or otherwise dispose of any of its Capital Stock
(other than Qualified Preferred Stock), except (i) to the Company or a Wholly
Owned Subsidiary, (ii) if, immediately after giving effect to such issuance,
sale or other disposition, neither the Company nor any of its Subsidiaries own
any Capital Stock of such Restricted Subsidiary, (iii) if, immediately after
giving effect to such issuance, sale or other disposition, such Existing
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any
Investment in such Person remaining after giving effect thereto would have been
permitted to be made under the covenant described under "--Limitation on
Restricted Payments" if made on the date of such issuance, sale or other
disposition, (iv) to directors of directors' qualifying shares of common stock
of any Restricted Subsidiary, to the extent mandated by applicable law, or (v)
the issuance or sale of Capital Stock of a Restricted Subsidiary that has a
class of equity security registered under Section 12 of the Exchange Act
pursuant to an employee stock option plan approved by the Board of Directors.
Limitation on Market Swaps. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any Market Swaps, unless:
(i) at the time of entering into the agreement to swap markets and
immediately after giving effect to the proposed Market Swap, no Default shall
have occurred and be continuing;
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(ii) the respective fair market values of the markets and other assets (to
be determined in good faith by the Board of Directors and to be evidenced by a
resolution of such Board set forth in an Officer's Certificate delivered to
the Trustee) being purchased and sold by the Company or any of its Restricted
Subsidiaries are substantially the same at the time of entering into the
agreement to swap markets; and
(iii) the cash payments, if any, received by the Company or such Restricted
Subsidiary in connection with such Market Swap are treated as Net Available
Cash received from an Asset Disposition.
Limitation on Lines of Business. The Company shall not, and shall not permit
any Restricted Subsidiary to, engage in any trade or business other than a
Related Business.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Exchange Debentures and the Exchange Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing,
(iii) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of the covenant described under
"--Limitation on Indebtedness;"
(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less than
the Consolidated Net Worth of the Company immediately prior to such
transaction;
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Exchange Indenture; and
(vi) the Company shall have delivered to the Trustee an Opinion of Counsel
to the effect that the holders of the Notes will not recognize income, gain or
loss for Federal income tax purposes as a result of such transaction and will
be subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such transaction had not
occurred.
The Successor Company shall be the successor to the Company and shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Exchange Indenture, but the predecessor Company in the case of
a conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Exchange Debentures.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the SEC and provide the Trustee and holders of the Exchange
Debentures with such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such
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information, documents and reports under such Sections if it were subject
thereto (unless the SEC will not accept such a filing, in which case the Company
shall provide such documents to the Trustee). In addition, for so long as any of
the Exchange Debentures are outstanding, the Company will make available to any
prospective purchaser of the Exchange Debentures or beneficial owner thereof
(upon written request to the Company) in connection with any sales thereof the
information required by Rule 144A(d) (4) under the Securities Act.
DEFAULTS
An Event of Default is defined in the Exchange Indenture as (i) a default in
the payment of interest on the Exchange Debentures when due and continued for 30
days, (ii) a default in the payment of principal of any Exchange Debenture when
due at its Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise, (iii) the failure by the Company to comply with
its obligations under "--Certain Covenants--Merger and Consolidation" above,
(iv) the failure by the Company to comply for 30 days after the notice described
below with any of its obligations in the covenants described above under
"Change of Control" (other than a failure to purchase Exchange Debentures) or
under "--Certain Covenants" under "--Limitation on Indebtedness," "--
Limitation on Restricted Payments," "--Limitation on Restrictions on
Distributions from Restricted Subsidiaries," "--Limitation on Sales of Assets
and Subsidiary Stock" (other than a failure to purchase Exchange Debentures),
"--Limitation on Affiliate Transactions," "--Limitation on the Sale or
Issuance of Capital Stock of Certain Restricted Subsidiaries," "--Limitation
on Market Swaps," "--Limitation on Lines of Business" or "--SEC Reports,"
(v) the failure by the Company to comply for 60 days after notice with its other
agreements contained in the Exchange Indenture, (vi) Indebtedness of the Company
or any Significant Subsidiary is not paid within any applicable grace period
after final maturity or is accelerated by the holders thereof because of a
default and the total amount of such Indebtedness unpaid or accelerated exceeds
$10 million and such nonpayment continues, or such acceleration is not
rescinded, within 10 days after notice (the "cross acceleration provision"),
(vii) certain events of bankruptcy, insolvency or reorganization of the Company
or a Significant Subsidiary (the "bankruptcy provisions") or (viii) any
judgment or decree (not covered by insurance or indemnification by a person
other than the Company or a Restricted Subsidiary, which indemnity party is
solvent and has acknowledged responsibility) for the payment of money in excess
of $10 million is entered against the Company or a Significant Subsidiary,
remains outstanding for a period of 60 days following such judgment and is not
discharged, waived, bonded over or stayed within 10 days after notice (the
"judgment default provision"). However, a default under clauses (iv), (v),
(vi) and (viii) will not constitute an Event of Default until the Trustee or the
holders of 25% in principal amount of the outstanding Exchange Debentures notify
the Company of the default and the Company does not cure such default within the
time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders of
at least 25% in principal amount of the outstanding Exchange Debentures may
declare the principal of and accrued but unpaid interest on all the Exchange
Debentures to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default relating
to certain events of bankruptcy, insolvency or reorganization of the Company
occurs and is continuing, the principal of and interest on all the Exchange
Debentures will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders of the
Exchange Debentures. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Exchange Debentures may rescind any such
acceleration with respect to the Exchange Debentures and its consequences.
Subject to the provisions of the Exchange Indenture relating to the duties of
the Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Exchange Indenture at the request or direction of any of the holders of the
Exchange Debentures unless such holders have offered to the Trustee reasonable
indemnity or security against any loss, liability or expense. Except to enforce
the right to receive payment of principal, premium (if any) or interest when
due, no holder of an Exchange Debenture may pursue any remedy with respect to
the Exchange Indenture or the Exchange Debentures unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Exchange
Debentures have requested the Trustee to pursue the remedy, (iii) such holders
have offered the Trustee reasonable security or indemnity
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against any loss, liability or expense, (iv) the Trustee has not complied with
such request within 60 days after the receipt thereof and the offer of security
or indemnity and (v) the holders of a majority in principal amount of the
outstanding Exchange Debentures have not given the Trustee a direction
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Exchange Debentures are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Exchange
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of an Exchange Debenture or that would involve the Trustee in
personal liability.
The Exchange Indenture provides that if a Default occurs and is continuing and
is known to the Trustee, the Trustee must mail to each holder of the Exchange
Debentures notice of the Default within 90 days after it occurs. Except in the
case of a Default in the payment of principal of or interest on any Exchange
Debenture, the Trustee may withhold notice if and so long as a committee of its
trust officers determines that withholding notice is not opposed to the interest
of the holders of the Exchange Debentures. In addition, the Company is required
to deliver to the Trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. The Company also is required to deliver to
the Trustee, within 30 days after the Company becomes aware of the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Exchange Indenture may be amended with the
consent of the holders of a majority in principal amount of the Exchange
Debentures then outstanding (including consents obtained in connection with a
tender offer or exchange for the Exchange Debentures) and any past default or
compliance with any provisions may also be waived with the consent of the
holders of a majority in principal amount of the Exchange Debentures then
outstanding. However, without the consent of each holder of an outstanding
Exchange Debenture affected thereby, no amendment may, among other things, (i)
reduce the amount of Exchange Debentures whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Exchange Debenture, (iii) reduce the principal of or extend the Stated
Maturity of any Exchange Debenture, (iv) reduce the premium payable upon the
redemption of any Exchange Debenture or change the time at which any Exchange
Debenture may be redeemed as described under "--Optional Redemption," (v) make
any Exchange Debenture payable in money other than that stated in the Exchange
Debenture, (vi) impair the right of any holder of the Exchange Debentures to
receive payment of principal of and interest on such holder's Exchange
Debentures on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such holder's Exchange
Debentures, (vii) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions or (viii) make any change to the
subordination provisions of the Exchange Indenture that would adversely affect
the holders of Exchange Debentures.
Without the consent of any holder of the Exchange Debentures, the Company and
Trustee may amend the Exchange Indenture to cure any ambiguity, omission, defect
or inconsistency, to provide for the assumption by a successor corporation of
the obligations of the Company under the Exchange Indenture, to provide for
uncertificated Exchange Debentures in addition to or in place of certificated
Exchange Debentures (provided that the uncertificated Exchange Debentures are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Exchange Debentures are described in Section
163(f) (2) (B) of the Code), to add guarantees with respect to the Exchange
Debentures, to secure the Exchange Debentures, to add to the covenants of the
Company for the benefit of the holders of the Exchange Debentures or to
surrender any right or power conferred upon the Company, to make any change that
does not adversely affect the rights of any holder of the Exchange Debentures or
to comply with any requirement of the SEC in connection with the qualification
of the Exchange Indenture under the Trust Indenture Act. However, no amendment
may be made to the subordination
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provisions of the Exchange Indenture that adversely affects the rights of any
holder of Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or their Representative) consent to such change.
The consent of the holders of the Exchange Debentures is not necessary under
the Exchange Indenture to approve the particular form of any proposed amendment.
It is sufficient if such consent approves the substance of the proposed
amendment.
After an amendment under the Exchange Indenture becomes effective, the Company
is required to mail to holders of the Exchange Debentures a notice briefly
describing such amendment. However, the failure to give such notice to all
holders of the Exchange Debentures, or any defect therein, will not impair or
affect the validity of the amendment.
TRANSFER
The Exchange Debentures will be issued in registered form and will be
transferable only upon the surrender of the Exchange Debentures being
transferred for registration of transfer. The Company may require payment of a
sum sufficient to cover any tax, assessment or other governmental charge payable
in connection with certain transfers and exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the Exchange
Debentures and the Exchange Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Exchange Debentures, to replace
mutilated, destroyed, lost or stolen Exchange Debentures and to maintain a
registrar and paying agent in respect of the Exchange Debentures. The Company at
any time may terminate its obligations under "Change of Control" and under the
covenants described under "--Certain Covenants" (other than the covenant
described under "--Merger and Consolidation"), the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Significant
Subsidiaries and the judgment default provision described under "--Defaults"
above and the limitations contained in clauses (iii) and (iv) under "--Certain
Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If the Company exercises its legal
defeasance option, payment of the Exchange Debentures may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Exchange Debentures may not be
accelerated because of an Event of Default specified in clause (iv), (vi), (vii)
(with respect only to Significant Subsidiaries) or (viii) under "--Defaults"
above or because of the failure of the Company to comply with clause (iii) or
(iv) under "--Certain Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay principal and interest on the Exchange Debentures when due
(whether at scheduled maturity or upon redemption as to which irrevocable
instructions have been given to the Trustee) in accordance with terms of the
Exchange Indenture and the Exchange Debentures and must comply with certain
other conditions, including delivery to the Trustee of an Opinion of Counsel to
the effect that holders of the Exchange Debentures will not recognize income,
gain or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amounts and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
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CONCERNING THE TRUSTEE
IBJ Schroder Bank and Trust Company is to be the Trustee under the Exchange
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Exchange Debentures.
The Holders of a majority in principal amount of the outstanding Exchange
Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Exchange Indenture provides that if an Event
of Default occurs (and is not cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Exchange Indenture
at the request of any holder of Exchange Debentures, unless such Holder shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense and then only to the extent required by the terms
of the Exchange Indenture.
GOVERNING LAW
The Exchange Indenture provides that it and the Exchange Debentures will be
governed by, and construed in accordance with, the laws of the State of New York
without giving effect to applicable principles of conflicts of law to the extent
that the application of the law of another jurisdiction would be required
thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is or becomes a Restricted Subsidiary; provided, however, that any such
Restricted Subsidiary described in clauses (ii) or (iii) above is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
For purposes of the provisions described under "--Certain Covenants--Limitation
on Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Annualized EBITDA" as of any date of determination means EBITDA for the
most recent two consecutive fiscal quarters for which financial statements have
been made publicly available but in no event ending more than 135 days prior to
the date of such determination multiplied by two.
"Area 1 Franchise" means the Company's cable television franchise pursuant
to a Franchise Agreement between the Company and the City of Chicago in effect
on the Issue Date.
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"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) (that is not for
security purposes) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (i)
any shares of Capital Stock (other than Qualified Preferred Stock) of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of the Company or any Restricted Subsidiary or (iii) any
other assets (other than Capital Stock or other Investments in an Unrestricted
Subsidiary) of the Company or any Restricted Subsidiary outside of the ordinary
course of business of the Company or such Restricted Subsidiary (other than, in
the case of (i), (ii) and (iii) above, (a) a disposition by a Restricted
Subsidiary to the Company or by the Company or a Restricted Subsidiary to
another Restricted Subsidiary, (b) for purposes of the covenant described under
"--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock"
only, a disposition that (x) constitutes a Permitted Investment or a Restricted
Payment permitted by the covenant described under "--Certain Covenants--
Limitation on Restricted Payments," (y) complies with the covenant described
under "--Certain Covenants--Merger and Consolidation" or (z) constitutes a
Market Swap permitted by the covenant described under "--Certain Covenants--
Limitation on Market Swaps" and (c) a disposition of assets with a fair market
value of less than $250,000).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years (calculated to the nearest one-twelfth) from
the date of determination to the dates of each successive scheduled principal
payment of such Indebtedness or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of each such principal payment by
(ii) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means any day other than a Saturday, Sunday or day on which
banking institutions are not required to be open in the States of New York,
Illinois or Massachusetts.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated, whether voting or nonvoting) equity of such Person,
including any common stock and Preferred Stock, whether outstanding on the Issue
Date or issued after the Issue Date, but excluding any debt securities
convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"consolidated" means the consolidation of accounts of the Company and its
Subsidiaries in accordance with GAAP.
"Consolidated Current Liabilities" as of the date of determination means the
aggregate amount of liabilities of the Company and its Restricted Subsidiaries
which may properly be classified as current liabilities (including taxes
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accrued as estimated), on a consolidated basis, after eliminating (i) all
intercompany items between the Company and any Restricted Subsidiary and (ii)
all current maturities of long-term Indebtedness, all as determined in
accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred in such period by the Company or its Restricted Subsidiaries, without
duplication, (i) interest expense attributable to capital leases and the
interest expense attributable to leases constituting part of a Sale/Leaseback
Transaction, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) net costs associated with Hedging Obligations
(including amortization of fees), (vii) Preferred Stock dividends in respect of
all Preferred Stock held by Persons other than the Company or a Restricted
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations, (ix) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by (or secured by the
assets of) the Company or any Restricted Subsidiary and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust; excluding, however, (y) a proportional amount of any of
the foregoing items or other interest expense incurred by a Restricted
Subsidiary in such period to the extent the net income of such Restricted
Subsidiary is excluded in the calculation of Consolidated Net Income pursuant to
clause (iii) of the definition thereof and (z) any fees or debt issuance costs
(and any amortization thereof) payable in connection with the sale of the Notes
and Units on the Issue Date.
"Consolidated Leverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries calculated on a consolidated basis as of the end of the
most recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination to (ii) Annualized EBITDA as of such date of
determination; provided, however, that
(1) if the transaction giving rise to the need to calculate the
Consolidated Leverage Ratio is an Incurrence of Indebtedness, the amount of
Indebtedness outstanding at the end of such fiscal quarter shall be calculated
after giving effect on a pro forma basis to the Incurrence of such
Indebtedness as if such Indebtedness had been outstanding as of the end of
such fiscal quarter and to the discharge of any other Indebtedness to the
extent it was outstanding as of the end of such fiscal quarter and is to be
repaid, repurchased, defeased or otherwise discharged with the proceeds of
such new Indebtedness as if such Indebtedness had been discharged as of the
end of such fiscal quarter,
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness that was outstanding as of
the end of such fiscal quarter or if any Indebtedness that was outstanding as
of the end of such fiscal quarter is to be repaid, repurchased, defeased or
otherwise discharged on the date of the transaction giving rise to the need to
calculate the Consolidated Leverage Ratio, the aggregate amount of
Indebtedness outstanding as of the end of such fiscal quarter shall be
calculated on a pro forma basis as if such discharge had occurred as of the
end of such fiscal quarter and EBITDA shall be calculated as if the Company or
such Restricted Subsidiary had not earned the interest income, if any,
actually earned during the period of the most recent two consecutive fiscal
quarters for which financial statements have been made publicly available but
in no event ending more than 135 days prior to the date of such determination
(the "Reference Period") in respect of cash or Temporary Cash Investments
used to repay, repurchase, defease or otherwise discharge such Indebtedness,
(3) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for
the Reference Period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for the
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Reference Period, or increased by an amount equal to the EBITDA (if negative),
directly attributable thereto for the Reference Period,
(4) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment
in any Restricted Subsidiary (or any person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of assets
occurring in connection with a transaction requiring a calculation to be made
hereunder, which constitutes all or substantially all an operating unit of a
business, EBITDA for the Reference Period shall be calculated after giving pro
forma effect thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of the Reference Period,
(5) if since the beginning of the Reference Period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such Reference
Period) shall have made any Asset Disposition, any Investment or acquisition
of assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during the Reference
Period, EBITDA for the Reference Period shall be calculated after giving pro
forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of the Reference Period; and
(6) the aggregate amount of Indebtedness outstanding at the end of such
most recent fiscal quarter will be deemed to include the total principal
amount of funds outstanding or available to be borrowed on the date of
determination under any revolving credit or similar facilities of the Company
or its Restricted Subsidiaries.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company.
"Consolidated Net Income" means, for any period, the aggregate net income of
the Company and its consolidated Subsidiaries for such period; provided,
however, that the following shall not be included in such Consolidated Net
Income:
(i) any net income (or loss) of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that subject to the exclusion
contained in clause (iv) below, the Company's equity in the net income of any
such Person for such period shall be included in such Consolidated Net Income
up to the aggregate amount of cash actually distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid to
a Restricted Subsidiary, to the limitations contained in clause (iii) below);
(ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to the Company, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the Company's
equity in a net loss of any such Restricted Subsidiary for such period shall
be included in determining such Consolidated Net Income;
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(iv) the after-tax gain or loss realized upon the sale or other disposition
of any assets of the Company, its consolidated Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement) which is not
sold or otherwise disposed of in the ordinary course of business and the
after-tax gain or loss realized upon the sale or other disposition of any
Capital Stock of any Person;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants--Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any payments of interest, dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
interest, dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Tangible Assets" as of any date of determination, means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a balance sheet of the Company
and its Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP, and after giving effect to purchase accounting and after
deducting therefrom Consolidated Current Liabilities and, to the extent
otherwise included, the amounts of: (i) minority interests in consolidated
Subsidiaries held by Persons other than the Company or a Restricted Subsidiary;
(ii) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors; (iii) any revaluation or
other write-up in book value of assets subsequent to the Issue Date as a result
of a change in the method of valuation in accordance with GAAP consistently
applied; (iv) unamortized debt discount and expenses and other unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses, organization or developmental expenses and other
intangible items; (v) treasury stock; (vi) cash set apart and held in a sinking
or other analogous fund established for the purpose of redemption or other
retirement of Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities; and (vii) Investments in and assets of
Unrestricted Subsidiaries.
"Consolidated Net Worth" means, at any date of determination, the total of
the amounts shown on the balance sheet of the Company and its consolidated
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of the Company for which financial
statements have been made publicly available but in no event ending more than
135 days prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Credit Agreement" means one or more term loans or revolving credit or
working capital facilities (including any letter of credit subfacility) with one
or more banks or other institutional lenders in favor of the Company or any
Restricted Subsidiary.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, in the case of the Exchangeable Preferred Stock, a Voting Rights
Triggering Event and, in the case of the Exchange Debentures, an Event of
Default.
"Designated Senior Indebtedness" means (i) the Notes and any Indebtedness
Incurred pursuant to paragraph (b) (1) of the covenant described under "--
Certain Covenants--Limitation on Indebtedness" and (ii) any other Senior
Indebtedness of the Company which, at the date of determination, has an
aggregate amount outstanding of, or under
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which, at the date of determination, the holders thereof are committed to lend
up to, at least $25 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Exchange Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable or must be purchased, upon the occurrence of certain events
or otherwise, by such Person at the option of the holder thereof, in whole or in
part, in each case on or prior to the first anniversary of the Stated Maturity
of the Exchangeable Preferred Stock or Exchange Debentures, as the case may be;
provided, however, that any Capital Stock that would not constitute Disqualified
Stock but for provisions thereof giving holders thereof the right to require
such Person to purchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the first anniversary
of the Stated Maturity of the Exchangeable Preferred Stock or Exchange
Debentures, as the case may be, shall not constitute Disqualified Stock if (x)
the "asset sale" or "change of control" provisions applicable to such
Capital Stock are not more favorable to the holders of such Capital Stock than
the terms applicable to the Exchangeable Preferred Stock or Exchange Debentures,
as the case may be, and described under "--Certain Covenants--Limitation on
Sales of Assets and Subsidiary Stock" and "--Change of Control" and (y) any
such requirement only becomes operative after compliance with such terms
applicable to the Exchangeable Preferred Stock or Exchange Debentures, as the
case may be, including the purchase of any Exchangeable Preferred Stock or
Exchange Debentures, as the case may be, tendered pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(a) Consolidated Interest Expense, (b) all income tax expense of the Company and
its consolidated Restricted Subsidiaries, (c) depreciation expense of the
Company and its consolidated Restricted Subsidiaries, (d) amortization expense
of the Company and its consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period) and (e) all other non-cash charges of the Company and its
consolidated Restricted Subsidiaries (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash expenditures in any
future period), in each case for such period, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and non-cash charges of, a
Restricted Subsidiary shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Equity Offering" means either (a) an underwritten primary public offering
of common stock of Parent or the Company pursuant to an effective registration
statement under the Securities Act or (b) a primary offering of Capital Stock
(other than Disqualified Stock) of the Company to one or more Persons primarily
engaged in a Related Business.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Date" means the date on which the Exchange Debentures are
exchanged for the Exchangeable Preferred Stock.
"Existing Restricted Subsidiary" means any Restricted Subsidiary in
existence on the Issue Date and any Restricted Subsidiary formed after the Issue
Date which thereafter conducts all or any portion of the Company's business
pertaining to its Area 1 franchise in Chicago, as in effect on the Issue Date.
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"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning. The term "Guarantor"
shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Debentureholder" means the Person in whose name an Exchange
Debenture is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when
used as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable, including, in each case, any premium on such indebtedness to the
extent such premium has become due and payable;
(ii) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i) through (iii) above) entered into in
the ordinary course of business of such Person to the extent such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the tenth Business Day following payment on the
letter of credit);
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(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person (including any Restricted
Subsidiary), the liquidation preference with respect to, any Preferred Stock
(but excluding, in each case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v) of
other Persons and all dividends of other Persons for the payment of which, in
either case, such Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any Guarantee;
(vii) all obligations of the type referred to in clauses (i) through (vi)
of other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the fair value of such property or
assets or the amount of the obligation so secured, in each case as of the date
of determination; and
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Independent Financial Advisor" means a United States investment banking
firm of national standing in the United States which does not, and whose
directors, officers and employees or affiliates do not, have a direct or
indirect financial interest in the Company.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap, floor, collar or forward interest rate
agreement or other financial agreement or arrangement designed to protect such
Person against fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extensions
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the shares of Old Exchangeable
Preferred Stock were issued pursuant to the Amended Articles.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
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"Market Assets" means assets used or useful in the ownership or operation of
a Related Business, including any and all licenses, franchises and assets
related thereto.
"Market Swap" means the execution of a definitive agreement, subject only to
governmental approval and other customary closing conditions, that the Company
in good faith believes will be satisfied, for a substantially concurrent
purchase and sale, or exchange, of Market Assets between the Company or any of
its Restricted Subsidiaries and another Person or group of Persons; provided
that any amendment to or waiver of any closing condition which individually or
in the aggregate is material to the Market Swap will be deemed to be a new
Market Swap; provided, however, that the Market Assets to be sold by the Company
or its Restricted Subsidiaries in connection with a Market Swap do not include
assets used in or necessary for the ownership or operation of the Company's
business pertaining to its Area 1 Franchise in Chicago; provided further,
however, that the cash and other assets to be received by the Company or its
Restricted Subsidiaries which do not constitute Market Assets do not constitute
more than 15% of the total consideration to be received by the Company or its
Restricted Subsidiaries in such Market Swap.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries as a result of such Asset Disposition and
(iv) the deduction of appropriate amounts provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Disposition and retained by the Company or
any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the proceeds of such issuance or sale in the form of cash or cash
equivalents including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in such form of cash or cash equivalents and the conversion of
other property received when converted to such form of cash or cash equivalents,
net of any and all issuance costs, including attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Parent" means any Person that owns directly or indirectly all the Voting
Stock of the Company.
"Permitted Holders" means Purnendu Chatterjee, JK&B Capital, William Farley,
Boston Capital Ventures II, L.P., Glenn W. Milligan, Edward T. Joyce and each of
their affiliates.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary
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trade terms as the Company or any such Restricted Subsidiary deems reasonable
under the circumstances; (v) commissions, payroll, travel and similar advances
to cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vi) loans or advances to employees made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments; (viii) any
Person to the extent such Investment represents either the non-cash portion of
the consideration received for an Asset Disposition as permitted pursuant to the
covenant described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" or the consideration not constituting Market Assets received
in a Market Swap as permitted pursuant to the covenant described under "--
Certain Covenants--Limitation on Market Swaps;" and (ix) any Person principally
engaged in a Related Business if (a) the Company or a Restricted Subsidiary,
after giving effect to such Investment, will own at least 20% of the Voting
Stock of such Person and (b) the amount of such Investment, when taken together
with the aggregate amount of all Investments made pursuant to this clause (ix)
and then outstanding, does not exceed $10.0 million.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated, whether voting or
nonvoting) which is preferred as to the payment of dividends or distributions,
or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of Capital Stock of any
other class of such Person.
"principal" of an Exchange Debenture means the principal amount of the
Exchange Debenture plus the premium, if any, payable on the Exchange Debenture
which is due or overdue or is to become due at the relevant time.
"Public Market" means any time after (x) a Public Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of Parent or the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Public Offering" means an underwritten primary public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act.
"Qualified Preferred Stock" of a Restricted Subsidiary means a series of
Preferred Stock of such Restricted Subsidiary which (i) has a fixed liquidation
preference that is no greater in the aggregate than the sum of (x) the fair
market value (as determined in good faith by the Board of Directors at the time
of the issuance of such series of Preferred Stock) of the consideration received
by such Restricted Subsidiary for the issuance of such series of Preferred Stock
and (y) accrued and unpaid dividends to the date of liquidation, (ii) has a
fixed annual dividend and has no right to share in any dividend or other
distributions based on the financial or other similar performance of such
Restricted Subsidiary and (iii) does not entitle the holders thereof to vote in
the election of directors, managers or trustees of such Restricted Subsidiary
unless such Restricted Subsidiary has failed to pay dividends on such series of
Preferred Stock for a period of at least 12 consecutive calendar months.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the covenant described under "Certain
Covenants--Limitation on Indebtedness", including Indebtedness that Refinances
Refinancing
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Indebtedness; provided, however, that (i) such Refinancing Indebtedness has a
Stated Maturity no earlier than the Stated Maturity of the Indebtedness being
Refinanced, (ii) such Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced, and (iii) such Refinancing
Indebtedness has an aggregate principal amount (or if Incurred with original
issue discount, an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if Incurred with original issue discount, the
aggregate accreted value) then outstanding or committed (plus accrued and unpaid
interest, fees and expenses, including any premium and defeasance costs) under
the Indebtedness being Refinanced; provided further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Subsidiary that Refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means the businesses of the Company and the Restricted
Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means
(i) the declaration or payment of any dividends or any other distributions
of any sort (including any payment in connection with any merger or
consolidation involving such Person) in respect of its Capital Stock held by
Persons other than the Company or any Restricted Subsidiary or similar payment
to the direct or indirect holders (other than the Company or a Restricted
Subsidiary) of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock), and other
than pro rata dividends or other distributions made by a Subsidiary that is
not a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other than a
corporation)),
(ii) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company held by any Person or of any Capital Stock
of a Restricted Subsidiary held by any Affiliate of the Company (other than a
Restricted Subsidiary), including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock),
(iii) the purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other than the
purchase, repurchase, redemption or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of
the date of such purchase, repurchase, redemption or acquisition) or
(iv) the making of any Investment (other than a Permitted Investment) in
any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means Indebtedness that is secured by a Lien on
assets of the Company or a Restricted Subsidiary.
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"Senior Indebtedness" of the Company means (i) Indebtedness of the Company,
whether outstanding on the Issue Date or thereafter Incurred, and (ii) accrued
and unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company to the
extent post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness of the Company for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable unless, in the case of (i) and (ii), in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not superior in right of
payment to the Exchange Debentures; provided, however, that Senior Indebtedness
shall not include (1) any obligation of such Person to any Subsidiary of such
Person, (2) any liability for Federal, state, local or other taxes owed or owing
by such Person, (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities) or (4) that portion of any Indebtedness
which at the time of Incurrence is Incurred in violation of the Exchange
Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Exchange Debentures pursuant to a written
agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Voting Stock is at the time owned or controlled, directly or
indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of
such Person or (iii) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of America
or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 365 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50,000,000 (or the
foreign currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered into
with a bank meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than 270 days after
the date of acquisition, issued by a corporation (other than an Affiliate of
the Company) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with
a rating
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at the time as of which any investment therein is made of "P-1" (or higher)
according to Moody's Investors Service, Inc. or "A-1" (or higher) according to
Standard and Poor's Ratings Group,
(v) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States of America, or by any political subdivision
or taxing authority thereof, and rated at least "A" by Standard & Poor's
Ratings Group or "A" by Moody's Investors Service, Inc., and
(vi) investments in money-market funds (other than single-state funds) that
make investments in instruments of the type described in clauses (i)-(v) above
in accordance with the regulations of the SEC under the Investment Company Act
of 1940, as amended.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "--Certain Covenants--Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under "--
Certain Covenants--Limitation on Indebtedness" and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee and the Transfer Agent by promptly filing with the
Trustee and the Transfer Agent a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
GENERAL
The New Notes and New Exchangeable Preferred Stock will be issued in the form
of one or more fully registered New Notes in global form ("Global Notes") or
one or more shares of New Exchangeable Preferred Stock in global form ("Global
Preferred Stock"). Global Notes and Global Preferred Stock are collectively
referred to herein as "Global Securities."
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Upon issuance of the Global Securities, the Depositary or its nominee will
credit, on its book-entry registration and transfer system, the number of New
Notes or New Exchangeable Preferred Stock, as the case may be, represented by
such Global Securities to the accounts of institutions that have accounts with
the Depositary or its nominee ("participants"). The accounts to be credited
shall be designated by the Initial Purchasers. Ownership of beneficial interests
in the Global Securities will be limited to participants or persons that may
hold interests through participants. Ownership of beneficial interest in such
Global Securities will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary or its nominee (with
respect to participants' interests) for such Global Securities, or by
participants or persons that hold interests through participants (with respect
to beneficial interests of persons other than participants). The laws of some
jurisdictions may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and laws may impair
the ability to transfer or pledge beneficial interests in the Global Securities.
So long as the Depositary, or its nominee, is the registered holder of any
Global Securities, the Depositary or such nominee, as the case may be, will be
considered the sole legal owner and holder of such New Notes or New Exchangeable
Preferred Stock (or Exchange Debentures), as the case may be, represented by
such Global Securities for all purposes under the Indenture and the Amended
Articles (or the Exchange Indenture) and the New Notes and New Exchangeable
Preferred Stock (or Exchange Debentures), as the case may be. Except as set
forth below, owners of beneficial interests in Global Securities will not be
entitled to have such Global Securities or any New Notes or New Exchangeable
Preferred Stock (or Exchange Debentures) represented thereby registered in their
names, will not receive or be entitled to receive physical delivery or
certificated securities in exchange therefor and will not be considered to be
the owners or holders of such Global Securities or any New Notes or New
Exchangeable Preferred Stock (or Exchange Debentures) represented thereby for
any purpose under the New Notes or New Exchangeable Preferred Stock (or Exchange
Debentures), the Amended Articles or the Indentures. The Company understands
that under existing industry practice, in the event an owner of a beneficial
interest in a Global Security desires to take any action that the Depositary, as
the holder of such Global Security, is entitled to take, the Depositary would
authorize the participants to take such action, and that the participants would
authorize beneficial owners owning through such participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them.
Any payment of principal, interest, liquidation preference or dividends due on
the Securities on any payment date or at maturity or upon mandatory redemption
will be made available by the Company to the applicable Trustee or Transfer
Agent by such date. As soon as possible thereafter, the Trustee or Transfer
Agent will make such payments to the Depositary or its nominee, as the case may
be, as the registered owner of the applicable Global Security in accordance with
existing arrangements between the Trustee or the Transfer Agent and the
Depositary.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal, interest, liquidation preference or dividends in respect
of the Global Securities will credit immediately the accounts of the related
participants with payments in amounts proportionate to their respective
beneficial interests in such Global Security as shown on the records of the
Depositary. The Company also expects that payments by participants to owners of
beneficial interests in the Global Securities held through such participants
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants.
None of the Company, the Trustee, the Transfer Agent and any payment agent for
the Global Securities will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests in any of the Global Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for
other aspects of the relationship between the Depositary and its participants or
the relationship between such participants and the owners of beneficial
interests in the Global Securities owning through such participants.
As long as the New Notes or the New Exchangeable Preferred Stock (or Exchange
Debentures) are represented by a Global Security, the Depositary's nominee will
be the holder of such securities and therefore will be the only
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entity that can exercise a right to repayment or repurchase of such securities,
including following a change of control or a tender offer for such securities.
Notice by participants or by owners of beneficial interests in a Global Security
held through such participants of the exercise of the option to elect repayment
of beneficial interests in securities represented by a Global Security must be
transmitted to the Depositary in accordance with its procedures on a form
required by the Depositary and provided to participants. In order to ensure that
the Depositary's nominee will timely exercise a right to repayment with respect
to a particular security, the beneficial owner of such security must instruct
the broker or other participant to exercise a right to repayment. Different
firms have cut-off times for accepting instructions from their customers and,
accordingly, each beneficial owner should consult the broker or other
participant through which it holds an interest in a security in order to
ascertain the cut-off time by which such an instruction must be given in order
for timely notice to be delivered to the Depositary. The Company will not be
liable for any delay in delivery of notices of the exercise of the option to
elect repayment.
Unless and until exchanged in whole or in part for securities in definitive
form in accordance with the terms of such securities, the Global Securities may
not be transferred except as a whole by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor of the Depositary or a nominee of each successor.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Securities among participants of
the Depositary, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Trustees, the Company and the Transfer Agent will have any responsibility for
the performance by the Depositary or its participants or indirect participants
of their respective obligations under the rules and procedures governing their
operations. The Company, the Trustees and the Transfer Agent may conclusively
rely on, and shall be protected in relying on, instructions from the Depositary
for all purposes.
Certificated Securities
A Global Security shall be exchangeable for corresponding certificated
securities registered in the name of persons other than the Depositary or its
nominee only if (A) the Depositary (i) notifies the Company that it is unwilling
or unable to continue as Depositary for such Global Security or (ii) at any time
ceases to be a clearing agency registered under the Exchange Act, (B) there
shall have occurred and be continuing an Event of Default (as defined in the
Indenture) with respect to the Notes or the Exchange Debentures or a Voting
Rights Triggering Event with respect to the Exchangeable Preferred Stock or (C)
the Company executes and delivers to the applicable Trustee or the Transfer
Agent, as appropriate, an order that such Global Security shall be so
exchangeable. Any certificated Securities will be issued only in fully
registered form, and in the case of Certificated Notes or Certificated Exchange
Debentures, as the case may be, shall be issued without coupons in denominations
of $1,000 and integral multiples thereof. Any Certificated Securities so issued
will be registered in such names and in such denominations as the Depositary
shall request.
The Clearing System
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depositary's book-entry system is
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also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's existing equity securities
and of certain provisions of the Company's Articles of Incorporation and Bylaws
does not purport to be complete and is qualified in its entirety by reference to
the provisions of the Company's Articles of Incorporation and Bylaws and other
material agreements referenced herein. However, such description describes all
material matters relating to such securities.
AUTHORIZED CAPITAL STOCK
Pursuant to the Company's Articles of Incorporation, the Company has the
authority to issue up to 50,000,000 shares of common stock, with no par value
(the "Common Stock"), 1,000,000 shares of non-voting common stock, with no par
value (the "Non-Voting Common Stock"), 500,000 shares of Class A Convertible
8% Cumulative Preferred Stock, with no par value (the "Class A Preferred
Stock"), 500,000 shares of Class B Convertible 8% Cumulative Preferred Stock,
with no par value (the "Class B Preferred Stock" and, together with the Class
A Preferred Stock, the "Existing Preferred Stock"), and 100,000 shares of
13 3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010, par value $.01
per share.
The rights of the holders of Common Stock discussed below are subject to the
rights of the holders of Existing Preferred Stock and to such rights as the
Board of Directors may hereafter confer on future holders of other series of the
Company's preferred stock.
COMMON STOCK
At December 31, 1997, there were 2,388,743.5 shares of Common Stock
outstanding and held of record by approximately 60 shareholders. In January 1998
the purchase agreement associated with the Class A Convertible 8% Cumulative
Preferred Stock was amended to replace the initial and debt warrant provisions
with a provision that would provide for the issuance of additional shares of
voting and non-voting common stock that would increase the Class A preferred
shareholders' ownership on a fully-diluted basis by an additional 8%. This
amendment resulted in the Company issuing 522,032.2 shares of voting common
stock related to the Class A Convertible 8% Cumulative Preferred Stock that was
outstanding at December 31, 1997. At December 31, 1997, options and warrants to
purchase an aggregate of 3,220,231.3 shares of Common Stock were outstanding. In
addition, in connection with the sale of shares of Class A Preferred Stock to
several common shareholders and certain other persons and entities in January
1998, the Company agreed to issue warrants to purchase an aggregate of 80,299.6
shares of Common Stock and to issue 28,330 shares of Common Stock. All
outstanding options and warrants provide for antidilution adjustments in the
event of certain mergers, consolidations, reorganizations, recapitalizations,
stock dividends, stock splits or other changes in the corporate structure of the
Company.
Voting Rights. Except as otherwise required by law, the holders of Common
Stock are entitled to attend all special and annual meetings of the shareholders
of the Company. Holders of Common Stock are entitled to vote on all matters
submitted to the shareholders together with holders of the Existing Preferred
Stock, with all such holders voting together as a single class and with each
share of Common Stock entitled to one vote.
Liquidation Rights. In the event of any dissolution, liquidation or winding
up of the Company, whether voluntary or involuntary (collectively, a
"Liquidation"), holders of Common Stock, together with holders of non-voting
Common Stock, will be entitled to participate in the distribution of any assets
of the Company remaining after the Company shall have paid, or provided for
payment of, all debts and liabilities of the Company (including the Notes and,
if issued, the Exchange Debentures) and after the Company shall have paid, or
set aside for payment, to the holders of the Existing Preferred Stock and any
other class of stock having a liquidation preference over the Common Stock
(including the Exchangeable Preferred Stock), up to the full preferential
amounts to which they are entitled.
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NON-VOTING COMMON STOCK
In January 1998 the purchase agreement associated with the Class A Convertible
8% Cumulative Preferred Stock was amended to replace the initial and debt
warrant provisions with a provision that would provide for the issuance of
additional shares of voting and non-voting common stock that would increase the
Class A preferred shareholders' ownership on a fully-diluted basis by an
additional 8%. This amendment resulted in the Company issuing 522,032.2 shares
of non-voting common stock related to the Class A Convertible 8% Cumulative
Preferred Stock that was outstanding at December 31, 1997. In addition, in
connection with the sale of shares of Class A Preferred Stock to several common
shareholders and certain other persons and entities in January 1998, the Company
has agreed to issue 28,330.0 shares of Non-Voting Common Stock. The terms of the
Non-Voting Common Stock are the same as those of the Common Stock, except that
shares of the Non-Voting Common Stock do not have voting rights.
CLASS A PREFERRED STOCK
At December 31, 1997, 1,453.1 shares of Class A Preferred Stock were
outstanding and held of record by approximately 35 shareholders. The Company
issued to several common shareholders and certain other persons and entities in
January 1998 an aggregate of 95.4 shares of Class A Preferred Stock at a price
of $15,793.84 per share.
Voting Rights. Except as otherwise required by law, the holders of shares of
Class A Preferred Stock are entitled to attend all special and annual meetings
of the shareholders of the Company. Holders of Class A Preferred Stock are
entitled to vote on all matters submitted to the shareholders for a vote,
together with holders of the Common Stock and the Class B Preferred Stock, with
all such holders voting together as a single class and with each share of Class
A Preferred Stock entitled to one vote for each share of Common Stock issuable
upon conversion of such share of Class A Preferred Stock.
Nominees to the Board of Directors. Pursuant to the Shareholders Agreement
dated as of January 30, 1997, as amended (the "Shareholders Agreement"), the
shareholders of the Company have agreed to elect to the Board of Directors three
persons designated by the holders of Class A Preferred Stock.
Liquidation Rights. Upon a Liquidation, each holder of shares of Class A
Preferred Stock will be entitled to receive out of the assets of the Company
remaining after the Company shall have paid, or provided payment for, all debts
and liabilities of the Company (including the Notes and, if issued, the Exchange
Debentures) and after the Company shall have paid, or set aside for payment, to
the holders of the Exchangeable Preferred Stock and any other class of stock
having a liquidation preference senior to the Class A Preferred Stock, up to the
full preferential amounts to which they are entitled, but before any payment or
distribution is made on the Common Stock or any other class of stock of the
Company ranking junior to the Class A Preferred Stock as to liquidation
preference, an amount in cash equal to the greater of (i) that amount which such
holder would have received if such holder had converted all its Class A
Preferred Stock into Common Stock immediately prior to the Liquidation; and (ii)
the aggregate Liquidation Value (defined below) of all shares of Class A
Preferred Stock then held by such holder (plus all accrued and unpaid dividends
thereon). The Liquidation Value of any share of Class A Preferred Stock is equal
to the aggregate purchase price paid pursuant to the Stock Purchase Agreement
dated January 30, 1997, as amended (the "Stock Purchase Agreement"), by and
among the Company and certain investors (the "Investors") for Class A
Preferred Stock and warrants to purchase Common Stock divided by the number of
shares of Class A Preferred Stock issued pursuant to the Stock Purchase
Agreement.
If the assets distributable upon such dissolution, liquidation or winding up
are insufficient to pay cash in the full amount of the liquidation preference on
the Existing Preferred Stock, then such assets or the proceeds thereof will be
distributed among the holders of shares of Existing Preferred Stock ratably
based upon the aggregate Liquidation Value (plus all accrued and unpaid
dividends) of the Existing Preferred Stock then held by such holders.
Conversion Into Common Stock. At any time and from time to time, any holder
of Class A Preferred Stock may convert all or any portion of the Class A
Preferred Stock (including any fraction of a share) held by such holder
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into Common Stock, with each share of Class A Preferred Stock being convertible
into one thousand shares of Common Stock (subject to adjustment under certain
circumstances). The Class A Preferred Stock will be automatically so converted
into Common Stock upon the closing of a firm commitment underwritten public
offering (a "Qualified Public Offering") of Common Stock in which (i) the
aggregate public offering price is at least $25 million, (ii) the price per
share of Common Stock is at least twice the Liquidation Value per share of Class
A Preferred Stock (subject to adjustment in the event of an "Organic Change," as
defined in the Company's Articles of Incorporation), (iii) the Common Stock will
be traded on a national securities exchange or The Nasdaq Stock Market and (iv)
the shares of Common Stock issued in such offering represent at least 20% of the
sum of (a) the aggregate shares of Common Stock outstanding after such offering
plus (b) the number of shares of Common Stock underlying options having an
exercise price less than the "Conversion Price," as defined in the Company's
Articles of Incorporation, in effect at the time of issuance of said options,
plus (c) the number of shares of Common Stock issuable upon conversion or
exchange of a convertible security issuable upon exercise of options and having
a conversion price less than the Conversion Price in effect at the time of
issuance of said convertible securities, plus (d) the number of shares of Common
Stock issuable upon conversion or exchange of a convertible or exchangeable
security having a per share conversion or exchange price less than the
Conversion Price in effect at the time of issuance of said convertible or
exchangeable securities.
CLASS B PREFERRED STOCK
As of the date hereof, there are no outstanding shares of Class B Preferred
Stock. Pursuant to the Stock Purchase Agreement, shares of Class B Preferred
Stock are issuable in exchange for a like number of shares of Class A Preferred
Stock upon the refusal of a holder of Class A Preferred Stock to purchase such
holder's pro rata portion of additional shares of Class A Preferred Stock
offered to the holders of Class A Preferred Stock. The terms of the Class B
Preferred Stock are the same as those of the Class A Preferred Stock, except
that the conversion rights associated with the Class B Preferred Stock have more
limited anti-dilution protection than the Class A Preferred Stock.
WARRANTS
At December 31, 1997, pursuant to the Stock Purchase Agreement, the Company
had issued warrants ("Secondary Warrants") to the holders of Class A Preferred
Stock to purchase, in the aggregate, 1,222,569.0 shares of Common Stock at a
price of $.000001 per share. In addition, in connection with the sale of shares
of Class A Preferred Stock to several holders of Common Stock in January 1998,
the Company has agreed to issue warrants to purchase an aggregate of 80,299.6
shares of Common Stock. These warrants are exercisable at any time until January
30, 2007. In addition, warrants having the same terms as the Secondary Warrants
entitling the holder thereof to purchase 18,994.6 shares of Common Stock are
held by a financial advisor of the Company.
CERTAIN COVENANTS
Pursuant to the Shareholders Agreement, the Company has agreed that, unless it
has obtained the prior approval of a majority of the members of the Company's
Board of Directors elected by the holders of Class A Preferred Stock, voting as
a separate class, it will not (i) pay or declare dividends on any of its equity
securities other than the Exchangeable Preferred Stock and the Existing
Preferred Stock, (ii) redeem or otherwise acquire any of its equity securities
other than mandatory redemptions of the Exchangeable Preferred Stock and
mandatory repurchases of the Warrants, (iii) issue or sell any Existing
Preferred Stock or any other equity securities other than equity securities that
rank junior to the Existing Preferred Stock, (iv) merge or consolidate with
another person or entity, (v) sell more that 20% of the consolidated assets of
the Company and its subsidiaries, (vi) liquidate itself, (vii) agree to
restrictions on its ability to perform its obligations in respect of the
Existing Preferred Stock (other than as set forth in the Indenture, the Amended
Articles, the Warrant Agreement, the Exchange Indenture or in
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connection with certain senior indebtedness) and (viii) incur or commit to incur
more than $500,000 of indebtedness (subject to certain limited exceptions).
These restrictions will terminate upon consummation of a Qualified Public
Offering.
In addition, pursuant to the Stock Purchase Agreement, the Company has agreed
that, without the prior written consent of the holders of a majority of the
Common Stock issuable upon conversion of the Class A Preferred Stock, it will
not (i) increase the authorized number of shares of the Existing Preferred Stock
or impair the rights of the holders thereof, (ii) prior to May 31, 1999, grant
or issue any phantom stock, shadow stock, stock appreciation or other right
directly or indirectly to participate in or benefit from the common equity of
the Company on an ongoing basis, other than capital stock of the Company or
options, warrants or other securities exercisable or exchangeable for or
convertible into any such capital stock or (iii) grant to the Company's
employees, directors and consultants any options, warrants or other rights to
subscribe for capital stock of the Company other than pursuant to the Company's
stock option plan in effect on the date of the Stock Purchase Agreement, unless
all options covered by such plan have been granted.
REGISTRATION RIGHTS
The Company is obligated under the Registration Rights Agreement dated January
30, 1997 (the "1997 Registration Rights Agreement") at any time after the
earlier of January 30, 2001 or the completion of a public offering of its equity
securities, at the demand of the holders (the "Majority Holders") of a
majority of the Common Stock underlying the Existing Preferred Stock and the
Existing Warrants (the "Underlying Common Stock") to register under the
Securities Act the Underlying Common Stock held by such holders.
In addition, if the Company proposes to register any of its securities under
the Securities Act (subject to certain limited exceptions, including the
Exchange Offer or the Shelf Registration Statement for the Old Notes or the Old
Exchangeable Preferred Stock and any registration statement for the Warrants and
the Common Stock underlying the Warrants) it must include in such registration
all Registrable Common Stock (as defined below) that the Company has been
requested to include therein. "Registrable Common Stock" means (i) Underlying
Common Stock (when issued) and any other Common Stock held by a holder (other
than an Original Common Stock Holder (as defined below)) of such Underlying
Common Stock (collectively, "New Registrable Common Stock") and (ii) Common
Stock that on January 30, 1997 was held, and that when requested to be
registered is held, by a person or entity that owned Common Stock on January 30,
1997 (such person or entity being herein referred to as an "Original Common
Stock Holder.")
Pursuant to the 1997 Registration Rights Agreement, except with respect to the
Notes and the Units, the Company may not grant demand registration rights to any
other person or entity without the prior written consent of the holders of a
majority of the Underlying Common Stock. The Company can, however, grant rights
to other persons to (i) participate in a piggyback registration so long as such
rights are subordinate to the rights of the holders of New Registrable Common
Stock and (ii) demand registration so long as the holders of New Registrable
Common Stock are entitled to participate in any such registrations with such
persons or entities pro rata on the basis of the number of shares owned by each
such holder. Except with respect to the shares of Common Stock issuable upon the
exercise of the Warrants, the Company may not include in any demand registration
triggered by the holders of New Registrable Common Stock any securities which
are not New Registrable Common Stock without the prior written consent of the
holders of a majority of the New Registrable Common Stock that requested such
demand registration.
PREEMPTIVE RIGHTS
If the Company issues any equity securities subject to certain limited
exemptions (including the New Exchangeable Preferred Stock), the Company must
first offer to sell such equity securities to the holders of Class A
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Preferred Stock ratably based on the number of shares then held by such holders.
If the holders of Class A Preferred Stock do not purchase all the offered
securities, then the Company may sell the remaining securities, for a period of
120 days, to purchasers on terms no more favorable to such purchasers than those
offered to the holders of Class A Preferred Stock.
RIGHT TO REQUIRE SALE
Unless the Company has theretofore consummated a Qualified Public Offering,
beginning on the fourth anniversary of the date of issuance of the Notes and
terminating on the earlier to occur of three years thereafter or the
consummation of a Qualified Public Offering, the Majority Holders shall have the
right to require the Company to retain an investment banking firm of nationally
recognized standing, selected by the Company and reasonably acceptable to the
Designated Holders (as defined below), for the purpose of soliciting bids in
connection with a sale of the Company. The Board of Directors of the Company
shall consider all bona fide bids received, and shall, in good faith, select the
best offer. The Company's shareholders have agreed to vote for the approval of
the bid selected by the Board of Directors, and to sell their shares of Company
capital stock if the transaction is structured as a stock sale. "Designated
Holders" means holders of not less than 51% of the sum of (i) the shares of
outstanding Common Stock held by holders of Class A Preferred Stock and (ii) the
shares of Common Stock issuable upon conversion of the Class A Preferred Stock.
RESTRICTIONS ON TRANSFER
If any Original Common Stock Holder proposes to transfer any of the Company's
equity securities held by it, it must first offer such equity securities to the
holders of the Existing Preferred Stock on the same terms and conditions as the
proposed transfer. Such holders of Existing Preferred Stock (or their designees)
may purchase all, but not less than all, of such equity securities, which will
be allocated among the holders of the Existing Preferred Stock (or their
designees) ratably in accordance with the number of shares of Existing Preferred
Stock held by such holders. If holders of the Existing Preferred Stock do not
purchase all such equity securities, then such Original Common Stock Holder may
sell the equity securities for a period of 60 days to other purchasers on terms
no more favorable to such purchasers than those offered to the holders of the
Existing Preferred Stock.
In addition, if any Original Common Stock Holder or holder of Existing
Preferred Stock (the "Transferring Holder") proposes to transfer any of the
Company's equity securities, it must offer the right to participate in the
proposed transfer to the other Original Common Stock Holders and holders of
Existing Preferred Stock (collectively, the "Other Holders"). If any of the
Other Holders elects to participate in the proposed transfer, the Transferring
Holder and such Other Holders will be entitled to transfer their equity
securities to the proposed transferee ratably in accordance with their
securities to be transferred. If the prospective transferee declines to allow
the participation of Other Holders, then no equity securities are permitted to
be sold to such prospective transferee. Furthermore, no Original Common Stock
Holder or holder of Existing Preferred Stock may encumber any of the Company's
equity securities without the prior consent of the Majority Holders.
DIVIDEND POLICY
Except with respect to the Exchangeable Preferred Stock and the Existing
Preferred Stock, the Board of Directors may not declare or pay any dividends on
any class or series of stock without the prior consent of the Majority Holders.
When and if dividends are declared (other than with respect to the Exchangeable
Preferred Stock), and to the extent permitted under the Illinois Business
Corporation Act, the Company is required to pay preferential dividends in cash
to holders of Existing Preferred Stock. Dividends on each share of Existing
Preferred Stock will accrue on a daily basis at a rate of eight percent (8%) per
annum of the sum of the Liquidation Value plus all accumulated and unpaid
dividends from and including the date of issuance. Such dividends will accrue
whether
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or not they have been declared and whether or not there are profits, surpluses
or other funds of the Company legally available for payment of dividends.
Accrued dividends on the Existing Preferred Stock are required to be paid upon a
Liquidation, although no portion of such accrued dividends may be paid in shares
of Common Stock or Existing Preferred Stock and no portion of such accrued
dividends may be converted into Common Stock. Except as otherwise provided, if
at any time the Company pays less than the total amount of dividends than
accrued with respect to the Existing Preferred Stock, such payment shall be
distributed pro rata among holders thereof based on the number of shares of the
Existing Preferred Stock held by each such holder.
If the Company declares or pays a dividend upon any class of Common Stock
payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of such class of Common Stock,
then the Company shall pay to the holders of Existing Warrants the dividend that
would have been paid on the shares of Common Stock issuable upon the exercise of
the Existing Warrants had the Existing Warrants been exercised in full
immediately prior to the date on which a record is taken, or if no record is
taken, the date as of which the record holders of Common Stock entitled to such
dividends are to be determined.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The Federal income tax discussion set forth below summarizes certain United
States Federal income tax consequences that may be relevant to initial holders
of the New Exchangeable Preferred Stock, Exchange Debentures, and New Notes who
are United States Persons (as defined below) and hold their New Exchangeable
Preferred Stock, Exchange Debentures and New Notes as capital assets
("Holders"). The discussion is intended only as a summary and does not purport
to be a complete analysis or listing of all potential tax considerations that
may be relevant to such Holders of the New Exchangeable Preferred Stock,
Exchange Debentures and New Notes. The discussion does not include special rules
that may apply to certain holders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, and persons holding the
New Exchangeable Preferred Stock, Exchange Debentures and New Notes as part of a
"straddle," "hedge" or "conversion transaction," and investors who are not
United States Persons), and does not address the tax consequences of the law of
any state, locality or foreign jurisdiction. The discussion is based upon
currently existing provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury regulations promulgated
thereunder and current administrative rulings and court decisions. All of the
foregoing are subject to change (possibly with retroactive effect) and any such
change could affect the continuing validity of this discussion.
As used herein, "United States Person" means a beneficial owner of the New
Exchangeable Preferred Stock, Exchange Debentures or New Notes who or that (i)
is a citizen or resident of the United States, (ii) is a corporation,
partnership or other entity created or organized in or under the laws of the
United States or political subdivision thereof, (iii) is an estate the income of
which is subject to United States Federal income taxation regardless of its
source, (iv) is a trust if (A) a United States court is able to exercise primary
supervision over the administration of the trust and (B) one or more United
States fiduciaries have authority to control all substantial decisions of the
trust or (v) is otherwise subject to United States Federal income tax on a net
income basis in respect of its worldwide taxable income.
THE NEW NOTES
THE EXCHANGE. The exchange of Old Notes for New Notes will not be treated as
an exchange for federal income tax purposes because the New Notes will not
differ materially in kind or extent from the Old Notes and because the exchange
will occur by operation of the original terms of the Old Notes. As a result,
U.S. Holders who exchange their Old Notes for New Notes will not recognize any
income, gain or loss for federal income tax purposes. A U.S. Holder will have
the same adjusted issue price, adjusted basis and holding period in the New
Notes immediately after the exchange as it had in the Old Notes immediately
before the exchange.
STATUS OF THE NEW NOTES FOR FEDERAL INCOME TAX PURPOSES. The discussion set
forth in this section is based on the assumption that the New Notes will be
treated as indebtedness for Federal income tax purposes. Based upon the facts
that the Company's sole business enterprise is in a developmental stage, the New
Notes are effectively subordinated to indebtedness incurred by the Restricted
Subsidiaries, and the proceeds of the New Notes are to be used in substantial
part to acquire basic business assets, the IRS may contend that the New Notes do
not, in whole or in part, constitute indebtedness for Federal income tax
purposes. If it were determined that the New Notes should be treated, in whole
or in part, as an equity interest in the Company, rather than as indebtedness,
some portion or all of the interest expense (including original issue discount)
on the New Notes would not be deductible for Federal income tax purposes. As a
result, the amount of after tax income available to pay amounts due under the
New Notes, as well as distributions with respect to the New Exchangeable
Preferred Stock, could be substantially reduced with a material adverse affect
on the Holders of the New Notes and the New Exchangeable Preferred Stock. In
addition, the tax consequences of holding the New Notes would differ
significantly from those described below.
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The determination of whether an instrument issued by a corporation constitutes
indebtedness for Federal income tax purpose or should be treated, in whole or in
part, as an equity interest in the corporation is determined under current law
by reference to certain general guidelines and factors distilled from decisional
law and IRS rulings. The following are the principal factors that weigh in favor
of treating an instrument as indebtedness (i) the instrument has a fixed
maturity that is not unreasonably far in the future, (ii) the instrument
contains an unconditional obligation to pay a fixed amount upon maturity, (iii)
the instrument contains an unconditional obligation to pay interest determined
at a fixed rate, (iv) the holder has customary creditor remedies upon default,
(v) the instrument is not convertible into equity of the issuer, does not
provide for payments based upon the income or profits of the issuer and does not
confer upon the holder voting rights or other powers to affect control of the
management of the issuer, (vi) the issuer has sufficient anticipated cash flow
to satisfy the payments anticipated to become due under the instrument, (vii)
there is substantial disparity between the holdings of the instrument and the
holdings of the stock of the issuer in terms of the identity of the holders and
their proportionate interest, (viii) the issuer's debt/equity ratio is not
excessive, (ix) the obligations evidenced by the instrument are not subordinated
to other creditors, (x) subsequent to issuance, the holder takes reasonable
steps to enforce its rights as a creditor and (xi) the instrument was not issued
to provide funds for the acquisition of basic business assets. The presence or
absence of any one of the foregoing factors is not determinative. Counsel to the
Company has given an opinion that, more likely than not, the New Notes will be
treated as indebtedness for Federal income tax purposes. Counsel's opinion is
based upon the clear presence of factors (i), (ii), (iii), (iv) and (v) and its
assessment of the other factors, relying significantly on the validity and
reasonableness (without independent investigation) of the Company's business
plan under which there is projected sufficient cash flow to satisfy all payment
obligations under the New Notes. Moreover, Counsel's view is based in part on
its understanding that the Old Notes would not be sold at original issuance to
holders of the Company's Common Stock or Class A Preferred Stock and would be
sold at original issuance to traditional purchasers of high yield debt and that
the original purchasers of the Old Notes and the original purchasers of the
Units would not, in every case, purchase the Old Notes and Units in identical
proportions. No assurance can be given that the IRS will not assert that the New
Notes do not, in whole or in part, constitute indebtedness for federal income
tax purposes. Moreover, although the opinion represents counsel to the Company's
view that the factors indicating that the New Notes should be treated as
indebtedness outweigh those indicating that it should be treated, in whole or in
part, as a form of equity interest in the Company, that opinion is not binding
on any court that might have jurisdiction to adjudicate the matter.
ORIGINAL ISSUE DISCOUNT. The New Notes have original issue discount for
Federal income tax purposes. The amount of OID on a New Note is the excess of
its "stated redemption price at maturity" (the sum of all payments to be made
on the New Note, whether denominated as interest or principal) over its "issue
price." The "issue price" of each New Note is equal to the first price at
which a substantial amount of the Notes were sold for money (excluding sales to
bond houses, brokers or similar persons acting as underwriters, placement agents
or wholesalers). Each New Note Holder (whether a cash or accrual method
taxpayer) is required to include in income such OID as it accrues, in advance of
the receipt of some or all of the related cash payments.
The amount of OID includable in income by the initial Holder of a New Note is
the sum of the "daily portions" of OID with respect to the New Note for each day
during the taxable year or portion of the taxable year on which such Holder held
such New Note ("accrued OID"). The daily portion is determined by allocating to
each day in any "accrual period" a pro rata portion of the OID allocable to that
accrual period. The accrual periods for a New Note will be periods that are
each selected by the New Note Holder that are no longer than one year, provided
that each scheduled payment occurs either on the final day of an accrual period
or on the first day of an accrual period. The amount of OID allocable to any
accrual period other than the initial short accrual period (if any) and the
final accrual period is an amount equal to the product of the New Note's
"adjusted issue price" at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period). The amount
of OID allocable to the final accrual period is the difference between the
amount payable at maturity and the adjusted issue price of the New Note at the
beginning of the final accrual period. The amount of OID allocable to any
initial short accrual period may be computed under any reasonable method. The
adjusted issue price of the New Note at the start of any accrual period
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is equal to its issue price increased by the accrued OID for each prior accrual
period and reduced by any prior payments (whether stated as interest or
principal) with respect to such New Note. The Company is required to report the
amount of OID accrued on New Notes held of record by persons other than
corporations and other exempt New Note Holders, which may be based on accrual
periods other than those chosen by the New Note Holder. A New Note Holder is not
required to recognize any income upon the receipt of interest payments on the
New Notes. The tax basis of a New Note in the hands of the Holder will be
increased by the amount of OID, if any, on the New Note that is included in the
Holder's income pursuant to these rules, and will decreased by the amount of any
payments (whether stated as interest or principal) made with respect to the New
Note.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATION. If the yield to maturity of the New
Notes (as determined for United States Federal income tax purposes) exceeds the
AFR plus 500 basis points, the New Notes will be subject to the AHYDO rules of
the Code. The AFR is an interest rate, announced monthly by the IRS, that is
based on the yield of debt obligations issued by the U.S. Treasury. The AFR for
the month of February, 1998 for instruments with a weighted average maturity in
excess of nine years providing for semi-annual compounding is 5.93%. Pursuant to
the AHYDO rules, the Company's deductions with respect to OID will be suspended
until such OID is actually paid, and the "disqualified portion" of such OID
(defined as the portion that is attributable to the yield on such New Note in
excess of the applicable Federal rate plus 600 basis points) will be permanently
nondeductible. These rules generally do not affect the amount, timing or
character of a Holder's income; however, domestic corporate Holders may be
eligible for a dividends-received deduction with respect to their inclusion in
income of the "disqualified portion" (as defined above) if such amount, if
paid with respect to stock, would have been treated as a dividend (i.e., among
other things, would have been paid out of earnings and profits, which the
Company does not believe that it currently has). See "--The New Exchangeable
Preferred Stock--Certain Federal Income Tax Consequences to the Company and to
Corporate Holders" for a more extensive discussion of the AHYDO rules. The
availability of the dividends-received deduction is subject to a number of
complex limitations. See "--The New Exchangeable Preferred Stock--Distributions
on the New Exchangeable Preferred Stock."
MARKET DISCOUNT. If a New Note is acquired by a subsequent purchaser at a
"market discount," some or all of any gain realized upon a disposition
(including a sale or a taxable exchange) or payment at maturity of such New Note
may be treated as ordinary income. "Market discount" with respect to a
security is, subject to a de minimis exception, the excess of (i) the issue
price of the security increased by all previously accrued original issue
discount and probably reduced (although the Code does not expressly so provide)
by any cash payments in respect of such security over (ii) such Holder's initial
tax basis in the security. The amount of market discount treated as having
accrued will be determined either on a ratable basis, or, if the Holder so
elects, on a constant interest method. Upon any subsequent disposition
(including a gift or payment at maturity) of such New Note (other than in
connection with certain nonrecognition transactions), the lesser of any gain on
such disposition (or appreciation, in the case of a gift) or the portion of the
market discount that accrued while the New Note was held by such Holder will be
treated as ordinary interest income at the time of the disposition. In lieu of
including accrued market discount in income at the time of disposition, a Holder
may elect to include market discount in income currently. Unless a New Note
Holder so elects, such Holder may be required to defer a portion of any interest
expense that may otherwise be deductible on any indebtedness incurred or
maintained to purchase or carry such New Note until the Holder disposes of the
New Note. The election to include market discount in income currently, once
made, is irrevocable and applies to all market discount obligations acquired on
or after the first day of the first taxable year to which the election applies
and may not be revoked without the consent of the IRS.
ACQUISITION PREMIUM. A subsequent Holder of a Note is generally subject to
rules for accruing OID described above. However, if such Holder's purchase price
for the Note exceeds the "revised issue price" (the sum of the issue price of
the Note and the aggregate amount of the OID includible in the gross income of
all Holders for periods before the acquisition of the Note by such Holder and
probably reduced (although the Code does not expressly so provide) by any cash
payment in respect of such security), the excess (referred to as "acquisition
premium") is offset ratably against the amount of OID otherwise includable in
such Holder's taxable income (i.e., such Holder may reduce the daily portions of
OID by a fraction, the numerator of which is the excess of such Holder's
purchase price
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for the Note over the revised issue price, and the denominator of which is the
excess of the sum of all amounts payable on the Note after the purchase date
over the Note's revised issue price).
DISPOSITION OF NEW NOTES. A Holder of New Notes will recognize gain or loss
upon the sale, redemption, retirement or other disposition of such New Notes;
such gain or loss will generally be equal to the difference between (i) the
amount of cash and the fair market value of property received and (ii) the
Holder's adjusted tax basis (increased by any accrued OID or market discount
previously included in income by the Holder and reduced by any previous payments
with respect to the New Notes) in such New Notes. Subject to the market discount
rules discussed above, gain or loss recognized will be capital gain or loss,
provided such New Notes are held as capital assets by the Holder, and will be
long term capital gain or loss if the Holder has held such New Notes (or is
treated as having held such New Notes) for longer than one year. Under current
law, capital gains recognized by corporations are currently taxed at a maximum
rate of 35% and the maximum rate on net capital gains (i.e., the excess of net
long-term capital gains over net short-term capital losses) in the case of
individuals is currently 20% for New Notes held for more than 18 months (28% if
held more than 12 months but not more than 18 months). Under the Code, an
individual Holder's net capital losses are currently deductible only to the
extent of $3,000 per year.
REPORTING REQUIREMENTS. The Company will provide annual information statements
to Holders of the New Notes and to the Internal Revenue Service, setting forth
the amount of original issue discount determined to be attributable to the New
Notes for that year.
THE NEW EXCHANGEABLE PREFERRED STOCK
THE EXCHANGE. U.S. Holders who exchange their Old Exchangeable Preferred
Stock for New Exchangeable Preferred Stock will not recognize any income, gain
or loss for federal income tax purposes. A U.S. Holder will have the same issue
price, adjusted basis and holding period in the New Exchangeable Preferred Stock
immediately after the exchange as it had in the Old Exchangeable Preferred Stock
immediately before the exchange.
DISTRIBUTIONS ON THE NEW EXCHANGEABLE PREFERRED STOCK. Distributions on the
New Exchangeable Preferred Stock paid in cash will be taxable to the Holder as
ordinary income and treated as a dividend to the extent of the Company's current
and accumulated earnings and profits (as determined for Federal income tax
purposes). A distribution on the New Exchangeable Preferred Stock made in the
form of additional shares of New Exchangeable Preferred Stock ("PIK Shares")
will be treated as being in an amount equal to the fair market value of the PIK
Shares and will be a taxable distribution treated as a dividend to the extent of
the Company's current and accumulated earnings and profits (as determined for
Federal income tax purposes). The holding period of any such PIK Shares will
commence on the date of their distribution.
To the extent that the amount of any distribution paid on the New Exchangeable
Preferred Stock (including distributions made in the form of PIK Shares) exceeds
the Company's current and accumulated earnings and profits allocable to such
distributions (as determined for Federal income tax purposes), such distribution
will be treated as a return of capital, thus reducing the Holder's adjusted tax
basis in such New Exchangeable Preferred Stock. Any such excess distribution
that is greater than the Holder's adjusted basis in the New Exchangeable
Preferred Stock will be taxed as capital gain and will be long-term capital gain
if the Holder's holding period for such New Exchangeable Preferred Stock exceeds
one year. For purposes of the remainder of this discussion, the term
"dividend" refers to a distribution paid out of the Company's allocable
earnings and profits, unless the context indicates otherwise.
It is anticipated that the mandatory redemption price of the New Exchangeable
Preferred Stock will exceed such stock's issue price by more than a de minimis
amount. As a result, such excess (a "redemption premium") will be required,
pursuant to section 305(c) of the Code, to be accrued by the Holder as a
constructive distribution of additional New Exchangeable Preferred Stock over
the term of the New Exchangeable Preferred Stock in a manner similar to the
accrual of original issue discount as described below in the discussion "--
Taxation of Stated Interest
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and Original Issue Discount on Exchange Debentures." The Company determined the
issue price of the Exchangeable Preferred Stock by allocating the aggregate
issue price of each Unit between the Exchangeable Preferred Stock and associated
Warrants comprising such Unit based upon their relative fair market values. The
Company intends to allocate $946 of the aggregate issue price of a Unit to the
Exchangeable Preferred Stock and $54 of the aggregate issue price to the
associated Warrants as set forth in the Private Placement offering circular.
That allocation by the Company will be binding on each holder, unless the holder
explicitly discloses (on a statement attached to the holder's timely filed
United States Federal income tax return for the year that includes the
acquisition date of the Unit) that its allocation of the Unit's issue price
between the Exchangeable Preferred Stock and the Warrants is different from the
Company's allocation. The Company's allocation, however, is not binding on the
IRS, and therefore, there can be no assurance that the IRS will respect such
allocation. If a holder purchases a Unit as part of the initial issuance at a
price that is lower than the aggregate issue price assumed in computing the
dollar amounts set forth above, then the issue price of such Unit will be
allocated between the Exchangeable Preferred Stock and the associated Warrants
in proportion to the allocation described above. A Holder's initial tax basis in
each security comprising a Unit will be the issue price allocated thereto.
Constructive distributions (including those arising from a redemption premium)
are taxable to the Holder as dividends to the extent of the Company's current or
accumulated earnings and profits. If the size of the constructive dividend is
greater than the Company's current or accumulated earnings and profits, the
excess is treated as a tax-free recovery of basis in the New Exchangeable
Preferred Stock until such Holder's basis is equal to zero, and then as capital
gain from the sale or exchange of the New Exchangeable Preferred Stock.
If the fair market value of any PIK Shares at the time of distribution is less
than the redemption price of such PIK Shares by more than a statutorily defined
de minimis amount, then the resulting redemption premium will be required,
pursuant to section 305(c) of the Code, to be accrued by the Holder as a
constructive distribution of additional PIK Shares over the term of the PIK
Shares in a manner similar to the accrual of original issue discount as
described below in the discussion "--Taxation of Stated Interest and Original
Issue Discount on Exchange Debentures."
PIK Shares issued on different dates will very likely have different amounts
of redemption premium. A Holder would be treated as having received constructive
distributions on its PIK Shares in differing amounts depending on the issue
price of each PIK Share and PIK Shares would not be interchangeable with each
other or with New Exchangeable Preferred Stock due to their differing United
States Federal income tax characteristics.
Dividends received by corporate Holders generally will be eligible for the 70%
dividends-received deduction available under Section 243 of the Code. The
availability of such dividends-received deduction is subject to numerous
exceptions and restrictions, including those relating to (i) the holding period
of the stock, (ii) stock treated as "debt-financed portfolio stock" within the
meaning of Section 246A of the Code, (iii) dividends treated as "extraordinary
dividends" for purposes of Section 1059 of the Code and (iv) Holders who pay
alternative minimum tax. A recent amendment made by the Taxpayer Relief Act of
1997 requires a corporate Holder to satisfy a separate 46-day holding period
requirement with respect to each dividend (91 days in the case of preferred
stock dividends with respect to periods aggregating more than 366 days) in order
to be eligible for such dividends-received deduction. Corporate shareholders
should consult their own tax advisors regarding the extent, if any, to which
such exceptions and restrictions may apply to their particular factual
situations.
The Company does not now have any current or accumulated earnings and profits
and is unable to predict whether or when it will have sufficient earnings and
profits for distributions with respect to the New Exchangeable Preferred Stock
to be treated as dividends. Until such time, if any, as such distributions are
treated as dividends, corporate Holders of the New Exchangeable Preferred Stock
will not be eligible for the dividends-received deduction described above.
SALE, REDEMPTION AND EXCHANGE OF EXCHANGEABLE PREFERRED STOCK. A redemption of
shares of New Exchangeable Preferred Stock for cash or in exchange for Exchange
Debentures would be a taxable event.
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A redemption of shares of New Exchangeable Preferred Stock for cash will
generally be treated as a sale or exchange if the Holder does not own, actually
or constructively within the meaning of Section 318 of the Code, any stock of
the Company other than the New Exchangeable Preferred Stock. For this purpose, a
Holder that holds Warrants will be treated as constructively owning shares of
Common Stock that it can acquire upon exercise of the Warrants. In addition,
under Section 318 of the Code, a person generally will be treated as the owner
of stock of the Company owned by certain related parties or certain entities in
which the person owns an interest. If a Holder does own, actually or
constructively, other stock of the Company, a redemption of New Exchangeable
Preferred Stock may be treated as a dividend to the extent of the Company's
current and accumulated earnings and profits (as determined for Federal income
tax purposes). Dividend treatment would not apply, however, if the redemption is
"not essentially equivalent to a dividend" with respect to the Holder under
Section 302(b)(1) of the Code. A distribution to a Holder will be "not
essentially equivalent to a dividend" if it results in a "meaningful
reduction" in the Holder's stock interest in the Company. For this purpose, a
redemption of New Exchangeable Preferred Stock that results in a reduction in
the proportionate interest in the Company (taking into account any actual
ownership of Common Stock of the Company and any stock constructively owned) of
a Holder whose relative stock interest in the Company is minimal should be
regarded as a meaningful reduction in the Holder's stock interest in the
Company.
If a redemption of the New Exchangeable Preferred Stock for cash is not
treated as a distribution taxable as a dividend, the redemption would result in
capital gain or loss equal to the difference between the amount of cash received
and the Holder's adjusted tax basis in the New Exchangeable Preferred Stock
redeemed, except to the extent that the redemption price includes dividends
which have been declared by the Board of Directors of the Company prior to the
redemption. Similarly, upon the sale of the New Exchangeable Preferred Stock
(other than in a redemption or in exchange for the Exchange Debentures), the
difference between the sum of the amount of cash and the fair market value of
other property received and the Holder's adjusted basis in the New Exchangeable
Preferred Stock would result in capital gain or loss. This gain or loss would be
long-term capital gain or loss if the Holder's holding period for the New
Exchangeable Preferred Stock exceeds one year. Under current law, capital gains
recognized by corporations are currently taxed at a maximum rate of 35% and the
maximum rate on net capital gains in the case of individuals is currently 20%
for property held for more than 18 months (28% if held more than 12 months but
not more than 18 months). A redemption of New Exchangeable Preferred Stock in
exchange for Exchange Debentures will be subject to the same general rules as a
redemption for cash, except that any gain or loss generally will be determined
based upon the issue price of the Exchange Debentures (as determined for
purposes of computing the original issue discount on such Exchange Debentures).
See the discussion below under "--Original Issue Discount."
If a redemption of the New Exchangeable Preferred Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution will
be measured by the amount of cash or the issue price of the Exchange Debentures,
as the case may be, received by the Holder. It is possible, however, that the
fair market value of the Exchange Debentures (if different from their issue
price) may constitute the amount of the distribution. The Holder's adjusted tax
basis in the redeemed New Exchangeable Preferred Stock will be transferred to
any remaining stock holdings in the Company, subject to reduction or possible
gain recognition under Section 1059 of the Code in respect of the nontaxed
portion of such dividend. If the Holder does not retain any actual stock
ownership in the Company (i.e., such Holder is treated as having received a
dividend because he constructively owns stock in the Company but such Holder
does not actually own any Company Stock), such Holder may lose the benefit of
his basis in the New Exchangeable Preferred Stock. However, such basis may be
transferred to the person or entity whose ownership of New Exchangeable
Preferred Stock was attributed to the Holder.
ORIGINAL ISSUE DISCOUNT. In the event that the New Exchangeable Preferred
Stock is exchanged for Exchange Debentures and the "stated redemption price at
maturity" of the Exchange Debentures exceeds their "issue price" by more than
a de minimis amount, the Exchange Debentures will be treated as having OID equal
to the amount of such excess.
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If the Exchange Debentures are traded on an established securities market
within the 60-day period ending thirty days after the Exchange Date, the issue
price of the Exchange Debentures will be their fair market value as of their
issue date. Subject to certain limitations described in the Treasury
Regulations, the Exchange Debentures will be deemed to be traded on an
established securities market if, at a minimum, price quotations will be readily
available from dealers, brokers or traders. If the New Exchangeable Preferred
Stock, but not the Exchange Debentures issued in exchange therefor, is traded on
an established securities market within the 60-day period ending thirty days
after the Exchange Date, then the issue price of each Exchange Debenture should
be the fair market value of the New Exchangeable Preferred Stock exchanged
therefor at the time of the exchange. The New Exchangeable Preferred Stock
generally will be deemed to be traded on an established securities market if, at
a minimum, it appears on a system of general circulation that provides a
reasonable basis to determine fair market value based either on recent price
quotations or recent sales transactions. In the event that neither the New
Exchangeable Preferred Stock nor the Exchange Debentures are traded on an
established securities market within the applicable period, the issue price of
the Exchange Debentures will be their stated principal amount (i.e., their face
value) unless either (i) the Exchange Debentures do not bear "adequate stated
interest" within the meaning of Section 1274 of the Code, which is unlikely or
(ii) the Exchange Debentures are issued in a so-called "potentially abusive
situation" as defined in the Treasury Regulations under Section 1274 of the
Code (including a situation involving a recent sales transaction), which is
unlikely, in which case the issue price of such Exchange Debentures generally
will be the fair market value of the New Exchangeable Preferred Stock
surrendered in exchange therefor.
The "stated redemption price at maturity" of the Exchange Debentures should
equal the total of all payments under the Exchange Debentures. The "stated
redemption price at maturity" would include any optional redemption premium on
the Exchange Debentures if assuming that such optional redemption will occur
would result in a lower yield to maturity on the Exchange Debentures.
TAXATION OF STATED INTEREST AND ORIGINAL ISSUE DISCOUNT ON EXCHANGE
DEBENTURES. Each Holder of an Exchange Debenture with OID will be required to
include in gross income an amount equal to the sum of the "daily portions" of
the OID for all days during the taxable year in which such Holder holds the
Exchange Debenture. The daily portions of OID required to be included in a
Holder's gross income in a taxable year will be determined under a constant
yield method by allocating to each day during the taxable year in which the
Holder holds the Exchange Debenture a pro rata portion of the OID thereon which
is attributable to the "accrual period" in which such day is included. The
amount of the OID attributable to each accrual period will be the product of the
"adjusted issue price" of the Exchange Debenture at the beginning of such
accrual period multiplied by the "yield to maturity" of the Exchange Debenture
(properly adjusted for the length of the accrual period). The adjusted issue
price of an Exchange Debenture at the beginning of an accrual period is the
original issue price of the Exchange Debenture plus the aggregate amount of OID
that accrued in all prior accrual periods, and less any cash payments. The
"yield to maturity" is the discount rate that, when used in computing the
present value of all principal and interest payments to be made under the
Exchange Debenture, produces an amount equal to the issue price of the Exchange
Debenture. An "accrual period" may be of any length and may vary in length
over the term of the debt instrument, provided that each accrual period is no
longer than one year and each scheduled payment of principal or interest occurs
either on the final day or the first day of an accrual period.
In the event that the Exchange Debentures are issued on or before February 15,
2003, the Company will have the option to pay interest thereon in PIK
Debentures. The issuance of PIK Debentures in lieu of cash interest is not
treated as a payment of interest. Instead, the underlying Exchange Debenture and
any PIK Debenture that may be issued thereon are treated as a single debt
instrument under the OID rules. Moreover, because the terms of the PIK
Debentures and the underlying Exchange Debentures are identical so that the two
are fungible in all respects, the issuance of a PIK Debenture should be treated
simply as a division of the underlying Exchange Debenture, so that the Holder's
tax basis and adjusted issue price in the underlying Exchange Debenture should
be allocated between the underlying Exchange Debenture and the PIK Debenture in
proportion to their relative principal amounts.
For purposes of determining the stated redemption price at maturity and the
rate at which OID accrues on an Exchange Debenture issued on or before February
15, 2003, applicable regulations require that it be assumed that
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the Company will pay interest in the form of PIK Debentures to the maximum
extent permitted under the terms of the Exchange Debentures if doing so would
reduce the yield to maturity on such Exchange Debentures. In such a case, if the
Company elects to pay in cash an interest payment on such Exchange Debentures
payable in cash or in PIK Debentures, the cash payment will be treated as a pro
rata prepayment on the Exchange Debentures. As a result, the Holder would
realize gain in an amount equal to the excess of the cash payment over the
portion of the Holder's tax basis that would have been allocated to such PIK
Debentures, and the Holder's tax basis in the Exchange Debentures held would be
reduced by such allocated portion of the Holder's tax basis. For purposes of
determining the stated redemption price at maturity and the rate at which OID
accrues on an Exchange Debenture issued on or before February 15, 2003,
applicable regulations require that it be assumed that the Company will pay
interest in cash and not in the form of PIK Debentures if paying interest in the
form of PIK Debentures would not reduce the yield to maturity on such Exchange
Debentures. In such a case, if the Company elects to pay in the form of PIK
Debentures an interest payment on such Exchange Debentures payable in cash or in
PIK Debentures, the future accruals of OID will be calculated based on a
redetermination of the stated redemption price at maturity and yield to maturity
made by treating the Exchange Debenture as if it were retired and reissued on
such payment date at a price equal to the adjusted issue price of the Exchange
Debentures at such time.
In the event that Exchange Debentures are issued after February 15, 2003 when
the Company does not have the option to pay interest thereon in PIK Debentures,
stated interest would be included in income by a Holder in accordance with such
Holder's usual method of accounting. In all other cases, all stated interest
paid will be treated as payments on Exchange Debentures under the rules
discussed above.
BOND PREMIUM ON EXCHANGE DEBENTURES. If the Holder's basis in the Exchange
Debentures exceeds the sum of all amounts payable on the Exchange Debentures
after the date on which Holder acquires them (computed by applying certain
provisions of the Treasury Regulations regarding the determination of the
amounts of future payments), such excess will be deductible by the Holder of the
Exchange Debentures as amortizable bond premium over the term of the Exchange
Debentures (or the period ending on such earlier call date) under a yield-to-
maturity formula, if an election by the Holder under Section 171 of the Code is
made or is already in effect. This election is revocable only with the consent
of the IRS and applies to all obligations owned or acquired by the Holder on or
after the first day of the taxable year to which the election applies. To the
extent the excess is deducted as amortizable bond premium, the Holder's adjusted
tax basis in the Exchange Debentures is reduced. Except as may otherwise be
provided in future Treasury Regulations, the amortizable bond premium will be
treated as an offset to interest income on the Exchange Debentures rather than
as a separate deduction item.
ACQUISITION PREMIUM ON EXCHANGE DEBENTURES. A Holder of an Exchange Debenture
issued with OID who purchases such Exchange Debenture for an amount that is
greater than its then adjusted issue price but equal to or less than the sum of
all amounts payable on the Exchange Debenture after the purchase date will be
considered to have purchased such Exchange Debenture at an "acquisition
premium." Under the acquisition premium rules, the amount of OID that such
Holder must include in income with respect to such Exchange Debenture for any
taxable year will be reduced by the portion of such acquisition premium properly
allocable to such year.
MARKET DISCOUNT ON EXCHANGE DEBENTURES. Holders of shares of Old Exchangeable
Preferred Stock who tender such shares for shares of New Exchangeable Preferred
Stock should be aware that the disposition of Exchange Debentures may be
affected by the market discount provisions of the Code. The market discount
rules generally provide that if a Holder of a debt instrument purchases it at a
"market discount" and thereafter realizes gain upon a disposition or a
retirement of the debt instrument, the lesser of such gain or the portion of the
market discount that has accrued on a straight-line basis (or, if the Holder so
elects under Section 1276(b) of the Code, on a constant interest rate basis)
while the debt instrument was held by such Holder will be taxed as ordinary
income at the time of such disposition. "Market discount" with respect to the
Exchange Debentures is the amount, if any, by which the "revised issue price"
of an Exchange Debenture (or its stated redemption price at maturity if the
Exchange Debenture does not have any OID) exceeds the Holder's basis in the
Exchange Debenture immediately after such Holder's acquisition, subject to a de
minimis exception. The "revised issue price" of an Exchange Debenture is its
issue price increased by the portion of OID previously includible in the gross
income of prior holders for periods
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prior to the acquisition of the Exchange Debenture by the Holder (without regard
to any acquisition premium exclusion) and reduced by prior payments with respect
to the Exchange Debentures.
A Holder who acquires an Exchange Debenture at a market discount also may be
required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry such
Exchange Debenture until the Holder disposes of the Exchange Debenture in a
taxable transaction. Moreover, any partial principal payment with respect to
Exchange Debentures will be includible as ordinary income to the extent of any
accrued market discount on such Exchange Debentures. Such accrued market
discount will also generally be includible as ordinary income upon the
occurrence of certain otherwise non-taxable transfers (such as gifts). A Holder
of Exchange Debentures acquired at a market discount may elect for Federal
income tax purposes to include market discount in gross income as the discount
accrues, either on a straight-line basis or on a constant interest rate basis.
This current inclusion election, once made, applies to all market discount
obligations acquired on or after the first day of the first taxable year to
which the election applies, and may not be revoked without the consent of the
IRS. If a Holder of Exchange Debentures makes such an election, the foregoing
rules with respect to the recognition of ordinary income on sales and other
dispositions of such debt instruments, and with respect to the deferral of
interest deductions on indebtedness incurred or maintained to purchase or carry
such debt instruments, would not apply.
REDEMPTION OR SALE OF EXCHANGE DEBENTURES. Generally, any redemption or sale
of Exchange Debentures by a Holder would result in taxable gain or loss equal to
the difference between the sum of the amount of cash and the fair market value
of other property received (except to the extent that cash received is
attributable to accrued but previously untaxed interest, which portion of the
consideration would be taxed as ordinary income) and the Holder's adjusted tax
basis in the Exchange Debentures. The adjusted tax basis of a Holder who
receives an Exchange Debenture in exchange for New Exchangeable Preferred Stock
will generally be equal to the issue price of the Exchange Debenture increased
by any OID or market discount with respect to the Exchange Debenture included in
the Holder's income prior to sale or redemption of the Exchange Debenture,
reduced by any amortizable bond premium applied against the Holder's income
prior to sale or redemption of the Exchange Debenture and by payments on the
Exchange Debentures. Subject to the above discussion of market discount, such
gain or loss would be long-term capital gain or loss if the Holder's holding
period for the Exchange Debentures exceeds one year. The same principles with
respect to acquisition premium affect the Exchange Debentures as described in
"--Acquisition Premium" discussion with respect to the New Notes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND TO CORPORATE
HOLDERS. It is possible that the Exchange Debentures will be treated as AHYDOs
for Federal income tax purposes, especially if the Exchange Debentures are
issued on or before February 15, 2003. The Exchange Debentures will constitute
AHYDOs if they (i) have a term of more than five years, (ii) have a yield to
maturity equal to or greater than the sum of the applicable Federal rate (the
"AFR") at the time of issuance of the Exchange Debentures plus 500 basis
points and (iii) have "significant OID." The AFR is an interest rate,
announced monthly by the IRS, that is based on the yield of debt obligations
issued by the United States Treasury. A debt instrument is treated as having
"significant OID" if the aggregate amount that would be includible in gross
income with respect to such debt instrument for periods before the close of any
accrual period ending after the date five years after the date of issue exceeds
the sum of (i) the aggregate amount of interest to be paid in cash under the
debt instrument before the close of such accrual period and (ii) the product of
the initial issue price of such debt instrument and its yield to maturity. In
determining whether any Exchange Debentures issued on or prior to February 15,
2003 are AHYDOs, it will be presumed that interest will be paid in the form of
PIK Debentures to the maximum extent permitted under the terms of the Exchange
Debentures. Because the amount of OID, if any, attributable to the Exchange
Debentures will be determined at the time such Exchange Debentures are issued
and the AFR at that point in time is not predictable, it is impossible currently
to determine whether Exchange Debentures will be treated as AHYDOs.
If the Exchange Debentures are treated as AHYDOs, (i) as described in the
following paragraph, a portion of the OID that accrues on the Exchange
Debentures may be treated as a dividend generally eligible for the dividends-
received deduction in the case of corporate Holders, (ii) the Company would not
be entitled to deduct the
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"disqualified portion" of the OID that accrues on the Exchange Debentures and
(iii) the Company would be allowed to deduct the remainder of the OID only when
it pays amounts attributable to such OID in cash. (In particular, in the case of
a payment in cash of an interest payment payable on or before February 15, 2003
on an Exchange Debenture issued on or prior to February 15, 2003 and interest on
which (for purposes of accruing OID under applicable regulations) is presumed to
be paid in the form of PIK Debentures to the maximum extent permitted under the
terms of the Exchange Debentures, the Company may be able to deduct only a small
portion of such cash payment attributable to OID because the payment as a whole
would be treated as a prepayment of a ratable portion of the Exchange
Debentures.)
If an Exchange Debenture is treated as an AHYDO, a corporate Holder would be
treated as receiving dividend income to the extent of the lesser of (i) an
allocable portion of the Company's current and accumulated earnings and profits
and (ii) the "disqualified portion" of the OID of such AHYDO. The
"disqualified portion" of the OID is equal to the lesser of (x) the amount of
OID or (y) the portion of the "total return" (i.e., the excess of all payments
to be made with respect to the Exchange Debenture over its issue price) with
respect to the Exchange Debenture in excess of the AFR at issuance plus 600
basis points per annum.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A Holder may be subject to backup withholding at the rate of 31 percent with
respect to interest on the New Notes, distributions (actual or constructive) on
the New Exchangeable Preferred Stock interest (including OID) on the Exchange
Debentures or sales proceeds of any of the foregoing, unless such Holder (i) is
a corporation or comes within certain other exempt categories and, when
required, demonstrates its exempt status or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A Holder who does not provide the Company with the Holder's
correct taxpayer identification number may be subject to penalties imposed by
the IRS. Any amount paid as backup withholding would be creditable against the
Holder's Federal income tax liability.
The Company will furnish annually to the IRS and to record Holders of the New
Exchangeable Preferred Stock (other than with respect to certain exempt holders)
information relating to dividends paid during the calendar year. In the case of
New Exchangeable Preferred Stock or PIK Shares subject to Section 305(c) of the
Code, such information may be based upon dividends accruing to the record Holder
of such New Exchangeable Preferred Stock or PIK Shares at the time of issuance.
The Company will furnish annually to the IRS and to record Holders of the New
Notes and Exchange Debentures (other than with respect to certain exempt
holders) information relating to the stated interest and the OID, if any,
accruing during the calendar year. Such information will be based on the amount
of OID that would have accrued to a Holder who acquired the New Note or the
Exchange Debenture on original issue. Accordingly, other Holders will be
required to determine for themselves whether they are eligible to report a
reduced amount of OID for Federal income tax purposes.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION
THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF NEW NOTES, NEW EXCHANGEABLE
PREFERRED STOCK OR EXCHANGE DEBENTURES IN LIGHT OF HIS PARTICULAR CIRCUMSTANCES
AND INCOME TAX SITUATION. EACH HOLDER OF NEW NOTES, NEW EXCHANGEABLE PREFERRED
STOCK OR EXCHANGE DEBENTURES SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE OWNERSHIP AND DISPOSITION OF THE
NEW NOTES, NEW EXCHANGEABLE PREFERRED STOCK OR EXCHANGE DEBENTURES, INCLUDING
THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR
SUBSEQUENT VERSIONS THEREOF.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes or shares of New Exchangeable
Preferred Stock for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes or shares of Exchangeable Preferred Stock. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with the resale of New Notes or shares of New Exchangeable
Preferred Stock received in exchange for Old Notes or shares of Old Exchangeable
Preferred Stock where such Old Notes or shares of Old Exchangeable Preferred
Stock were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date and
ending on the close of business 180 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. Each broker-dealer that acquired Old
Securities directly from the Company, and not as a result of market-making or
trading activities, must, in the absence of an exemption, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with the secondary resale of the New Securities and cannot rely on
the position of the staff of the Commission enunciated in no-action letters
issued to third parties. In addition, until [________, 1998] (90 days after the
date of this Prospectus), all dealers effecting transactions in the New Notes or
shares of New Exchangeable Preferred Stock may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of New Notes or shares
of New Exchangeable Preferred Stock by broker-dealers. New Notes and shares of
New Exchangeable Preferred Stock received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or New Exchangeable Preferred
Stock or a combination of such methods of resale, at market prices prevailing at
the time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
such New Notes or shares of New Exchangeable Preferred Stock. Any broker-dealer
that resells New Notes or shares of New Exchangeable Preferred Stock that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such New Notes or shares of New
Exchangeable Preferred Stock may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit of any such resale of New Notes or
shares of New Exchangeable Preferred Stock and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letters of Transmittal state that, by acknowledging
that it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in a Letter of
Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer (including the reasonable fees and expenses, if any, of one
counsel for the Initial Purchasers of the Old Notes and the Old Exchangeable
Preferred Stock) other than commissions or concessions of any brokers or dealers
and will indemnify the Holders of the Notes and the Exchangeable Preferred Stock
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The legality of the Notes and Exchange Debentures offered hereby is being
passed upon for the Company by the Piper & Marbury L.L.P., Washington, D.C.,
special counsel for the Company. The legality of the Exchangeable Preferred
Stock offered hereby is being passed upon for the Company by Neal, Gerber &
Eisenberg, Chicago, Illinois, counsel for the Company. Mark Tauber, a partner of
Piper & Marbury L.L.P., owns 68,056.0 shares of the Company's Common Stock and
options to acquire 34,730.4 shares of the Company's Common Stock. In addition,
in January 1998, Mr. Tauber acquired beneficial ownership of 6.3 shares of Class
A Convertible 8% Cumulative Preferred Stock at a price of $15,793.84 per share,
and warrants to purchase up to 5,327.0 shares of Common Stock at a price of
$.000001 per share. The Percent of Aggregate Voting Rights excludes 2,250.261
shares of non-voting Common Stock beneficially owned by Mr. Tauber which the
Company has agreed to issue.
173
<PAGE>
EXPERTS
The balance sheets of 21st Century Telecom Group, Inc. as of March 31, 1996
and 1997 and the related statements of income, shareowner's equity and cash
flows for each of the three years in the period ended March 31, 1997 and for the
period from inception (October 29, 1992 to March 31, 1997) included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report appearing herein.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-4
(including all amendments thereto, the "Registration Statement") under the
Securities Act of 1933, with respect to the New Notes and New Exchangeable
Preferred Stock offered in connection with the Exchange Offer. As permitted by
the rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the New Notes and New Exchangeable Preferred
Stock offered in connection with the Exchange Offer, reference is made to the
Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus concerning the contents of any contract
or any other document referred to are not necessarily complete; reference is
made in each instance to the copy of such contract or document filed as an
exhibit to the Registration Statement. Each such statement is qualified in all
respects by such reference to such exhibits. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge at the
Commission's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from such office after payment of fees prescribed by the
Commission. The Commission also maintains a Web site that contains reports,
proxy statements and other information regarding registrants, including the
Company, that file such information electronically with the Commission. The
address of the Commission's Web site is http://www.sec.gov.
174
<PAGE>
GLOSSARY
ADI Area of Dominant Influence.
ADSL Asymmetrical Digital Subscriber Line. A modem technology that
enhances copper telephone wiring allowing for high-speed data
transmission over ordinary telephone lines.
ANSI American National Standards Institute. A standards-setting, non-
government organization founded in 1918, which develops and
publishes standards for "voluntary" use in the United States.
CLASS Custom Local Area Signalling Services. Consists of number
translation services, such as call-forwarding and caller
identification as well as services including automatic callback,
distinctive ringing, call-waiting and selective call rejection.
CLEC Competitive Local Exchange Carrier. A term coined for the
deregulated, competitive telecommunications environment
envisioned by the Telecommunications Act of 1996. The CLECs
compete for local and long distance service.
CPS Cable Program Service.
DBS Direct Broadcast Satellite. A term for a satellite which sends
relatively powerful signals to small dishes at homes.
DRS NETWORK Distributed Ring-Star Network. An advanced integrated fiber optic
network designed by the Company to provide voice, video and high-
speed data services. Key attributes of the network include (i)
distributive switching and traffic routing mechanics at specific
locations throughout the network (rather than being concentrated
at one point as in conventional networks), (ii) SONET-based,
self-healing ring architecture possessing both circuit and route
diversity and (iii) a large fiber capacity permitting delivery of
advanced two-way, fully interactive broadband and narrowband
services.
DTH Direct-to-home Satellite TV.
DOC Data Operations Center. The location for housing the equipment
necessary to provide subscribers with high-speed data and
Internet access.
ESMR Enhanced Specialized Mobile Radio. Two-way dispatch service with
the capability to provide wireless voice telephone service to
compete against cellular.
HFC Hybrid Fiber Coaxial. An outside plant distribution cabling
concept employing both fiber optic and coaxial cable. Fiber is
deployed as the backbone distribution medium, terminating in a
remote unit where optoelectric conversion takes place. At that
remote unit, the signal then is passed on to coaxial cables which
carry the data to the individual business or residence.
ILEC Incumbent Local Exchange Carrier. The existing local telephone
company in a market, which can be either a RBOC or an independent
telephone company that provides local transmission service.
<PAGE>
ISDN Integrated Services Digital Network. Connections that use
ordinary phone lines to transmit digital instead of analog
signals, allowing data to be transmitted at a much faster rate
than with a traditional modem.
ISP Internet Service Provider. A vendor who provides direct access to
the Internet and a core group of Internet utilities like E-mail,
News Group Readers and sometimes weather reports and local
restaurant reviews. The user reaches the ISP by dialing-up over
normal phone lines with its own computer and modems.
IXC Interexchange Carriers. A telephone company that provides long-
distance telephone service between LATAs.
KBPS Kilobits per second. Used to refer to data transmission speeds.
LATA Local Access and Transport Area. One of the 161 local
geographical areas in the United States within which a LEC may
offer local telecommunications services.
LEC Local Exchange Carrier. A local phone company which provides
local access and transmission.
LMDS Local Multipoint Distribution Services. The use of broadcast
microwave signals to contact dishes typically located on the top
of apartment buildings. The signal is then distributed to
individual units in the building.
MBPS Megabits per second. Used to refer to data transmission speeds.
One Mbps equals 1,000 Kbps.
MDU Multiple Dwelling Units. High-rise residential buildings.
MHZ Megahertz. Used to measure band and bandwidth.
MMDS Microwave Multipoint Distribution System. A means of distributing
cable television programming, through microwave, from a single
transmission point to multiple receiving points.
MTSO Mobile Telephone Switching Office. This central office houses the
field monitoring and relay stations for switching calls between
the cellular and wire-based (land-line) central office. It is a
sophisticated computer that monitors all cellular calls, keeps
track of the location of all cellular-equipped vehicles traveling
in the system, arranges handoffs and keeps track of billing
information.
MVPD Multichannel Video Programming Distribution.
NOC Network Operations Center. The location for housing the equipment
necessary to provide subscribers with voice, video and high-speed
data services and to monitor system performance.
PCS Personal Communications Service. A new, lower powered, higher-
frequency competitive technology to cellular that will consist
primarily of enhanced voice, two-way data and text messaging
services directed at the mass consumer wireless communications
market.
PEG Public, Educational or Government access. The local public access
channels.
POP Point of Presence. The place where a long-distance carrier
terminates long distance lines just before those lines are
connected to the local phone company's lines or a direct
connection to a targeted user.
POTS Plain Old Telephone Services. Basic single line telephone
service.
<PAGE>
RBOC Regional Bell Operating Company.
SBS Small Business Services.
SMATV Satellite Master Antenna Television. A distribution system that
feeds satellite signals to hotels, apartments, etc.
SONET Synchronous Optical NETwork. A family of fiber-optic transmission
rates from 51.84 Mbps to 13.22 Gbps, created to provide the
flexibility needed to transport many digital signals with
different capacities, and to provide a standard for which
manufacturers design. SONET is an optical interface standard that
allows interworking of transmission products from multiple
vendors.
STS Shared Tenant Services. Providing centralized telecommunications
services to tenants in a building or a complex.
VLAN Virtual Local Area Network. Work stations connected to an
intelligent device which provides the capabilities to define LAN
membership.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants F-2
Balance Sheets as of March 31, 1996 and 1997 F-3
Statements of Income for the years ended March 31, 1995, 1996, and 1997 and for the period from
inception (October 29, 1992) to March 31, 1997 F-4
Statements of Changes in Shareholders' Equity for the years ended March 31, 1995, 1996 and 1997
and for the period from inception (October 29, 1992) to March 31, 1997 F-5
Statements of Cash Flows for the years ended March 31, 1995, 1996 and 1997 and for the period
from inception (October 29, 1992) to March 31, 1997 F-6
Notes to Financial Statements for the years ended March 31, 1995, 1996 and 1997 and for the period
from inception (October 29, 1992) to March 31, 1997 F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS
Balance Sheet as of December 31, 1997 F-15
Condensed Statements of Income for the nine months ended December 31, 1996 and 1997 and for the
period from inception (October 29, 1992) to December 31, 1997 F-16
Statements of Changes in Shareholders' Equity for the nine months ended December 31, 1997
and for the period from inception (October 29, 1992) to December 31, 1997
Condensed Statements of Cash Flows for the nine months ended December 31, 1996 and 1997 and for
the period from inception (October 29, 1992) to December 31, 1997 F-17
Notes to Financial Statements for the nine months ended December 31, 1996 and 1997 and for the
period from inception (October 29, 1992) to December 31, 1997 F-18
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
21st Century Telecom Group, Inc.:
We have audited the accompanying balance sheets of 21st Century Telecom Group,
Inc. (an Illinois corporation in the development stage) as of March 31, 1997 and
1996, and the related statements of income, shareholders' equity and cash flows
for each of the three years in the period ended March 31, 1997, and for the
period from inception (October 29, 1992) to March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 21st Century Telecom Group,
Inc. as of March 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended March 31, 1997, and
for the period from inception to March 31, 1997, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
February 9, 1998
F-2
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>
ASSETS 1996 1997
------ --------------- ---------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 956 $ 8,230,942
Accounts receivable from shareholders 153,660 86,000
Accounts receivable from subscribers -- 27,480
Prepayments -- 149,250
----------- -----------
Total current assets 154,616 8,493,672
PROPERTY, PLANT AND EQUIPMENT:
Leasehold improvements -- 177,526
Vehicles and computer equipment -- 69,337
Less--Accumulated depreciation -- (6,934)
----------- -----------
-- 239,929
OTHER ASSETS:
Restricted cash collateral reserve -- 1,796,880
Accounts receivable from associated company 1,058,723 1,156,780
Prepaid franchise fees -- 3,216,575
Deferred franchise costs, net of amortization of $158,875 and $309,641,
respectively 451,538 587,615
Deferred mapping and design, net of amortization of $12,407 -- 62,037
----------- -----------
Total other assets 1,510,261 6,819,887
----------- -----------
Total assets $ 1,664,877 $15,553,488
=========== ===========
LIABILITIES AND PREFERRED AND COMMON EQUITY
-------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 358,482 $ 238,775
Debentures payable 805,303 --
Interest payable 299,212 --
Accounts payable to associated company 1,569,622 1,294,860
Notes payable 226,930 --
----------- -----------
Total current liabilities 3,259,549 1,533,635
NONCURRENT LIABILITIES:
Debentures payable 81,551 81,551
Interest payable 68,333 103,676
----------- -----------
Total noncurrent liabilities 149,884 185,227
REDEEMABLE PREFERRED STOCK:
Class A convertible 8% cumulative preferred stock, no par value,
1,380.3 shares outstanding -- 16,794,963
COMMON SHAREHOLDERS' EQUITY:
Common stock, no par value, 1,683,000 and 2,374,343.6 shares outstanding,
respectively, 1,161,307.6 secondary common share warrants outstanding
and 1,000,966.8 initial and debt common share warrants converted
to voting and non-voting common stock in 1998 488,001 5,946,904
Deficit accumulated during development stage (2,226,557) (5,522,830)
Related party purchase, in excess of cost -- (3,381,300)
Unearned compensation (6,000) (3,111)
----------- -----------
Total common shareholders' equity (1,744,556) (2,960,337)
----------- -----------
Total liabilities and equity $ 1,664,877 $15,553,488
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE>
21ST CENTURY TELECOM GROUP, INC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO MARCH 31, 1997
<TABLE>
<CAPTION>
OCT. 29, 1992
Year Ended YEAR ENDED YEAR ENDED TO
MARCH 31, 1995 MARCH 31,1996 MARCH 31,1997 MARCH 31,1997
----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Subscriber revenues $ -- $ -- $ 27,480 $ 27,480
Operating expenses -- 9,617 200,911 210,528
Selling, general and administrative expenses 624,963 694,122 2,337,534 4,027,428
Depreciation and amortization 38,923 108,182 170,108 328,983
---------- ----------- ----------- -----------
Operating loss (663,886) (811,921) (2,681,073) (4,539,459)
Interest income -- -- 301,624 301,624
Interest expense 115,428 214,688 437,843 806,014
---------- ----------- ----------- -----------
Loss before income taxes (779,314) (1,026,609) (2,817,292) (5,043,849)
PROVISION (CREDIT) for INCOME
TAXES -- -- -- --
---------- ----------- ----------- -----------
NET LOSS (779,314) (1,026,609) (2,817,292) (5,043,849)
Preferred stock requirements -- -- (478,981) (478,981)
---------- ----------- ----------- -----------
NET LOSS ATTRIBUTABLE to COMMON
SHARES $ (779,314) $(1,026,609) $(3,296,273) $(5,522,830)
========== =========== =========== ===========
Weighted average common shares outstanding 1,508,000 1,609,129 1,988,365 1,624,895
LOSS PER COMMON SHARE $(.52) $(.64) $(1.66) $(3.40)
========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO MARCH 31, 1997
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING RELATED
COMMON DEVELOPMENT PARTY
TOTAL STOCK STAGE PURCHASE
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balances, October 29, 1992 $ -- $ -- $ -- $ --
Net loss (420,634) -- (420,634) --
Stock issuances 138,001 138,001 -- --
Unearned compensation (16,000) -- -- --
Amortization of unearned
compensation 11,600 -- -- --
----------- ---------- ----------- ------------
Balances, March 31, 1994 (287,033) 138,001 (420,634) --
Net loss (779,314) -- (779,314) --
Amortization of unearned
compensation 3,226 -- -- --
----------- ---------- ----------- ------------
Balances, March 31, 1995 (1,063,121) 138,001 (1,199,948) --
Net loss (1,026,609) -- (1,026,609) --
Stock issuances 350,000 350,000 -- --
Unearned compensation (8,000) -- -- --
Amortization of unearned
compensation 3,174 -- -- --
----------- ---------- ----------- ------------
Balances, March 31, 1996 (1,744,556) 488,001 (2,226,557) --
Net loss (2,817,292) -- (2,817,292) --
Stock issuances 1,421,281 1,421,281 -- --
Accrued preferred stock
dividend (280,795) -- (280,795) --
Class A preferred stock proceeds
allocated to related common
share warrants 4,324,549 4,324,549
Class A preferred stock issuance
costs allocated to related common
share warrants (286,927) (286,927)
Preferred stock accretion (198,186) (198,186)
Amortization of unearned
compensation 2,889 -- -- --
Related party purchase, in excess
of cost (3,381,300) -- -- (3,381,300)
----------- ---------- ----------- ------------
Balances, March 31, 1997 $(2,960,337) $5,946,904 $(5,522,830) $(3,381,300)
=========== ========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
COMMON
UNEARNED COMMON SHARES
COMPENSATION SHARES WARRANTS
------------- ----------- -----------
<S> <C> <C> <C>
Balances, October 29, 1992 $ -- -- --
Net loss -- -- --
Stock issuances -- 1,508,000 --
Unearned compensation (16,000) -- --
Amortization of unearned
compensation 11,600 -- --
-------- ----------- -----------
Balances, March 31, 1994 (4,400) 1,508,000 --
Net loss -- -- --
Amortization of unearned
compensation 3,226 -- --
-------- ----------- -----------
Balances, March 31, 1995 (1,174) 1,508,000 --
Net loss -- -- --
Stock issuances -- 175,000 --
Unearned compensation (8,000) -- --
Amortization of unearned
compensation 3,174 -- --
-------- ----------- -----------
Balances, March 31, 1996 (6,000) 1,683,000 --
Net loss -- -- --
Stock issuances -- 691,343.6 --
Accrued preferred stock
dividend -- -- --
Class A preferred stock proceeds
allocated to related common
share warrants -- -- 1,161,307.6
Class A preferred stock issuance
costs allocated to related common
share warrants -- -- --
Preferred Stock accretion -- -- --
Amortization of unearned
compensation 2,889 -- --
Related party purchase, in excess
of cost -- -- --
-------- ----------- -----------
Balances, March 31, 1997 $ (3,111) 2,374,343.6 1,161,307.6
======== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO MARCH 31, 1997
<TABLE>
<CAPTION>
OCT. 29, 1992
Year Ended YEAR ENDED YEAR ENDED TO
MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net loss $(779,314) $(1,026,609) $(2,817,292) $(5,043,849)
Adjustments to reconcile net loss to net cash
provided by operating activities--
Amortization and depreciation 38,923 108,182 170,108 328,983
Compensation for professional services
through the issuance of common
stock -- -- 44,190 44,190
Interest expense related to debenture
conversions -- 168,762 147,533 427,257
Increase in accounts receivable -- -- (27,480) (27,480)
Increase in prepayments -- -- (3,365,825) (3,365,825)
Increase in deferred charges (153,825) (338,887) (361,287) (971,700)
Change in intercompany receivable and
payable, net 347,019 114,964 (372,819) 138,080
Increase in interest payable 115,428 45,926 15,612 103,676
(Decrease)/Increase in accounts payable 38,856 201,926 (119,707) 238,775
(Decrease)/Increase in notes payable 114,969 111,961 (226,930) --
Other 13,728 2,548 3,131 20,889
--------- ----------- ----------- -----------
Net cash used by operating
activities (264,216) (611,227) (6,910,766) (8,107,004)
Net cash used in investing activities--
Purchase of subscribers from affiliate -- -- (3,381,300) (3,381,300)
Capital expenditures -- -- (246,863) (246,863)
--------- ----------- ----------- -----------
Net cash used in investing
activities -- -- (3,628,163) (3,628,163)
Cash flows from financing activities--
Cash paid for letters of credit -- -- (1,796,880) (1,796,880)
Proceeds from issuance of debentures 266,429 266,765 153,660 886,854
Proceeds from issuance of preferred stock,
net of issuance costs -- -- 20,267,604 20,267,604
Proceeds from issuance of common
stock -- 342,000 144,531 608,531
--------- ----------- ----------- -----------
Net cash provided by financing
activities 266,429 608,765 18,768,915 19,966,109
--------- ----------- ----------- -----------
Net increase/(decrease) in cash 2,213 (2,462) 8,229,986 8,230,942
Cash at beginning of period 1,205 3,418 956 --
--------- ----------- ----------- -----------
Cash at end of period $ 3,418 $ 956 $ 8,230,942 $ 8,230,942
========= =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO MARCH 31, 1997
1. DESCRIPTION OF BUSINESS:
21st Century Telecom Group, Inc. (the Company) is a Chicago-based company,
formed by shareholders of 21st Century Technology Group, Inc. (Technology) on
October 29, 1992. The Company was originally incorporated as 21st Century Cable
TV, Inc. and its name was subsequently changed to 21st Century Telecom Group,
Inc. on January 5, 1998. The Company was formed for the purpose of building a
cable and communication network in the Area 1 franchise of the City of Chicago.
Area 1 is the populous downtown and near downtown commercial and residential
districts. As part of its business plan, the Company intends to become a full
service communications provider via its installation of a state-of-the-art fiber
optic cable network. This distribution system is designed to provide a barrier-
free information super highway that can accommodate a wide range of
communication services, including interactive video, teleconferencing, business-
to-business connectivity, and 24-hour on-line computer interconnects, in
addition to basic telephony and an extensive selection of cable programming
options.
On March 26, 1996, the Company was awarded a non-exclusive franchise from the
City of Chicago to construct, install, maintain and operate a cable television
system within franchise Area 1. The franchise is for a period of 15 years. The
Company will be required to pay the City a franchise fee of 5% of the annual
gross revenues received, which it will pass through to its customers. The
Company was required to prepay $3,000,000 of franchise fees within 120 days of
being awarded the franchise. The payment was made in two equal installments, the
first payment was made on June 24, 1996, and the second payment was made on July
24, 1996.
The Company has reached an agreement with the Chicago Transit Authority (CTA)
for a 15-year license to attach its 15-mile fiber-optic trunk to the CTA's
overhead rail structures.
Financing the construction and initial start-up of the Company's system
remains an ongoing activity. On January 30, 1997, the Company sold $21.8 million
of convertible preferred stock. On November 25, 1997, the Company obtained a $15
million interim financing facility. The Company repaid this interim financing
facility upon the execution of a concurrent preferred equity and high yield debt
offering on February 9, 1998. These offerings resulted in gross proceeds of $200
million from the issuance of 12 1/4% Senior Discount Notes Due 2008 and $50
million from the issuance of 50,000 Units of 13 3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010 and Warrants to purchase 438,870 shares of
Common Stock. The net proceeds from these offerings will be used to assist the
Company in meeting its construction, development and working capital needs.
Although the Company has been successful in attracting the necessary financing
to complete the buildout of the franchise, the Company still needs to generate
sufficient revenues to service its debt and realize its investments in fixed
assets in future periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting and reporting principles conform to generally
accepted accounting principles.
Cash and Cash Equivalents
Cash and cash equivalents at March 31, 1997, consist of cash on hand at
certain banks as well as commercial paper investments. The commercial paper is
stated at cost, which approximates market value, and all mature within
F-7
<PAGE>
seven days of purchase. At March 31, 1996, cash and cash equivalents consist
solely of cash on hand at certain banks.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
Property, Plant and Equipment
The Company has recorded vehicle and computer equipment purchases at their
original cost. The purchases are being depreciated on a straight-line basis over
five years.
The Company capitalized leasehold improvements incurred as of March 31, 1997.
However, as the associated lease begins July 1, 1997, no related depreciation
was recognized for the year ended March 31, 1997. Beginning in fiscal 1998,
leasehold improvements will be depreciated on a straight-line basis over the
term of the lease, fifteen years.
Deferred Franchise Costs
The Company has deferred franchise costs, including legal costs, associated
with the organization of its business and obtaining the franchise from the City.
Deferred franchise costs are being amortized over five years.
Deferred Mapping and Design Costs
The Company has deferred certain mapping and design costs associated with
strand mapping the Area 1 region within the City. Deferred mapping and design
costs are being amortized over three years.
Revenue Recognition
The Company recognizes cable television revenues as services are provided to
subscribers.
Operating Expenses Other than Interest and Amortization
From inception to March 31, 1996, operating expenses, except interest and
amortization, had been allocated from Technology, a related party through some
common ownership and common management, based on estimates of time spent by
management and employees of Technology on Company activities. The Company's
Board of Directors approved these allocations. Technology's Board of Directors
did not formally approve these allocations. However, at the time the allocations
were made, the Company's and Technology's Boards contained substantially the
same individuals. For the years ended March 31, 1995 and 1996, the Company also
recognized 100% of expenses paid by Technology on behalf of the Company, as well
as 100% of expenses incurred by the Company. As these expenses were allocated,
an affiliate payable was recognized. Effective April 1, 1996, the Company began
recognizing and paying substantially all of its own expenses. Therefore, for the
year ended March 31, 1997, there were no significant allocations from Technology
or payments made by Technology on the Company's behalf.
Cash Flow Information
From inception to March 31, 1997, the Company has not paid any income taxes.
From inception to March 31, 1996, no interest was paid. For the year ending
March 31, 1997, the Company paid $274,993 in interest.
F-8
<PAGE>
Earnings Per Share
For the twelve months ended March 31, 1995, 1996 and 1997, and the period from
inception to March 31, 1997, per share amounts were based on weighted average
common shares outstanding of 1,508,000, 1,609,129, 1,988,365 and 1,624,895
shares, respectively.
Effective for the nine months ended December 31, 1997, the Company adopted FAS
No. 128, "Earnings per Share" (see Note 5 in the interim financial statements).
The retroactive adoption of this standard for March 31, 1995, 1996 and 1997 did
not have an impact on the denominator of the basic loss per common share given
the anti-dilutive effects of including potential common shares in the
denominator of the diluted earnings per share calculation. At March 31, 1997
these potential common shares included the following: (1) 1,161,307.6 common
share warrants related to the Class A Convertible 8% Cumulative Preferred Stock,
(2) 1,000,966.8 shares of voting and non-voting common stock which replaced the
initial and debt warrants associated with the Class A Convertible 8% Cumulative
Preferred Stock as discussed in Note 4, (3) 1,250,000 options issued in
connection with certain Directors' guarantee of a loan, and (4) 18,994.7 stock
warrants issued to a financial advisor. At March 31, 1996 these potential common
shares included 627,199.5 shares related to the convertible debenture. At March
31, 1995 these potential common shares included 321,741.5 shares related to the
convertible debentures. The net loss attributable to common shares on which the
basic earnings per share calculation is based, reflects the net loss increased
by the amount of preferred dividends and accretion related to the Class A
Convertible 8% Cumulative Preferred Stock.
Accounting for Stock-Based Compensation
In fiscal 1998, when the Company adopts Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation," it intends to
continue to recognize compensation cost based on Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." The fair value
disclosures required by Statement of Financial Accounting Standard 123 will be
supplementely shown.
3. INCOME TAXES:
The Company uses an asset and liability approach to account for income taxes.
Deferred income taxes (credit) reflect the impact of temporary differences
between amounts of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws. These temporary differences are determined
in accordance with Statement of Financial Accounting Standards (FAS) No. 109,
''Accounting for Income Taxes.'' The temporary difference and net operating loss
carryforward, which give rise to deferred tax assets at March 31, 1996 and 1997,
are as follows:
<TABLE>
<CAPTION>
March 31, 1996 MARCH 31, 1997
DEFERRED DEFERRED
TAX ASSET TAX ASSET
----------------- -----------------
<S> <C> <C>
Net operating loss carryforward $ 871,270 $ 1,969,962
Valuation allowance (871,270) (1,969,962)
--------- -----------
$ -- $ --
========= ===========
</TABLE>
The provision (credit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Year Ended YEAR ENDED YEAR ENDED INCEPTION TO
MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Current--
Federal $ -- $ -- $ -- $ --
State -- -- -- --
Deferred--
Federal (249,502) (327,033) (896,666) (1,607,966)
State (56,026) (73,683) (202,026) (361,996)
--------- --------- ----------- -----------
(305,528) (400,716) (1,098,692) (1,969,962)
Valuation allowance 305,528 400,716 1,098,692 1,969,962
--------- --------- ----------- -----------
$ -- $ -- $ -- $ --
========= ========= =========== ===========
</TABLE>
The income tax provision (credit) differs from amounts at the statutory
federal income tax rate as follows:
<TABLE>
<CAPTION>
Year Ended YEAR ENDED YEAR ENDED INCEPTION TO
MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Income tax provision (credit) at
statutory rate $(272,760) $(359,313) $ (986,052) $(1,765,347)
Meals and entertainment 3,649 6,642 19,210 31,437
State income taxes (36,417) (48,045) (131,850) (236,052)
Valuation allowance 305,528 400,716 1,098,692 1,969,962
--------- --------- ---------- -----------
Income tax provision (credit) as
reported $ -- $ -- $ -- $ --
========= ========= ========== ===========
</TABLE>
At March 31, 1997, the Company has cumulative net operating loss carryforwards
aggregating $4,865,397 expiring between 2009 and 2012. At March 31, 1997, the
Company has recorded a valuation allowance related to its deferred tax assets
aggregating $1,969,962.
F-9
<PAGE>
4. DEBT:
A summary of debt outstanding at March 31, 1996 and 1997, is as follows:
<TABLE>
<CAPTION>
March 31, 1996 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Convertible Subordinated Debentures, Series 1, 25%, due 1998 $200,000 $52,702
Convertible Subordinated Debentures, Series 2, 25%, due 1999 140,000 28,849
Convertible Subordinated Debentures, Series 3, 25%, due 1998 150,000 --
Convertible Subordinated Debentures, Series 4, 25%, due 1999 200,000 --
Convertible Subordinated Debentures, Series 5, 25%, due 2000 196,854 --
-------- -------
Total $886,854 $81,551
======== =======
</TABLE>
All debentures are convertible to common stock based on a conversion ratio of
$2 to 1 share of common stock.
Conversion of $147,298 of the Series 1 convertible debentures occurred on May
17, 1996. Conversion of $111,151 of the Series 2 convertible debentures occurred
on April 28, 1996. Conversion of $150,000 of the Series 3 convertible debentures
occurred on November 14, 1996. Conversion of $200,000 of the Series 4
convertible debentures and $196,854 of the Series 5 convertible debentures
occurred on January 31, 1997.
Total debenture conversions to common stock for Series 1 through 5 convertible
debentures resulted in the issuance of 616,280 additional shares of common stock
between April 1996 and January 1997. (See ''Common Shares'' footnote for
conversion effects on common shares outstanding.)
During the period August 1994 to March 1996, the Company signed a series of
promissory notes aggregating $226,930 at March 31, 1996, with Kubasiak,
Cremieux, Flystra & Reigers, P.C. (Kubasiak). These notes accrued interest at a
rate of 9% and were due between February 1, 1995, and September 1, 1996. At
March 31, 1996, none of these promissory notes had been repaid and had accrued
interest aggregating $19,730. On July 1, 1996, Kubasiak canceled its notes that
were outstanding as of March 31, 1996, along with additional notes issued
through June 1996, and consolidated them into a single note, due January 2,
1997. This new note was paid in full on December 31, 1996.
5. COMMON SHARES:
On January 9, 1998, the common shareholders approved an amendment to the
Articles of Incorporation to increase the number of authorized common shares to
50,000,000 from 1,000,000. On the same date, the directors of the Company
declared a 1,000 for 1 share split of the Company's issued and outstanding
common shares. All common share amounts and per share amounts have been restated
to reflect this amendment and related split.
At March 31, 1996 and 1997, the Company has 50,000,000 shares of no par common
stock authorized, of which 1,683,000 and 2,374,343.6 are issued and outstanding,
respectively.
Changes in the Company's common shares and related amounts from the Company's
inception date through March 31, 1997, are as follows:
<TABLE>
<CAPTION>
COMMON
SHARES AMOUNT
------------- -------------
<S> <C> <C>
October 29, 1992 1,439,000.0 $ 1
January 4, 1993 8,000.0 16,000
August 29, 1993 15,000.0 30,000
December 6, 1993 46,000.0 92,000
----------- ----------
March 31, 1994 1,508,000.0 138,001
March 31, 1995 1,508,000.0 138,001
September 20, 1995 171,000.0 342,000
October 17, 1995 4,000.0 8,000
----------- ----------
March 31, 1996 1,683,000.0 488,001
April 28, 1996 84,490.0 168,980
May 17, 1996 146,540.0 293,080
November 14, 1996 115,410.0 230,820
January 28, 1997 75,063.6 188,721
January 30, 1997 -- 4,037,622
January 31, 1997 269,840.0 539,680
----------- ----------
March 31, 1997 2,374,343.6 $5,946,904
=========== ==========
</TABLE>
F-10
<PAGE>
On October 29, 1992, the Company sold 1,439,000 shares to the shareholders of
21st Century Technology for an aggregate purchase price of $1. On January 4,
1993, the Company issued 8,000 shares of restricted stock, to officers of the
Company, at an estimated fair value of $2 per share. On August 29, 1993, the
Company exchanged 15,000 shares of common stock with an estimated fair value of
$2 per share for $30,000 of personal loans made to the Company by certain
directors of the Company. On December 6, 1993, the Company sold 46,000 shares of
common stock to certain shareholders of the Company at an estimated fair value
of $2 per share.
On September 20, 1995, the Company sold 171,000 shares of common stock to
various third-party investors for $342,000 at an estimated fair value of $2 per
share. On October 17, 1995, the Company issued 4,000 shares of restricted stock,
to an officer of the Company, at an estimated fair value of $2 per share.
As discussed earlier, Series 1 through 5 of the Company's convertible
debentures were converted to common stock throughout the year ended March 31,
1997. On April 28, 1996, debenture conversions of $111,151 in principal and
$57,829 in related interest resulted in the issuance of 84,490 shares of common
stock. On May 17, 1996, debenture conversions of $147,298 in principal and
$145,782 in related interest resulted in the issuance of 146,540 shares of
common stock. On November 14, 1996, debenture conversions of $150,000 in
principal and $80,820 in related interest resulted in the issuance of 115,410
shares of common stock. On January 31, 1997, debenture conversions of $396,854
in principal and $142,826 in related interest resulted in the issuance of
269,840 shares of common stock. The impacts of these noncash financing
activities are not included in the net cash provided or used by operating or
financing activities in the statements of cash flows.
The Company also had an arrangement with a law firm to compensate it for its
professional services by issuing 2,797.9 shares of common stock to it at a per
share price of $15.79, which was based upon the offering price of the Company's
preferred stock offering discussed below. The shares were issued on January 28,
1997.
Also on January 28, 1997, certain shareholders of Technology (a related party)
were allowed to purchase shares of the Company's common stock with the proceeds
from their loan repayment from Technology. This transaction resulted in the
issuance of 72,265.7 shares of additional common stock, at $2 per share.
As discussed in Note 6, portions of the proceeds and issuance costs associated
with the January 30, 1997 sale of Class A Convertible 8% Cumulative Preferred
Stock were allocated to the related common share warrants. This allocation
resulted in a net amount of $4,037,622 being recorded as common equity at March
31, 1997 (see Note 6 for additional discussion related to the allocation of the
proceeds and issuance costs).
In order to prepay the City's franchise fees, mentioned above, the Company
requested and received a $5 million Loan and Security Agreement on June 21,
1996, with LaSalle Northwest National Bank which expired on January 1, 1997. The
Company paid the loan including interest on January 31, 1997. Certain members of
the Company's Board of Directors had individually guaranteed the full line of
credit. The Company, in return for the Directors' guarantees, issued to the
Directors options to acquire 1,250,000 additional common shares of the Company,
at a price of $4 per share, exercisable until the expiration date of June 30,
2006. As of March 31, 1997, all options are outstanding.
In February 1997, the Company issued stock warrants representing 18,994.7
shares to its financial advisor at an exercise price of $15.79, aggregating
$300,000. The exercise price was based upon the offering price of the Company's
preferred stock offering discussed below. As of March 31, 1997, all warrants are
outstanding.
6. REDEEMABLE PREFERRED SHARES:
<TABLE>
<CAPTION>
PREFERRED
SHARES AMOUNT
--------- ---------------
March 31, 1996 -- --
January 30, 1997
<S> <C> <C>
Proceeds 1,380.3 $17,475,451
Issuance costs -- (1,159,469)
Accrued dividends -- 280,795
Accretion -- 198,186
------- -----------
March 31, 1997 1,380.3 $16,794,963
======= ===========
</TABLE>
On January 30, 1997 several investors contracted with the Company to
purchase 1,380.3 shares of the Company's Class A Convertible 8% Cumulative
Preferred Stock and initial, secondary and debt warrants for an aggregate
purchase price of $15,793.84 per share, totaling $21.8 million. A portion of the
initial purchase price was allocated to the common share warrants. The
allocation was based on the fair market value of the common stock at the date of
the sale of the Class A Convertible 8% Cumulative Preferred Stock and the number
of related secondary warrants, initial warrants and debt warrants associated
with such preferred stock. The fair market value of the common stock at the date
of the sale was estimated to be $2 per share. The number of secondary warrants
associated with the initial purchase amounted to 1,161,307.6. The number of
initial and debt warrants associated with the initial purchase was based on the
number of voting and non-voting common shares that these warrants were replaced
with as a result of the subsequent amendment to the related stock purchase
agreement as discussed in Note 11, "Subsequent Events." These initial and debt
warrants were replaced with 1,000,967 shares of voting and non-voting common
stock in January 1998. This allocation resulted in $4,324,549 and $17,475,451
being recorded as common stock and redeemable preferred stock, respectively, at
March 31, 1997. Issuance costs of $1,446,396 were incurred in conjunction with
the sale of the Class A Convertible 8% Cumulative Preferred Stock. These
issuance costs were allocated between the Class A Convertible 8% Cumulative
Preferred Stock and the related warrants based on the relative portions of the
proceeds allocated to each. The carrying value of the Class A Convertible 8%
Cumulative Preferred Stock is being accreted to its redemption value (using the
effective interest method) over the four year period from the date of the
original preferred stock purchase agreement to the date the stock becomes
mandatorily redeemable, January 30, 2001. The Class A Convertible 8% Cumulative
Preferred Stock is recorded on the balance sheet at the allocated portion of the
purchase price paid by the investors, less the allocated portion of the issuance
costs, plus accrued and unpaid preferred stock dividends, plus accretion.
Certain of the provisions of the agreement are summarized below:
- -- Each preferred share is convertible into one thousand common shares.
- -- Dividends accrue daily on the aggregate amount paid at an annual rate of
8%. Unpaid dividends compound on a semi-annual basis on June 30 and
December 31. At the consummation of a qualified public offering, all
accrued and unpaid dividends would be converted into common stock without
the issuance of additional shares. A qualified public offering is one in
which (1) the public purchases at least $25 million of common stock, (2)
the price per share paid is at least twice the liquidation value per share
of the Class A Convertible 8% Cumulative Preferred Stock, (3) the common
stock is traded on a national exchange or The Nasdaq Stock Market, and (4)
the shares issued and sold represent at least 20% of the common stock
outstanding after the public offering.
- -- Upon consummation of a qualified public offering, all preferred shares are
required to be converted into common shares.
- -- At any time after the fourth anniversary of the date of the purchase and
before the earlier of the date of the consummation of a qualified public
offering or the seventh anniversary of the date of the purchase, each
holder of the stock has the right from time to time to require the Company
to repurchase all, but not less than all, of their shares held (the put
arrangement). The shares would be repurchased by the Company for the
greater of: (1) the purchase price paid by the holder of the stock, plus
all accrued and unpaid dividends, or (2) the market value of the shares.
- -- "Initial Warrants" were granted to the investors who may increase their
ownership percentage up to another 12%. These warrants expire on May 31,
2008. The warrants are exercisable at $.000001 per share of common stock
only if the Company does not meet certain pre-established performance
indicators. The Company has until May 31, 1998 to meet these performance
indicators.
- -- "Secondary Warrants" to purchase up to 1,331,774.8 shares of common stock
at $.000001 per share of common stock were also granted to the investors.
These secondary warrants expire on January 30, 2007.
- -- "Debt Warrants", in addition to the initial and secondary warrants
discussed above, will vest to the new investors if the Company does not
receive Board of Director approval by July 31, 1997, for a $50 million
senior debt financing arrangement. Under this provision the Company is to
issue warrants to purchase shares representing 2% of the outstanding common
stock on the first day of each month until the definitive document with
respect to such debt is in place. Any such warrants issued would expire ten
years from the date of issue. Any debt warrants would also be exercisable
at $.000001 per share of common stock.
F-11
<PAGE>
Of the $21.8 million, $21.7 million was received by March 31, 1997, with the
remainder received by April 22, 1997. The purchase resulted in the preferred
shareholders having an approximate 37% ownership interest in the Company on a
fully diluted basis excluding the contingently issuable common shares from the
exercise of the initial warrants and the debt warrants. The proceeds from this
preferred stock offering were used to (1) repay a $5 million revolving credit
note to LaSalle Northwest National Bank, (2) purchase the subscriber base of
Technology located in the Chicago franchise area for $3,381,000, (3) retire
existing Company debt and accounts payable in the amount of $541,166, and (4)
pay transaction costs of $1,446,396. The balance of the proceeds will be used
for working capital and capital expenditures to build the network, operating
center and network infrastructure.
The holders of the Class A Convertible 8% Cumulative Preferred Stock are
collectively in a position to control the taking of many significant corporate
actions by the Company, including the making of any significant capital
commitments, the incurrence of any significant indebtedness, mergers and the
payment of dividends on the Common Stock, pursuant to agreements which provide
that prior to taking such actions, the Company will need to obtain the approval
of the nominees to the Board of Directors of the holders of the Class A
Convertible 8% Cumulative Preferred Stock. These restrictions terminate upon the
consummation of a qualified public offering.
7. RESTRICTED STOCK AWARDS:
The Company has awarded restricted stock to certain officers. The restricted
shares vest over a 33-month period. Vested shares are subject to certain
transfer restrictions and forfeiture under certain circumstances. Unearned
compensation, representing the fair value of the stock on the date of award
(estimated at $2 by management), is amortized to salary expense over the vesting
period. During the period from inception to March 31, 1994, 8,000 shares of
restricted stock were issued and were fully vested at March 31, 1996. In October
1995, an additional 4,000 shares of restricted stock were awarded.
8. PREPAID FRANCHISE FEES:
As mentioned earlier, the Company was required to prepay $3,000,000 of
franchise fees within 120 days of being awarded the franchise by the City. In
accordance with the franchise agreement, the prepaid franchise fees earn
interest for the period outstanding at a rate equal to the Company's cost of
borrowed funds. The rate on the Company's $5 million loan with LaSalle Northwest
National Bank of approximately 10% was used to compute the interest earned on
the prepaid franchise fees. The interest accrued on the prepaid franchise fees
for the year ended March 31, 1997, amounted to $216,575. These prepaid franchise
fees will be reduced over time as revenues are billed to customers.
9. RELATED-PARTY TRANSACTIONS:
The Company is related through some common ownership and common management to
Technology.
Activities pertaining to the Company's development from its inception date to
March 31, 1996, have, for the most part, been intermingled with the activities
of Technology. As discussed in Note 2, from inception to March 31, 1996,
operating expenses, except interest and amortization, have been allocated to the
Company based on estimates of time spent on the Company's activities by
employees of Technology.
In January 1997, the Company purchased Technology's Area 1 subscriber base and
related equipment for $3,381,300. As this is considered to be a related party
transaction, the Company could only capitalize Technology's book value of the
purchased subscribers and the related equipment. As Technology's book value was
zero at the time of purchase, the entire purchase price is shown as a reduction
to common shareholders' equity.
In January 1997, the Company paid approximately $459,000 of accrued legal fees
to one of its directors, either individually or to entities controlled by him,
for legal services rendered by him to the Company in connection with the
Company's cable service offering and its obtaining the Chicago franchise.
F-12
<PAGE>
10. COMMITMENTS AND CONTINGENCIES:
The Company obtained two letters of credit totaling $1,796,880. The first
letter, for $500,000, was obtained as part of the franchise agreement mentioned
earlier and expires on February 10, 1998. The second letter is for the benefit
of the Merchandise Mart totaling $1,296,880 and was obtained in place of a
security deposit related to the Merchandise Mart lease. This letter
automatically renews on an annual basis for 1/15 less than the initial amount.
These letters of credit are fully collateralized by cash, which is reflected as
a restricted cash collateral reserve on the balance sheet. The Company invests
the cash in commercial paper which matures daily. As of March 31, 1997, the
commercial paper investments had earned $11,411 in interest income.
On January 31, 1997, the Company entered into a lease agreement with the
Merchandise Mart beginning July 1, 1997 for 32,422 square feet, which will
increase by 7,975 square feet within four years. The leased space will house all
video and head-end equipment, as well as serve as the corporate offices. The
term of the lease is fifteen years. As of March 31, 1997, the aggregate
minimum rental commitments under the Merchandise Mart lease agreement were
as follows:
<TABLE>
<CAPTION>
Year Ending
March 31,
-----------
<S> <C>
1998 $ 437,697
1999 626,729
2000 676,662
2001 735,152
2002 789,388
Thereafter 10,633,500
-----------
$ 13,899,128
===========
</TABLE>
The Company has contracted with a construction company for the buildout of the
leased space, totaling approximately $4.5 million. Of this amount, the
Merchandise Mart is responsible for $1,296,880 under the lease agreement. The
Company is responsible for the remainder.
Rental expense under operating leases was $26,565, $34,266 and $55,152 for
the years ended March 31, 1995, 1996 and 1997, respectively
11. SUBSEQUENT EVENTS:
On July 1, 1997, the Company entered into an open-ended master fleet lease
with Enterprise Leasing Company. The agreement allows the Company to lease
vehicles as they are needed. Total lease payments are therefore dependent upon
the types and quantities of vehicles leased.
Subsequent to March 31, 1997, the Company incurred approximately $15 million
in capital expenditures.
On September 23, 1997, the Company entered into an agreement for the issuance
of additional preferred stock representing 63.3 shares at a purchase price of
$15,793.84 per share, aggregating $1 million. The Company incurred issuance
costs of $60,000 in conjunction with this transaction. The agreement is based on
the same terms as the previously mentioned $21.8 million preferred stock
issuance.
On November 20, 1997, the Company entered into an agreement for the issuance
of additional preferred stock representing 9.5441 shares at a purchase price of
$15,793.84 per share, aggregating approximately $150,000. The agreement is based
on the same terms as the previously mentioned $21.8 million preferred stock
issuance.
On November 25, 1997, the Company entered into an agreement with Credit Suisse
First Boston Corporation (a Swiss bank), BankBoston, N.A. and Bank of America
NT&SA, establishing a $15 million interim credit facility. This interim credit
facility and accrued interest was repaid from the proceeds of a concurrent
preferred equity and high yield debt offering. The concurrent preferred equity
and high yield debt offering, executed on February 9, 1998, consists of $200
million of senior discount notes and $50 million of senior exchangeable
preferred stock. The interim credit facility provided for an interest rate based
on either (i) 5% plus a rate tied to the prime rate, a certificate-of-deposit
rate or the Federal funds rate or (ii) 6% plus the London interbank offered
rate. To secure this interim credit facility the Company granted the lender a
security interest in substantially all of its properties, and certain holders of
the Company's common stock pledged such stock for the benefit of the lenders.
This interim credit facility contained restrictive covenants typical for a
facility of this type.
Effective January 30, 1997, the Company established a common stock option
plan. No options were granted under the plan until October 14, 1997. The options
expire ten years from the date of grant. The exercise price of each option is
$1.12 per share and the Company estimated the fair market value of each option
to be $4.50 at the date of grant. As of December 31, 1997, the maximum number of
options, 728,667.7, were granted under the terms of the plan. The options vest
over 48 months and the vesting period starts from the date of employment. The
beginning vesting dates range from November 11, 1992, to December 26, 1997.
F-13
<PAGE>
During December 1997, the Company and its Class A Convertible 8% Cumulative
Preferred Stock shareholders negotiated a number of changes to the original
Stock Purchase Agreement. These changes were formally ratified on January 8 and
14, 1998. The original put arrangement as discussed in Note 6 was removed and
was replaced by the right of the Class A preferred shareholders to require the
sale of the Company. The new provision provides that at any time and from time
to time after the fourth anniversary of the date of issuance of the senior
discount notes and senior cumulative exchangeable preferred stock (discussed in
Note 1) and ending on the earlier to occur of the consummation of a qualified
public offering and the seventh anniversary of the date of issuance of the
senior discount notes, the Class A preferred shareholders have the right to
require the sale of the Company. The liquidation value of the preferred stock is
the sum of the original cost plus any accrued and unpaid dividends. The right to
obtain additional common shares under the initial warrant and debt warrant
provisions as discussed in Note 6 was removed and was replaced by an agreement
to increase the Class A preferred shareholders ownership on a fully diluted
basis by an additional 8% by issuing additional common stock. One-half of this
additional stock is voting and the other half is non-voting. A portion of the
proceeds and issuance costs associated with the sale of the Class A Convertible
8% Cumulative Preferred stock were allocated to the initial and debt warrants
and reflected in common stock at December 31, 1997. In addition, the holders of
the Class A preferred stock are collectively in a position to control the taking
of many significant corporate actions by the Company, including the making of
any significant capital commitments, the incurrence of any significant
indebtedness, merger and the payment of dividends on the common stock, pursuant
to agreements which provide that prior to taking such actions, the Company will
need to obtain the approval of the nominees to the Board of Directors of the
holders of the Class A preferred stock. These restrictions on corporate actions
by the Company terminate upon consummation of a qualified public offering.
Subsequent to year end, the Company obtained the approval of the common
shareholders for an amendment to the Articles of Incorporation to authorize
1,000,000 shares of non-voting common stock.
F-14
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS December 31, 1997 December 31, 1997
------ ------------------ ------------------
(Unaudited) (Pro Forma)
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,404,975 $ 1,404,975
Accounts receivable from subscribers 19,222 19,222
Prepayments 6,750 6,750
Inventory 678,866 678,866
------------ ------------
Total current assets 2,109,813 2,109,813
PROPERTY, PLANT AND EQUIPMENT:
Leasehold improvements 3,984,541 3,984,541
Other property, plant and equipment 11,270,073 11,270,073
Less--Accumulated depreciation (473,725) (473,725)
------------ ------------
14,780,889 14,780,889
OTHER ASSETS:
Restricted cash collateral reserve 1,796,880 1,796,880
Accounts receivable from associated company 1,156,780 1,156,780
Prepaid franchise fees 3,442,603 3,442,603
Deferred franchise costs, net of amortization of $451,707 445,549 445,549
Deferred mapping and design, net of amortization of $46,977 90,974 90,974
Other deferred costs 12,000 12,000
------------ ------------
Total other assets 6,944,786 6,944,786
------------ ------------
Total assets $ 23,835,488 $ 23,835,488
============ ============
LIABILITIES AND PREFERRED AND COMMON EQUITY
-------------------------------------------
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 6,352,103 $ 6,352,103
Debentures payable 52,702 52,702
Interest payable 107,677 107,677
Interim credit facility 8,000,000 8,000,000
Accounts payable to associated company 1,294,860 1,294,860
------------ ------------
Total current liabilities 15,807,342 15,807,342
NONCURRENT LIABILITIES:
Debentures payable 28,849 28,849
Interest payable 37,957 37,957
------------ ------------
Total noncurrent liabilities 66,806 66,806
REDEEMABLE PREFERRED STOCK:
Class A convertible 8% cumulative preferred stock, no par
value, 1,453.1 shares outstanding 19,974,325 --
SHAREHOLDERS' EQUITY:
Class A convertible 8% cumulative preferred stock, no par value, 1,453.1 shares
outstanding -- 19,974,325
Voting common stock no par value, 2,388,743.5 shares issued and outstanding,
1,222,569.0 secondary common share warrants outstanding and 1,044,064.6
initial and debt common share warrants converted to voting and non-voting
common stock in 1998 at December 31, 1997 and 2,910,776.5 shares of voting
common stock outstanding, 1,222,569.0 common share warrants outstanding,
and 522,032.3 shares of non-voting common stock outstanding at
December 31, 1997 on a pro forma basis 7,023,934 7,023,934
Deficit accumulated during development stage (15,655,619) (15,655,619)
Related party purchase, in excess of cost (3,381,300) (3,381,300)
------------ ------------
Total common shareholders' equity (12,012,985) 7,961,340
------------ ------------
Total liabilities and equity $ 23,835,488 $ 23,835,488
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-15
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
OCT. 29, 1992
Nine Months Ended NINE MONTHS ENDED TO
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1997
---------------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Subscriber revenues $ -- $ 123,532 $ 151,012
Operating expenses 190,817 413,979 624,507
Selling, general and administrative expenses 1,572,936 7,276,439 11,303,867
Depreciation and amortization 114,734 643,427 972,410
----------- ------------ ------------
Operating loss (1,878,487) (8,210,313) (12,749,772)
Interest income 142,603 484,678 786,302
Interest expense 376,828 119,226 925,240
----------- ------------ ------------
Loss before income taxes (2,112,712) (7,844,861) (12,888,710)
PROVISION (CREDIT) for INCOME TAXES -- -- --
----------- ------------ ------------
NET LOSS (2,112,712) (7,844,861) (12,888,710)
Preferred stock requirements -- (2,287,928) (2,766,909)
----------- ------------ ------------
NET LOSS ATTRIBUTABLE to COMMON
SHARES $(2,112,712) $(10,132,789) $(15,655,619)
=========== ============ ============
Weighted average common shares outstanding 1,900,527 2,380,926 1,735,296
LOSS PER COMMON SHARE $(1.11) $(4.26) $(9.02)
=========== ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-16
<PAGE>
(a development stage company)
---------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
-------------------------------------------
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO DECEMBER 31, 1997
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING
DEVELOPMENT RELATED PARTY UNEARNED COMMON SHARE
TOTAL COMMON STOCK STAGE PURCHASE COMPENSATION COMMON SHARES WARRANTS
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, OCTOBER 29, 1992 $ - $ - $ - $ - $ - - -
Net loss (420,634) - (420,634) - - - -
Stock issuances 138,001 138,001 - - - 1,508,000.0 -
Unearned compensation (16,000) - - - (16,000) - -
Amortization of unearned
compensation 11,600 - - - 11,600 - -
-----------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1994 (287,033) 138,001 (420,634) - (4,400) 1,508,000.0 -
Net loss (779,314) - (779,314) - - - -
Stock issuances - - - - - - -
Amortization of unearned
compensation 3,226 - - - 3,226 - -
-----------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1995 (1,063,121) 138,001 (1,199,948) - (1,174) 1,508,000.0 -
Net loss (1,026,609) - (1,026,609) - - - -
Stock issuances 350,000 350,000 - - - 175,000.0 -
Unearned compensation (8,000) - - - (8,000) - -
Amortization of unearned
compensation 3,174 - - - 3,174 - -
-----------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1996 (1,744,556) 488,001 (2,226,557) - (6,000) 1,683,000.0 -
Net loss (2,817,292) - (2,817,292) - - - -
Stock issuances 1,421,281 1,421,281 - - - 691,343.60 -
Accrued preferred stock dividend (280,795) - (280,795) - - - -
Class A preferred stock proceeds
allocated to related common
share warrants 4,324,549 4,324,549 - - - - 1,161,307.6
Class A preferred stock issuance
costs allocated to related common
share warrants (286,927) (286,927) - - - - -
Preferred stock accretion (198,186) - (198,186) - - - -
Amortization of unearned
compensation 2,889 - - - 2,889 - -
Related party purchase, in excess
of cost (3,381,300) - - (3,381,300) - - -
-----------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1997 (2,960,337) 5,946,904 (5,522,830) (3,381,300) (3,111) 2,374,343.6 1,161,307.6
Net loss (7,844,861) - (7,844,861) - - - -
Accrued preferred stock dividend (1,349,934) - (1,349,934) - - - -
Class A preferred stock proceeds
allocated to related common
share warrants 209,364 209,364 - - - - 61,261.4
Class A preferred stock issuance
costs allocated to related common
share warrants (10,834) (10,834) - - - - -
Preferred stock accretion (937,994) - (937,994) - - - -
Stock option accrual 849,700 849,700 - - - - -
Stock compensation 28,800 28,800 - - - 14,400 -
Amortization of unearned
compensation 3,111 - - - 3,111 - -
-----------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 $(12,012,985) $7,023,934 $(15,655,619) $(3,381,300) $ - 2,388,743.5 1,222,569.0
===============================================================================================
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-17
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
OCT. 29, 1992
Nine Months Ended NINE MONTHS ENDED TO
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1997
-------------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net cash used by operating activities $(5,006,135) (5,987,369) (14,094,373)
Net cash used in investing activities--
Purchase of subscribers from affiliate -- -- (3,381,300)
Investment in subsidiaries -- (2,000) (2,000)
Investment in franchises -- (10,000) (10,000)
Capital expenditures (47,118) (10,002,597) (10,249,460)
----------- ------------ ------------
Net cash used in investing activities (47,118) (10,014,597) (13,642,760)
----------- ------------ ------------
Cash flows from financing activities--
Draw on loan 4,954,762 -- --
Proceeds from interim credit facility -- 8,000,000 8,000,000
Cash paid for letters of credit -- -- (1,796,880)
Proceeds from issuance of debentures 153,664 -- 886,854
Proceeds from issuance of preferred stock, net of
issuance costs -- 1,175,999 21,443,603
Proceeds from issuance of common stock -- -- 608,531
----------- ------------ ------------
Net cash provided by financing activities 5,108,426 9,175,999 29,142,108
----------- ------------ ------------
Net increase (decrease) in cash 55,173 (6,825,967) 1,404,975
Cash at beginning of period 956 8,230,942 --
----------- ------------ ------------
Cash at end of period $ 56,129 $ 1,404,975 $ 1,404,975
=========== ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-18
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO DECEMBER 31, 1997
1. PREPARATION OF INTERIM FINANCIAL STATEMENTS:
The interim financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These financial statements include estimates and assumptions that
affect the reported amounts of assets and liabilities and the amounts of
revenues and expenses. Actual amounts could differ from those estimates.
However, in the opinion of management of the Company, the interim financial
statements include all adjustments, consisting only of normally recurring
adjustments, necessary for a fair statement of results for each period shown.
The interim financial statements should be read in conjunction with the
financial statements and notes thereto for the fiscal year ended March 31, 1997,
included in this Prospectus.
2. LEASING ACTIVITIES:
On July 1, 1997, the Company entered into an open-ended master fleet lease
with Enterprise Leasing Company. The agreement allows the Company to lease
vehicles as they are needed. Total lease payments are therefore dependent upon
the types and quantities of vehicles leased. Through December 31, 1997, eleven
vehicles had been leased at an annual cost of $130,913 for all eleven vehicles.
The respective leases range from three to four years.
3. STOCK OPTION PLAN:
Effective January 30, 1997, the Company established a common stock option
plan. No options were granted under the plan until October 14, 1997. The options
expire ten years from the date of grant. The exercise price of each option is
$1.12 per share and the Company estimated the fair market value of each option
to be $4.50 at the date of grant. As of December 31, 1997, the maximum number of
options, 728,667.7, were granted under the terms of the plan which resulted in
deferred compensation of $2,462,897. The options vest over 48 months and the
vesting period starts from the date of employment. The beginning vesting dates
range from November 11, 1992, to December 26, 1997. The Company recorded
$849,700 of compensation expense for the nine months ended December 31, 1997, to
reflect the vesting periods for the various individuals in the plan. At December
31, 1997, approximately 251,000 options had vested.
4. CHANGES TO THE PREFERRED STOCK AGREEMENT
During December 1997, the Company and its Class A Convertible 8% Cumulative
Preferred Stock shareholders negotiated a number of changes to the original
Stock Purchase Agreement. These changes were formally ratified on January 8 and
14, 1998. The original put arrangement as discussed in Note 6 was removed and
was replaced by the right of the Class A preferred shareholders to require the
sale of the Company. The new provision provides that at any time and from time
to time after the fourth anniversary of the date of issuance of the senior
discount notes and senior cumulative exchangeable preferred stock (discussed in
Note 1) and ending on the earlier to occur of the consummation of a qualified
public offering and the seventh anniversary of the date of issuance of the
senior discount notes, the Class A preferred shareholders have the right to
require the sale of the Company. The liquidation value of the preferred stock is
the sum of the original cost plus any accrued and unpaid dividends. The right to
obtain additional common shares under the initial warrant and debt warrant
provisions as discussed in Note 6 was removed and was replaced by an agreement
to increase the Class A preferred shareholders ownership on a fully diluted
basis by an additional 8% by issuing additional common stock. One-half of the
additional stock is voting and the other half is non-voting. A portion of the
proceeds and issuance costs associated with the sale of the Class A Convertible
8% Cumulative Preferred Stock were allocated to the initial and debt warrants
and reflected as common stock at December 31, 1997. In addition, the holders of
the Class A preferred stock are collectively in a position to control the taking
of many significant corporate actions by the Company, including the making of
any significant capital commitments, the incurrence of any significant
indebtedness, merger and the payment of dividends on the common stock, pursuant
to agreements which provide that prior to taking such actions, the Company will
need to obtain the approval of the nominees to the Board of Directors of the
holders of the Class A preferred stock. These restrictions on corporate actions
by the Company terminate upon consummation of a qualified public offering.
5. EARNINGS PER SHARE:
Effective for the nine months ended December 31, 1997, the Company adopted FAS
No. 128, "Earnings per Share". The adoption of this standard did not have an
impact on the denominator of the basic loss per common share given the anti-
dilutive effects of including potential common shares in the denominator of the
diluted earnings per share calculation. At December 31, 1997 these potential
common shares included the following: (1) 1,222,569.0 common share warrants
related to the Class A Convertible 8% Cumulative Preferred Stock, (2)
1,044,064.6 shares of voting and non-voting common stock which replaced the
initial and debt warrants associated with the Class A Convertible 8% Cumulative
Preferred Stock, as discussed in Note 4, (3) 1,250,000 options issued in
connection with certain Directors' guarantees of a loan, (4) 18,994.7 stock
warrants issued to a financial advisor, and (5) 728,667.7 options granted under
the terms of the stock option plan. At December 31, 1996 the potential dilutive
common shares included the 1,250,000 options issued in connection with certain
Directors' guarantees of a loan. The net loss attributable to common shares on
which the basic earnings per share calculation is based, reflects the net loss
increased by the amount of preferred dividends and accretion related to the
Class A Convertible 8% Cumulative Preferred Stock.
F-19
<PAGE>
6. PREFERRED STOCK TRANSACTIONS:
On September 23, 1997 and November 20, 1997, the Company entered into
agreements for the issuance of additional Class A Convertible 8% Cumulative
Preferred Stock and initial, secondary and debt warrants. The September 23, 1997
and November 20, 1997 sales represented 63.3 and 9.5441 shares of the Class A
Convertible 8% Cumulative Preferred Stock, respectively, with purchase prices of
$15,793.84 per share, aggregating $1 million and $150,000, respectively. The
agreements were based on the same terms as the $21.8 million preferred stock
issuance discussed in Note 6 to the March 31, 1997 financial statements. A
portion of the purchase prices were allocated to the common share warrants. The
allocation was based on the fair market value of the common stock at the date of
the sales of the Class A Convertible 8% Cumulative Preferred Stock and the
number of related secondary warrants, initial warrants and debt warrants. The
fair market value of the common stock at the date of the sales was estimated to
be $2 per share. The number of secondary warrants associated with the purchases
amounted to 61,261. The number of initial and debt warrants associated with the
purchases was based on the number of voting and non-voting common shares that
these warrants were replaced with as a result of the subsequent amendment to the
related stock purchase agreement as discussed in Note 4, "Changes to the
Preferred Stock Agreement." These initial and debt warrants were replaced with
43,098 shares of voting and non-voting common stock. This allocation resulted in
$209,364 and $940,636 being recorded as common stock and redeemable preferred
stock, respectively, at December 31, 1997. Issuance costs of $60,000 were
incurred in conjunction with the September 23, 1997, sale of the Class A
Convertible 8% Cumulative Preferred Stock. These issuance costs were allocated
between the Class A Convertible 8% Cumulative Preferred Stock and the related
warrants based on the relative portions of the proceeds allocated to each. The
carrying value of the Class A Convertible 8% Cumulative Preferred Stock is being
accreted to its redemption value (using the effective interest method) over the
four year period from the date of the original preferred stock purchase
agreement to the date the stock becomes mandatorily redeemable, January 30,
2001. The Class A Convertible 8% Cumulative Preferred Stock is recorded on the
balance sheet at the allocated portion of the purchase price paid by the
investors, less the allocated portion of the issuance costs, plus accrued and
unpaid preferred stock dividends, plus accretion. The following is a rollforward
of the Class A Convertible 8% Cumulative Preferred Stock from March 31, 1997 to
December 31, 1997:
<TABLE>
<CAPTION>
Preferred
---------
Shares Amount
------ ------
<S> <C> <C>
March 31, 1997 1,380.3 $16,794,963
Sales and allocation of proceeds 72.8 940,635
Issuance costs -- (49,166)
Accrued dividends -- 1,349,933
Accretion -- 937,960
------- -----------
December 31, 1997 1,453.1 $19,974,325
======= ===========
</TABLE>
7. PRO FORMA FINANCIAL INFORMATION:
As discussed in Note 4, in January 1998 the Company negotiated a number of
changes to the original Class A Convertible 8% Cumulative Preferred Stock
Agreement (Preferred Stock Agreement). One change resulted in the removal of a
put arrangement. This change would allow for the classification of the Class A
Convertible 8% Cumulative Preferred Stock as equity at March 31, 1998. The pro
forma impacts of this change on the December 31, 1997 balance sheet have been
reflected in the pro forma column on the December 31, 1997 balance sheet. The
pro forma change consists of reflecting the Class A Convertible 8% Cumulative
Preferred Stock within equity at December 31, 1997. Another change resulted in
the replacement of the initial and debt warrant provisions with a provision that
provided for the preferred shareholders to receive additional voting and non-
voting shares of common stock. The number of voting and non-voting shares of
common stock that will be issued in 1998 related to the Class A Convertible 8%
Cumulative Preferred Stock outstanding at December 31, 1997, are 522,032.3 and
522,032.3, respectively. The pro forma impacts of this change have been
reflected on the December 31, 1997 balance sheet. The pro forma change
consists of reflecting the additional shares of voting and non-voting common
stock as outstanding at December 31, 1997.
8. SUBSEQUENT EVENTS
On February 9, 1998, the Company executed a concurrent preferred equity and
high yield debt offering. This offering resulted in gross proceeds of $200
million from the issuance of 12-1/4% Senior Discount Notes Due 2008 and $50
million from the issuance of 50,000 Units of 13-3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010 and Warrants to purchase 438,870 shares of
common stock. The net proceeds from these offerings were used to repay the
interim financing facility outstanding at that date as well as to assist the
Company in meeting its construction, development and working capital needs. The
Senior Discount Notes have a maturity value of $363,135,000. No cash interest
will accrue on the Notes prior to 2003. Beginning in 2003, cash interest will
be payable semi-annually. The Senior Discount Notes are not redeemable at the
option of the Company prior to 2003 except that prior to 2001 the Company may
redeem in the aggregate up to 35% of the original principal amount at maturity
with the proceeds of a public equity offering. The Exchangeable Preferred Stock
will accrue dividends at a 13-3/4% rate from date of issuance. Prior to 2003,
dividends may be paid, at the Company's option, by the issuance of additional
shares of Exchangeable Preferred Stock having an aggregate liquidation
preference equal to the amount of such dividends. The Exchangeable Preferred
Stock is not redeemable prior to 2003 except that prior to 2001 the Company may
redeem in whole but not in part the outstanding Exchangeable Preferred Stock
with the proceeds of a public equity offering.
F-20
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or any Initial Purchasers. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time subsequent
to the date hereof or that there has been no change in the affairs of the
Company since such date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................... 5
Risk Factors......................................... 19
Dividend Policy...................................... 30
Use of Proceeds...................................... 30
Capitalization....................................... 31
Selected Financial Data.............................. 32
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 33
The Exchange Offer................................... 36
Business............................................. 44
Industry Structure and Technology.................... 59
Legislation and Regulation........................... 61
Management........................................... 71
Certain Transactions................................. 77
Principal Shareholders............................... 78
Description of Certain Indebtedness.................. 81
Description of the New Notes......................... 83
Description of the New Exchangeable
Preferred Stock....................................112
Description of the Exchange Debentures...............127
Book-Entry, Delivery and Form........................154
Description of Capital Stock.........................157
Certain United States Federal Income
Tax Consequences...................................163
Plan of Distribution.................................173
Legal Matters........................................173
Experts..............................................174
Additional Information...............................174
Glossary.............................................175
Index to Financial Statements........................F-1
</TABLE>
LOGO
21ST CENTURY TELECOM GROUP, INC.
Offer to Exchange (i) 12 1/4% Senior Discount Notes Due 2008, which have been
registered under the Securities Act of 1933, as amended, for any and all of its
outstanding 12 1/4% Senior Discount Notes Due 2008 and (ii) 13 3/4% Senior
Cumulative Exchangeable Preferred Stock Due 2010, which has been registered
under the Securities Act of 1933, as amended, for any and all of its outstanding
13 3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010
____________
PROSPECTUS
____________
May [__], 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Illinois Business Corporation Act (the "Act") empowers the Registrant,
subject to certain exceptions, to indemnify officers and directors against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred by reason of the fact that he or she is or was an officer,
director, employee or agent of the Registrant, or is or was serving as such at
the request of the Registrant with respect to another corporation, partnership,
joint venture, trust, or other enterprise. The Act also empowers the Registrant
to purchase and maintain insurance on behalf of any such officer or director of
the Registrant against any liability asserted against or incurred by him or her
in any such capacity, whether or not the Registrant would have power to
indemnify such officer or director against such liability under the provisions
of the Act.
Article X, of the Company's Bylaws provides that the Company shall
indemnify, any person made a party to any action, suit or proceeding, by reason
of the fact that such person is or was a director, officer or employee of the
Company, or is or was serving at the request of the Company as a director,
officer or employee of another corporation, from and against all reasonable
expenses (including attorneys' fees), actually and necessarily incurred by him
in connection with the defense of such action, suit or proceeding or in
connection with any appeal therein, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding, or in connection with any
appeal therein that such officer, director or employee is liable for negligence
or misconduct in performance of his duties. The amount of such indemnification
shall be fixed by the Board of Directors, except in the case when there is no
disinterested majority of the Board available, that amount shall be fixed by
arbitration pursuant to the then existing rules of the American Arbitration
Association.
The Registrant has purchased and currently maintains liability coverage for
its officers and directors insuring them against losses arising from any
wrongful act in his or her capacity as an officer and director.
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
No.
Exhibit No. Document
1.1 Purchase Agreement dated as of February
2, 1998 by and among the Company and
Credit Suisse First Boston Corporation,
BancAmerica Robertson Stephens and
BancBoston Securities, Inc., as Initial
Purchasers.
3.1 Articles of Incorporation of the Company
as filed on October 29, 1992 and as
amended on February 9, 1998.
3.2 By-laws of the Company.
4.1 Indenture dated February 15, 1998
between the Company, as Issuer, and
State Street Bank and Trust, as
Trustee, with respect to the 12 1/4
Senior Discount Notes Due 2008.
4.2 Form of the 12 1/4 Senior Discount
Notes Due 2008.
4.3 Indenture dated as of February 15, 1998
between the Company and IBJ Schroder
Bank & Trust Company, as Trustee, with
respect to the Exchange Debenture.
4.4 Form of the 13 3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010.
4.5 Registration Rights Agreement dated as
of February 2, 1998 by and among the
Company and Credit Suisse First Boston
Corporation, BancAmerica Robertson
Stephens and BancBoston Securities,
Inc., as Initial Purchasers.
5.1 Opinion of Neal, Gerber and Eisenberg.
5.2 Opinion of Piper & Marbury LLP.
10.1 Franchise Agreement dated as of June
24, 1996 by and among the City of
Chicago and the Company.
10.2 License Agreement dated as of October
27, 1994 by and among the Chicago
Transit Authority and the Company.
10.3 CSG Master Subscriber Management System
Agreement dated as of May 28, 1997 by
and among CSG Systems, Inc. and the
Company.
10.4 Telemarketing Consultation Agreement
dated as of August 5, 1997 by and among
the Company and ITI Marketing Services,
Inc.
10.5 Pole Attachment Agreement dated as of
April 3, 1996 by and among the Company
and Commonwealth Edison Company.
10.6 Pole Attachment Agreement dated as of
November 14, 1996 by and among the
Company and Ameritech--Illinois.
10.7 Office Lease dated January 31, 1997 by
and among the Company and LaSalle
National Bank.
10.8 Franchise Agreement dated as of March
16, 1998 by and between the Village of
Skokie, Illinois and 21st Century
Cable TV of Illinois, Inc.
10.9* Interconnection Agreement dated as of
May 5, 1997 by and between Ameritech
Information Industry Services and 21st
Century Telecom of Illinois, Inc.
10.10* Network Products Purchase Agreement by
and between Northern Telecom Inc. and
the Company.
12.1* Statement regarding Computation of
Earnings Ratio to Fixed Charges.
21.1 Subsidiaries of the Company.
23.1* Consent of Arthur Andersen with Respect
to the Company.
23.2 Consent of Piper & Marbury LLP
23.3 Consent of Neal, Gerber and Eisenberg.
24.1 Power of Attorney (included on the
signature page of this Registration
Statement).
25.1 Statement of Eligibility of State
Street Bank and Trust, as Trustee.
99.1 Form of Letter of Transmittal to 12 1/4%
Senior Discount Notes Due 2008 of the
Company.
99.2 Form of Letter of Transmittal to 13 3/4%
Senior Cumulative Exchangeable
Preferred Stock Due 2010 of the Company.
99.3 Form of Notice of Guaranteed Delivery
for 12-1/4% Senior Discount Notes Due
2008.
99.4 Form of Notice of Guaranteed Delivery
for 13-3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010.
99.5 Form of Letter to Brokers, Dealers,
Commercial Banks, Trust Companies and
Other Nominees for 12-1/4% Senior
Discount Notes Due 2008.
99.6 Form of Letter to Brokers, Dealers,
Commercial Banks, Trust Companies and
Other Nominees for 13-3/4% Senior
Cumulative Exchangeable Preferred Stock
Due 2010.
99.7 Form of Letter to Clients of Brokers,
Dealers, Commercial Banks, Trust
Companies and Other Nominees for
12-1/4% Senior Discount Notes Due 2008.
99.8 Form of Letter to Clients of Brokers,
Dealers, Commercial Banks, Trust
Companies and Other Nominees for
13-3/4% Senior Cumulative Exchangeable
Preferred Stock Due 2010.
99.9 Form of Instruction from Owner of 12
1/4% Senior Discount Notes Due 2008 of
the Company.
99.10 Form of Instruction from Owner of 13
3/4% Senior Cumulative Exchangeable
Preferred Stock of the Company.
- -------------
* Filed herewith. All other exhibits previously filed.
<PAGE>
Item 22.
UNDERTAKINGS
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement ; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Chicago,
state of Illinois, on May 12, 1998.
21st CENTURY TELECOM GROUP, INC.
/s/ Ronald D. Webster
-----------------------------------------------------
By: Ronald D. Webster, Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
* Chief Executive Officer and
- ----------------------------- Chairman of the Board of Directors May 12, 1998
Glenn W. Milligan (Principal Executive Officer)
President, Chief Operating May 12, 1998
* Officer and Director
- -----------------------------
Robert J. Currey
/s/ Ronald D. Webster Chief Financial Officer May 12, 1998
- -----------------------------
Ronald D. Webster
* Chief Technical Officer May 12, 1998
- -----------------------------
Jay E. Carlson
* Director May 12, 1998
- -----------------------------
Edward T. Joyce
* Director May 12, 1998
- -----------------------------
Dr. Charles E. Kaegi
* Director May 12, 1998
- -----------------------------
James H. Lowry
* Director May 12, 1998
- -----------------------------
David Kronfeld
* Director May 12, 1998
- -----------------------------
Thomas Neustaetter
By: /s/ Edwin M. Martin, Jr. May 12, 1998
- -----------------------------
Edwin M. Martin, Jr.
Attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Document
1.1 Purchase Agreement dated as of February
2, 1998 by and among the Company and
Credit Suisse First Boston Corporation,
BancAmerica Robertson Stephens and
BancBoston Securities, Inc., as Initial
Purchasers.
3.1 Articles of Incorporation of the Company as
filed on October 29, 1992 and as amended
on February 9, 1998.
3.2 By-laws of the Company.
4.1 Indenture dated February 15, 1998
between the Company, as Issuer, and
State Street Bank and Trust, as
Trustee, with respect to the 12 1/4
Senior Discount Notes Due 2008.
4.2 Form of the 12 1/4 Senior Discount
Notes Due 2008.
4.3 Indenture dated as of February 15, 1998
between the Company and IBJ Schroder
Bank & Trust Company, as Trustee, with
respect to the Exchange Debenture.
4.4 Form of the 13 3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010.
4.5 Registration Rights Agreement dated as
of February 2, 1998 by and among the
Company and Credit Suisse First Boston
Corporation, BancAmerica Robertson
Stephens and BancBoston Securities,
Inc., as Initial Purchasers.
5.1 Opinion of Neal, Gerber and Eisenberg.
5.2 Opinion of Piper & Marbury LLP.
10.1 Franchise Agreement dated as of June
24, 1996 by and among the City of
Chicago and the Company.
10.2 License Agreement dated as of October
27, 1994 by and among the Chicago
Transit Authority and the Company.
10.3 CSG Master Subscriber Management System
Agreement dated as of May 28, 1997 by
and among CSG Systems, Inc. and the
Company.
10.4 Telemarketing Consultation Agreement
dated as of August 5, 1997 by and among
the Company and ITI Marketing Services,
Inc.
10.5 Pole Attachment Agreement dated as of
April 3, 1996 by and among the Company
and Commonwealth Edison Company.
10.6 Pole Attachment Agreement dated as of
November 14, 1996 by and among the
Company and Ameritech--Illinois.
10.7 Office Lease dated January 31, 1997 by
and among the Company and LaSalle
National Bank.
10.8 Franchise Agreement dated as of March
16, 1998 by and between the Village of
Skokie, Illinois and 21st Century
Cable TV of Illinois, Inc.
10.9* Interconnection Agreement dated as of
May 5, 1997 by and between Ameritech
Information Industry Services and 21st
Century Telecom of Illinois, Inc.
10.10* Network Products Purchase Agreement by
and between Northern Telecom Inc. and
the Company.
12.1* Statement regarding Computation of
Earnings Ratio to Fixed Charges.
21.1 Subsidiaries of the Company.
23.1* Consent of Arthur Andersen with Respect
to the Company.
23.2 Consent of Piper & Marbury LLP
23.3 Consent of Neal, Gerber and Eisenberg
24.1 Power of Attorney (included on the
signature page of this Registration
Statement).
<PAGE>
25.1 Statement of Eligibility of State
Street Bank and Trust, as Trustee.
99.1 Form of Letter of Transmittal to 12 1/4%
Senior Discount Notes Due 2008 of the
Company.
99.2 Form of Letter of Transmittal to 13 3/4%
Senior Cumulative Exchangeable
Preferred Stock Due 2010 of the Company.
99.3 Form of Notice of Guaranteed Delivery
for 12-1/4% Senior Discount Notes Due
2008.
99.4 Form of Notice of Guaranteed Delivery
for 13-3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010.
99.5 Form of Letter to Brokers, Dealers,
Commercial Banks, Trust Companies and
Other Nominees for 12-1/4% Senior
Discount Notes Due 2008.
99.6 Form of Letter to Brokers, Dealers,
Commercial Banks, Trust Companies and
Other Nominees for 13-3/4% Senior
Cumulative Exchangeable Preferred Stock
Due 2010.
99.7 Form of Letter to Clients of Brokers,
Dealers, Commercial Banks, Trust
Companies and Other Nominees for
12-1/4% Senior Discount Notes Due 2008.
99.8 Form of Letter to Clients of Brokers,
Dealers, Commercial Banks, Trust
Companies and Other Nominees for
13-3/4% Senior Cumulative Exchangeable
Preferred Stock Due 2010.
99.9 Form of Instruction from Owner of 12
1/4% Senior Discount Notes Due 2008 of
the Company.
99.10 Form of Instruction from Owner of 13
3/4% Senior Cumulative Exchangeable
Preferred Stock of the Company.
- -------------
* Filed herewith. All other exhibits previously filed.
<PAGE>
Exhibit 10.9
EXECUTION ORIGINAL
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE
TELECOMMUNICATIONS ACT OF 1996
Dated as of May 5, 1997/1/
by and between
AMERITECH INFORMATION INDUSTRY SERVICES,
a division of Ameritech Services, Inc.
on behalf of and as an agent for Ameritech Illinois
and
21st CENTURY TELECOM OF ILLINOIS, INC.
- --------------
1/ See Footnote 12 on signature page.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
RECITALS..............................................................................................1
ARTICLE IDEFINITIONS AND CONSTRUCTION.................................................................1
1.1 Structure........................................................................1
1.2 Defined Terms....................................................................2
1.3 Interpretation...................................................................2
1.4 Joint Work Product...............................................................2
ARTICLE IIGENERAL SERVICE-RELATED PROVISIONS..........................................................3
2.1 Interconnection Activation Date..................................................3
2.2 Bona Fide Request................................................................3
2.3 Technical References.............................................................3
ARTICLE IIIINTERCONNECTION PURSUANT TO SECTION 251(c)(2)..............................................3
3.1 Scope............................................................................3
3.2 Interconnection Points and Methods...............................................4
3.3 Fiber-Meet.......................................................................5
3.4 Interconnection in Additional LATAs..............................................6
3.5 Additional Interconnection in Existing LATAs.....................................6
3.6 Nondiscriminatory Interconnection................................................7
3.7 Network Management...............................................................7
3.8 Standards of Performance.........................................................7
3.9 9-1-1 Service....................................................................9
ARTICLE IVTRANSMISSION AND ROUTING OF TRAFFIC PURSUANT TO SECTION 251(c)(2)..........................13
4.1 Scope of Traffic................................................................13
4.2 Limitations.....................................................................13
4.3 Trunk Group Architecture and Traffic Routing....................................13
4.4 Signaling.......................................................................14
4.5 Grades of Service...............................................................15
4.6 Measurement and Billing.........................................................15
4.7 Reciprocal Compensation Arrangements -- Section 251(b)(5).......................15
ARTICLE VTRANSMISSION AND ROUTING OF EXCHANGEACCESS TRAFFIC PURSUANT TO 251(c)(2)....................16
5.1 Scope of Traffic................................................................16
5.2 Trunk Group Architecture and Traffic Routing....................................17
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.3 Logical Trunk Groups............................................................17
5.4 End Office Access...............................................................17
ARTICLE VIMEET-POINT BILLING ARRANGEMENTS............................................................17
6.1 Meet-Point Billing Services.....................................................17
6.2 Data Format and Data Transfer...................................................18
6.3 Errors or Loss of Access Usage Data.............................................19
6.4 Payment.........................................................................19
ARTICLE VIIBLV/BLVI TRAFFIC..........................................................................19
7.1 Busy Line Verification..........................................................19
7.2 Busy Line Verification Interrupt................................................20
7.3 BLV/BLVI Traffic................................................................20
7.4 BLV/BLVI Compensation...........................................................20
ARTICLE VIII TRANSIT SERVICE.........................................................................20
8.1 Transit Service.................................................................20
8.2 Transit Service Defined.........................................................20
8.3 Compensation for Transit Service................................................21
8.4 Duration of Obligation..........................................................21
8.5 Signaling.......................................................................22
8.6 Nondiscrimination...............................................................22
ARTICLE IXUNBUNDLED ACCESS -- SECTION 251(c)(3)......................................................22
9.1 Access to Network Elements......................................................22
9.2 Network Elements................................................................23
9.3 Combination of Network Elements.................................................24
9.4 Nondiscriminatory Access to and Provision of Network Elements...................25
9.5 Provisioning of Network Elements................................................26
9.6 Availability of Additional or Different Quality Network Elements................26
9.7 Pricing of Unbundled Network Elements...........................................26
9.8 Billing.........................................................................28
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9.9 Maintenance of Unbundled Network Elements.......................................28
9.10 Standards of Performance........................................................28
ARTICLE XRESALE AT WHOLESALE RATES -- SECTION 251(c)(4)RESALE AT RETAIL RATES -- SECTION 251(b)(1)...29
10.1 Telecommunications Services Available for Resale at Wholesale Rates.............29
10.2 Telecommunications Services Available for Resale at Retail Rates................30
10.3 Limitations on Availability of Resale Services..................................30
10.4 Additional Charges for Resale Services..........................................32
10.5 Restrictions on Resale Services.................................................32
10.6 New Resale Services; Changes in Provision of Resale Services....................33
10.7 Operations Support Systems Functions............................................33
10.8 Nondiscriminatory Provision of Resale Services..................................33
10.9 Standards of Performance........................................................33
10.10 Branding........................................................................35
10.11 Primary Local Exchange and Interexchange Carrier Selections.....................36
10.12 Functionality Required To Support Resale Service................................38
10.13 Service Functions...............................................................38
10.14 Responsibilities of 21st Century................................................41
10.15 Responsibilities of Ameritech...................................................42
10.16 Exchange of Billing Information.................................................42
10.17 Use of Service..................................................................43
ARTICLE XINOTICE OF CHANGES -- SECTION 251(c)(5).....................................................44
ARTICLE XIICOLLOCATION -- SECTION 251(c)(6)..........................................................44
12.1 Physical Collocation............................................................44
12.2 Virtual Collocation in Physical Collocation Space...............................45
12.3 Virtual Collocation in Virtual Collocation Space................................45
12.4 Nondiscriminatory Collocation...................................................45
12.5 Eligible Equipment..............................................................45
12.6 Transmission Facility Options...................................................46
12.7 Interconnection with other Collocated Carriers..................................46
12.8 Interconnection Points and Cables...............................................47
12.9 Allocation of Collocation Space.................................................47
12.10 Security Arrangements...........................................................48
12.11 Subcontractor and Vendor Approval...............................................48
12.12 Delivery of Collocated Space....................................................48
12.13 Pricing.........................................................................52
12.14 Billing.........................................................................52
12.15 Common Requirements.............................................................52
12.16 Additional Requirements.........................................................52
</TABLE>
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<TABLE>
<S> <C>
12.17 Protection of Service and Property..............................................52
ARTICLE XIIINUMBER PORTABILITY -- SECTION 251(b)(2)..................................................53
13.1 Provision of Local Number Portability...........................................53
13.2 Interim Number Portability (INP)................................................53
13.3 Remote Call Forwarding ("RCF")..................................................53
13.4 Direct Inward Dialing ("DID")...................................................53
13.5 NXX Migration...................................................................54
13.6 Other INP Methods...............................................................54
13.7 Other Interim Portability Provisions............................................54
13.8 Compensation on Traffic to INP'ed Numbers.......................................56
13.9 Pricing For Interim Number Portability..........................................56
13.10 Permanent Number Portability....................................................56
13.11 Requirements for INP and NP.....................................................58
ARTICLE XIVDIALING PARITY -- SECTIONS 251(b)(3) and 271(e)(2)NUMBER ADMINISTRATION -- SECTION 251(e).59
14.1 Dialing Parity..................................................................59
14.2 Number Administration...............................................................59
ARTICLE XVDIRECTORY LISTINGS -- SECTION 251(b)(3)....................................................59
15.1 White Pages Directory Listings..................................................59
15.2 Listing and Listing Updates.....................................................60
15.3 White Pages Directories Delivery................................................61
15.4 Nondiscriminatory Formats.......................................................61
ARTICLE XVIACCESS TO POLES, DUCTS, CONDUITS ANDRIGHTS-OF-WAY -- SECTIONS 251(b)(4) AND 224...........61
16.1 Structure Availability..........................................................61
16.2 Franchises, Permits and Consents................................................62
16.3 Access and Modifications........................................................62
16.4 Installation and Maintenance Responsibility.....................................63
16.5 Emergency Repairs...............................................................64
16.6 Installation and Maintenance Standards..........................................64
16.7 Implementation Team.............................................................64
16.8 Access Requests.................................................................64
16.9 Unused Space....................................................................64
16.10 Maintenance Ducts...............................................................65
16.11 Applicability...................................................................65
16.12 Other Arrangements..............................................................65
16.13 Cost of Certain Modifications...................................................65
16.14 Maps and Records................................................................65
16.15 21st Century Access.............................................................65
</TABLE>
<PAGE>
<TABLE>
<S> <C>
16.16 Occupancy Permit................................................................65
16.17 Inspections.....................................................................66
16.18 Damage to Attachments...........................................................66
16.19 Charges.........................................................................66
16.20 Nondiscrimination...............................................................66
16.21 Interconnection.................................................................67
16.22 Cost Imputation.................................................................67
16.23 Structure Leasing Coordinator...................................................67
16.24 State Regulation................................................................67
16.25 Abandonments, Sales or Dispositions.............................................67
ARTICLE XVIIREFERRAL ANNOUNCEMENT....................................................................67
ARTICLE XVIIIIMPLEMENTATION TEAM AND IMPLEMENTATION PLAN.............................................68
18.1 Implementation Team.............................................................68
18.2 Implementation Plan.............................................................68
18.3 Action of Implementation Team...................................................70
18.4 Further Coordination and Performance............................................70
18.5 Dispute Resolution..............................................................70
ARTICLE XIXGENERAL RESPONSIBILITIES OF THE PARTIES...................................................70
19.1 Compliance with Implementation Schedule.........................................70
19.2 Compliance with Applicable Law..................................................71
19.3 Necessary Approvals.............................................................71
19.4 Environmental Hazards...........................................................71
19.5 Forecasting Requirements........................................................71
19.6 Certain Network Facilities......................................................71
19.7 Traffic Management and Network Harm.............................................72
19.8 Insurance.......................................................................72
19.9 Labor Relations.................................................................72
19.10 Good Faith Performance..........................................................73
19.11 Responsibility to Customers.....................................................73
19.12 Unnecessary Facilities..........................................................73
19.13 Cooperation.....................................................................73
19.14 NXX Code Administration.........................................................73
19.15 LERG Listings...................................................................73
19.16 LERG Use........................................................................73
19.17 Switch Programming..............................................................73
19.18 Transport Facilities............................................................73
19.19 Time is of the Essence..........................................................73
ARTICLE XXPROPRIETARY INFORMATION....................................................................74
20.1 Definition of Proprietary Information...........................................74
</TABLE>
<PAGE>
<TABLE>
<S> <C>
20.2 Disclosure and Use..............................................................75
20.3 Government Disclosure...........................................................77
20.4 Ownership.......................................................................77
20.5 Equitable Relief................................................................78
ARTICLE XXITERM AND TERMINATION......................................................................78
21.1 Term............................................................................78
21.2 Renegotiation of Certain Terms..................................................78
21.3 Default.........................................................................79
21.4 Transitional Support............................................................79
21.5 Payment Upon Expiration or Termination..........................................79
ARTICLE XXII [NOT USED]..............................................................................79
ARTICLE XXIIICANCELLATION CHARGES....................................................................79
ARTICLE XXIVSEVERABILITY.............................................................................80
24.1 Severability....................................................................80
24.2 Non-Contravention of Laws.......................................................80
ARTICLE XXVINDEMNIFICATION...........................................................................80
25.1 General Indemnity Rights........................................................80
25.2 ................................................................................81
25.3 Indemnification Procedures......................................................81
ARTICLE XXVILIMITATION OF LIABILITY..................................................................82
26.1 Limited Responsibility..........................................................82
26.2 Apportionment of Fault..........................................................82
26.6 Remedies........................................................................83
ARTICLE XXVIIBILLING.................................................................................84
27.1 Billing.........................................................................84
27.2 Recording.......................................................................84
27.3 Payment of Charges..............................................................84
27.4 Late Payment Charges............................................................85
27.5 Adjustments.....................................................................85
27.6 Interest on Unpaid or Overbilled Amounts........................................85
27.7 Single Point of Contact.........................................................85
ARTICLE XXVIIIDISPUTED AMOUNTS, AUDIT RIGHTSAND DISPUTE RESOLUTION...................................85
28.1 Disputed Amounts................................................................85
28.2 Audit Rights....................................................................87
28.3 Dispute Escalation and Resolution...............................................88
</TABLE>
<PAGE>
<TABLE>
<S> <C>
28.4 Equitable Relief................................................................88
ARTICLE XXIXREGULATORY APPROVAL......................................................................89
29.1 Commission Approval.............................................................89
29.2 Tariffs.........................................................................89
29.3 Amendment or Other Changes to the Act; Reservation of Rights....................89
29.4 Regulatory Changes..............................................................90
29.5 Interim Rates...................................................................90
ARTICLE XXXMISCELLANEOUS.............................................................................90
30.1 Authorization...................................................................90
30.2 Designation of Affiliate........................................................91
30.3 Subcontracting..................................................................91
30.4 Independent Contractor..........................................................91
30.5 Force Majeure...................................................................91
30.6 Governing Law...................................................................92
30.7 Taxes...........................................................................92
30.8 Non-Assignment..................................................................93
30.9 Non-Waiver......................................................................93
30.10 Notices.........................................................................93
30.11 Publicity and Use of Trademarks or Service Marks................................94
30.12 Nonexclusive Dealings...........................................................94
30.13 No Third Party Beneficiaries; Disclaimer of Agency..............................94
30.14 No License......................................................................95
30.15 Survival........................................................................95
30.16 Scope of Agreement..............................................................95
30.17 Counterparts....................................................................95
30.18 Reservation of Rights...........................................................95
30.19 Entire Agreement................................................................96
</TABLE>
<PAGE>
SCHEDULES AND EXHIBITS
SCHEDULE 1.2 DEFINITIONS
SCHEDULE 2.1 IMPLEMENTATION SCHEDULE ILLINOIS
SCHEDULE 2.2 BONA FIDE REQUEST
SCHEDULE 2.3 TECHNICAL REFERENCE SCHEDULE
SCHEDULE 3.8 AMERITECH INTERCONNECTION PERFORMANCE
BENCHMARKS
SCHEDULE 6.0 MEET-POINT BILLING RATE STRUCTURE
SCHEDULE 9.2.1 LOCAL LOOPS
SCHEDULE 9.2.2 UNBUNDLED ACCESS TO NETWORK INTERFACE DEVICES
SCHEDULE 9.2.3 SWITCHING CAPABILITY
SCHEDULE 9.2.4 INTEROFFICE TRANSMISSION FACILITIES
SCHEDULE 9.2.5 SIGNALING NETWORKS AND CALL-RELATED DATABASES
SCHEDULE 9.2.6 OPERATIONS SUPPORT SYSTEMS FUNCTIONS
SCHEDULE 9.2.7 OPERATOR SERVICES AND DIRECTORY SERVICES
SCHEDULE 9.3.4 COMBINATIONS
SCHEDULE 9.3.5 COMBINATIONS AVAILABLE THROUGH BONA FIDE REQUEST
SCHEDULE 9.5 PROVISIONING OF NETWORK ELEMENTS
SCHEDULE 9.10 NETWORK ELEMENT PERFORMANCE BENCHMARKS
SCHEDULE 10.1 WHOLESALE RESALE SERVICES
SCHEDULE 10.3.1 GRANDFATHERED SERVICES AND SUNSETTED SERVICES
SCHEDULE 10.9 RESALE PERFORMANCE BENCHMARKS
SCHEDULE 10.9.6 CREDIT ALLOWANCES
SCHEDULE 10.11.1 FORM OF REPRESENTATION OF AUTHORIZATION
SCHEDULE 10.12.5 LAW ENFORCEMENT INTERFACES
SCHEDULE 10.13 RESALE MAINTENANCE PROCEDURES
SCHEDULE 10.13.2 SERVICE ORDERING AND PROVISIONING PROCEDURES
AND INTERFACE FUNCTIONALITY
SCHEDULE 12.9.1 PHYSICAL COLLOCATION SPACE RESERVATION
SCHEDULE 12.9.3 COLLOCATION CAPACITY PLANNING
SCHEDULE 12.12 DELIVERY OF COLLOCATED SPACE
SCHEDULE 12.15 COMMON REQUIREMENTS
SCHEDULE 12.16 ADDITIONAL REQUIREMENTS APPLICABLE TO
PHYSICAL COLLOCATION
PRICING SCHEDULE -- ILLINOIS
EXHIBIT A FIBER MEET
<PAGE>
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252
OF THE TELECOMMUNICATIONS ACT OF 1996
This Interconnection Agreement, under Sections 251 and 252 of the
Telecommunications Act of 1996 ("Agreement"), is effective as of the 5th day of
May 19972/ (the "Effective Date"), by and between Ameritech Information Industry
Services, a division of Ameritech Services, Inc., a Delaware corporation with
offices at 350 North Orleans, Third Floor, Chicago, Illinois 60654, on behalf of
and as agent for Ameritech Illinois ("Ameritech"), and 21st Century Telecom of
Illinois, Inc., an Illinois corporation, with offices at World Trade Center, 350
North Orleans, Suite 600, Chicago, Illinois 60654 ("21st Century").
RECITALS
A. Ameritech is an Incumbent Local Exchange Carrier, as defined by
the Act, authorized to provide certain Telecommunications Services within
Illinois.
B. Ameritech is engaged in the business of providing, among other
things, local Telephone Exchange Service within Illinois.
C. 21st Century has been granted authority to provide certain local
Telephone Exchange Services within Illinois and is a Local Exchange Carrier as
defined by the Act.
D. The Parties desire to provide for compliance with their respective
obligations under Sections 251(a), (b), (c) and (e) of the Act, including
Interconnection of their facilities and equipment, so that their respective
residential and business Customers may communicate with each other over, between
and through such networks and facilities.
NOW, THEREFORE, in consideration of the promises and the covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, 21st Century and Ameritech hereby
agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
I.1 Structure. This Agreement includes certain Exhibits and
Schedules that immediately follow this Agreement, all of which are hereby
incorporated in this Agreement by this reference and constitute a part of this
Agreement.
I.2 Defined Terms. Capitalized terms used in this Agreement
shall have the respective meanings specified in Schedule 1.2 or as defined
elsewhere in this Agreement. Other terms used but not defined herein will have
the meanings ascribed to them in the Act.
- ---------------
2/ See Footnote 12 on signature page.
<PAGE>
I.3 Interpretation
(A) The definitions in Schedule 1.2 shall
apply equally to both the singular and
plural forms of the terms defined.
Whenever the context may require, any
pronoun shall include the
corresponding masculine, feminine and
neuter forms. The words "include,"
"includes" and "including" shall be
deemed to be followed by the phrase
"without limitation". The words
"shall" and "will" are used
interchangeably through]out this
Agreement, and the use of either
connotes a mandatory requirement. The
use of one or the other shall not mean
a different degree or right or
obligation for either Party.
(B) References herein to Articles, Sections,
Exhibits and Schedules shall be deemed
to be references to Articles and
Sections of, and Exhibits and Schedules
to, this Agreement, unless the context
shall otherwise require.
(C) The headings of the Articles, Sections,
Exhibits and Schedules are inserted for
convenience of reference only and are not
intended to be a part of or to affect the
meaning or interpretation of this
Agreement.
(D) Unless the context shall otherwise
require, any reference to any agreement,
other instrument (including Ameritech,
21st Century or other third-party
offerings, guides or practices), statute,
regulation, rule or tariff is to such
agreement, instrument, statute,
regulation, rule or tariff, as amended and
supplemented from time to time (and, in
the case of a statute, regulation, rule or
tariff, to any successor provision).
(E) In the event of a conflict between the
provisions of this Agreement and the Act,
the provisions of the Act shall govern.
I.4 Joint Work Product. This Agreement is the joint work
product of the Parties and has been negotiated by the Parties and their
respective counsel and shall be fairly interpreted in accordance with its terms,
and, in the event of any ambiguities, no inferences shall be drawn against
either Party.
<PAGE>
ARTICLE II
GENERAL SERVICE-RELATED PROVISIONS
II.1 Interconnection Activation Date. Subject to the terms
and conditions of this Agreement, Interconnection of the Parties' facilities and
equipment pursuant to Articles III and IV for the transmission and routing of
Telephone Exchange Service traffic and Exchange Access traffic, and
Interconnection of the Parties' facilities and equipment to provide 21st Century
access to Ameritech's unbundled Network Elements pursuant to Article IX, shall
be established on or before the corresponding "Interconnection Activation Date"
shown for each LATA and Interconnection Point set forth on Schedule 2.1. Any
estimated or new Interconnection Activation Dates sought by 21st Century shall
be subject to the principles set forth in Section 3.4.4. Schedule 2.1 may be
revised and supplemented from time to time upon the mutual agreement of the
Parties to reflect additional Interconnection Points, consistent with the terms
and conditions of this Agreement, by attaching one or more supplementary
schedules to such Schedule.
II.2 Bona Fide Request. Any request by a Party for certain
services, including features, capabilities, functionality, Network Elements or
Combinations that are not otherwise provided by the terms of this Agreement at
the time of such request, shall be made pursuant to the Bona Fide Request
process set forth on Schedule 2.2.
II.3 Technical References. Technical References that describe
the practices, procedures and specifications for certain services (and the
applicable interfaces relating thereto) are listed on Schedule 2.3 (the
"Technical Reference Schedule") to assist the Parties in meeting their
respective responsibilities hereunder.
ARTICLE III
INTERCONNECTION PURSUANT TO SECTION 251(c)(2)
III.1 Scope. Article III describes the physical architecture
for Interconnection of the Parties' facilities and equipment for the
transmission and routing of Telephone Exchange Service traffic and Exchange
Access traffic (including intraLATA and interLATA traffic) between the
respective business and residential Customers of the Parties pursuant to Section
251(c)(2) of the Act. Interconnection may not be used solely for the purpose of
originating a Party's own interexchange traffic. Each Party shall make available
to the other Party the same Interconnection methods on the same rates, terms and
conditions. Articles IV and V prescribe the specific logical trunk groups (and
traffic routing parameters) that will be configured over the physical
Interconnections described in this Article III related to the transmission and
routing of Telephone Exchange Service traffic and Exchange Access traffic,
respectively. Other trunk groups, as described in this Agreement, may be
configured using this architecture.
<PAGE>
III.2 Interconnection Points and Methods
III.2.1 In each LATA identified on Schedule 2.1,
21st Century and Ameritech shall Interconnect their networks at the
correspondingly identified Interconnection Points on Schedule 2.1 for the
transmission and routing within that LATA of Telephone Exchange Service traffic
and Exchange Access traffic pursuant to Section 251(c)(2) of the Act.
III.2.2 Interconnection in each LATA shall be
accomplished at any technically feasible point of Interconnection (an
"Interconnection Point") by any technically feasible means, including (i) a
Fiber-Meet as provided in Section 3.3; (ii) Collocation at any technically
feasible Premise as provided in Article XII; or (iii) any other Interconnection
method to which the Parties may agree in advance of the applicable
Interconnection Activation Date for a given LATA and that is consistent with the
Act. For Interconnection methods other than a Fiber-Meet, 21st Century will have
the right to designate the Interconnection Point(s) in any LATA. For
Interconnection by Fiber-Meet, the Parties shall mutually agree on the
Interconnection Point. There will be at least one Interconnection Point per
LATA; however, 21st Century may designate additional Interconnection Points in
such LATA, subject to the terms and conditions of this Article III.
III.2.3 If 21st Century elects an Interconnection
method that requires Ameritech to Interconnect with 21st Century's facilities
via Collocation, 21st Century agrees to provide to Ameritech Collocation for
purposes of that Interconnection on a nondiscriminatory basis and on rates,
terms and conditions that are no less favorable than either (i) Ameritech
provides to 21st Century hereunder or (ii) 21st Century provides to other
similarly situated Telecommunications Carriers, unless 21st Century can
demonstrate and the Commission agrees that (x) 21st Century's cost to provide
Collocation to Ameritech are greater than Ameritech's costs to provide
Collocation to 21st Century or (y) 21st Century must make special arrangements
to provide such Collocation to Ameritech in its Central Offices.
III.2.4 Within ten (10) Business Days of a
Party's request of any Interconnection Point, the other Party shall provide any
information in its possession or of which it is aware regarding the
environmental conditions of the Interconnection Point, including the existence
and condition of asbestos, lead paint, hazardous substance contamination or
radon. The Parties acknowledge that a Party's obligation under this Section
3.2.4 shall only require such Party to review any existing internal records of
such Party. Nothing in this Section 3.2.4 shall require a Party to investigate
and/or monitor, contain, clean, remove, restore or perform any remedial work of
any kind or nature with respect to any environmental condition in or on such
Interconnection Point, other than as required by Applicable Law.
III.3 Fiber-Meet
III.3.1 If the Parties Interconnect their
networks pursuant to a Fiber-Meet, the Parties shall jointly engineer and
operate a single Synchronous Optical Network ("SONET") transmission system.
Unless otherwise mutually agreed, this SONET transmission system shall be
configured as illustrated in Exhibit A and engineered, installed, and maintained
as described in this Article III and in the Implementation Plan.
<PAGE>
III.3.2 Ameritech shall, wholly at its own
expense, procure, install and maintain the Optical Line Terminating Multiplexor
("OLTM") equipment in the Ameritech Interconnection Wire Center ("AIWC")
identified for each LATA set forth on Schedule 2.1, in capacity sufficient to
provision and maintain all logical trunk groups prescribed by Articles IV and V.
III.3.3 21st Century shall, wholly at its own
expense, procure, install and maintain the OLTM equipment in the 21st Century
Interconnection Switching Center ("TISC") identified for that LATA in Schedule
2.1, in capacity sufficient to provision and maintain all logical trunk groups
prescribed by Articles IV and V.
III.3.4 Ameritech shall designate a manhole or
other suitable entry-way immediately outside the AIWC as a Fiber-Meet entry
point and shall make all necessary preparations to receive, and to allow and
enable 21st Century to deliver, fiber optic facilities into that manhole with
sufficient spare length to reach the OLTM equipment in the AIWC. 21st Century
shall deliver and maintain such strands wholly at its own expense. Upon verbal
request by 21st Century to Ameritech, Ameritech will allow 21st Century access
to the Fiber-Meet entry point for maintenance purposes as promptly as possible
after Ameritech's receipt of such request.
III.3.5 21st Century shall designate a manhole
or other suitable entry-way immediately outside the TISC as a Fiber-Meet entry
point and shall make all necessary preparations to receive, and to allow and
enable Ameritech to deliver, fiber optic facilities into that manhole with
sufficient spare length to reach the OLTM equipment in the TISC. Ameritech shall
deliver and maintain such strands wholly at its own expense. Upon verbal request
by Ameritech to 21st Century, 21st Century will allow Ameritech access to the
Fiber-Meet entry point for maintenance purposes as promptly as possible after
21st Century's receipt of such request.
III.3.6 21st Century shall pull the fiber
optic strands from the 21st Century-designated manhole/entry-way into the TISC
and through appropriate internal conduits 21st Century utilizes for fiber optic
facilities and shall connect the Ameritech strands to the OLTM equipment 21st
Century has installed in the TISC.
III.3.7 Ameritech shall pull the fiber optic
strands from the Ameritech-designated manhole/entry-way into the AIWC and
through appropriate internal conduits Ameritech utilizes for fiber optic
facilities and shall connect the 21st Century strands to the OLTM equipment
Ameritech has installed in the AIWC.
III.3.8 Each Party shall use its best efforts to
ensure that fiber received from the other Party will enter that Party's
Switching Center or Wire Center through a point separate from that through which
such Party's own fiber exited.
III.3.9 For Fiber-Meet arrangements, each
Party will be responsible for (i) providing its own transport facilities to the
Fiber-Meet in accordance with the Implementation Plan and (ii) the cost to
build-out its facilities to such Fiber-Meet.
<PAGE>
III.4 Interconnection in Additional LATAs
III.4.1 If 21st Century determines to offer
Telephone Exchange Services within Ameritech's service areas in any additional
LATA, 21st Century shall provide written notice to Ameritech of its need to
establish Interconnection in such LATA pursuant to this Agreement.
III.4.2 The notice provided in Section 3.4.1
shall include (i) the Interconnection Point 21st Century has designated (or if
such Interconnection is pursuant to a Fiber-Meet, the Interconnection Point 21st
Century requests) in the new LATA; (ii) 21st Century's requested Interconnection
Activation Date; and (iii) a non-binding forecast of 21st Century's trunking
requirements.
III.4.3 Unless otherwise agreed by the Parties,
the Parties shall designate the Interconnection Point 21st Century has
identified on Schedule 2.1 as its initial Routing Point in the LATA as the TISC
in that LATA and shall designate the Ameritech Tandem Office Wire Center within
the LATA nearest to the TISC (as measured in airline miles utilizing the V&H
coordinates method) as the AIWC in that LATA.
III.4.4 Unless otherwise agreed by the Parties,
the Interconnection Activation Date in each new LATA shall be the earlier of (i)
the date mutually agreed by the Parties and (ii) the date that is no more than
one hundred fifty (150) days after the date on which 21st Century delivered
notice to Ameritech pursuant to Section 3.4.1. Within ten (10) Business Days of
Ameritech's receipt of 21st Century's notice specified in Section 3.4.1,
Ameritech and 21st Century shall confirm the Interconnection Point and the
Interconnection Activation Date for the new LATA by attaching a supplementary
schedule to Schedule 2.1.
III.5 Additional Interconnection in Existing LATAs. If 21st
Century wishes to establish additional Interconnection Points in any LATA, then
21st Century will provide notice to Ameritech consistent with the notice
provisions of Section 3.4.1 and Section 3.4.2. The Interconnection Activation
Date shall be consistent with the provisions of Section 3.4.4. If either Party
establishes an additional Tandem Switch in a given LATA, the Parties shall
jointly determine the requirements regarding the establishment and maintenance
of separate trunk group connections and the sub-tending arrangements relating to
Tandem Switches and End Offices that serve the other Party's Customers within
the Exchange Areas served by such Tandem Switches.
III.6 Nondiscriminatory Interconnection. Interconnection shall
be equal in quality to that provided by the Parties to themselves or any
subsidiary, Affiliate or other person. For purposes of this Section 3.6, "equal
in quality" means the same technical criteria and service standards that a Party
uses within its own network. If 21st Century requests an Interconnection that is
of a different quality than that provided by Ameritech to itself or any
subsidiary, Affiliate or other person, such request shall be treated as a Bona
Fide Request and established upon rates, terms and conditions consistent with
the Act.
III.7 Network Management.
<PAGE>
III.7.1 21st Century and Ameritech shall work
cooperatively to install and maintain a reliable network. 21st Century and
Ameritech shall exchange appropriate information (e.g., maintenance contact
numbers, network information, information required to comply with law
enforcement and other security agencies of the government, and such other
information as the Parties shall mutually agree) to achieve this desired
reliability.
III.7.2 21st Century and Ameritech shall work
cooperatively to apply sound network management principles by invoking network
management controls to alleviate or to prevent congestion.
3.7.3 Ameritech shall, upon the request of 21st
Century, provide the following network information, subject to any necessary
privacy or proprietary safeguards:
(a) Points of Interconnection available on the Ameritech
network;
(b) List of all local exchanges, and for each local
exchange, the NXXs that are defined as within
Ameritech's "local calling areas;"
(c) Switch locations (including Tandems and End Offices);
(d) Location of Network Interface Devices and types
thereof; and
(e) Location and type of feeder distribution interfaces.
III.8 Standards of Performance
III.8.1 Each Party shall provide the other Party
Interconnection (i) in accordance with Section 3.6 as determined by this Section
3.8 and (ii) as required by the Commission (collectively, the "Interconnection
Performance Benchmarks").
III.8.2 To determine a Party's compliance with
the Interconnection Performance Benchmarks, each Party shall maintain separate
records of the specific criteria listed on Schedule 3.8 (each, an
"Interconnection Performance Activity") relating to Interconnection that it
provides to itself, its subsidiaries and Affiliates (the "Providing Party's
Interconnection Records") and to other LECs (the "Other LEC Interconnection
Records") and parallel records of the Interconnection that the Providing Party
provides to the other Party (the "Other Party's Interconnection Records") and
shall use the methods described in Schedule 3.8 to calculate Interconnection
Performance Activity and determine compliance with such Interconnection
Performance Activity and with such additional criteria to which the Parties may
agree upon, including those regarding Ameritech's compliance with different
performance levels and intervals requested by 21st Century and provided by
Ameritech pursuant to Section 3.6 and a Bona Fide Request.
III.8.3 The Providing Party shall provide to the
other Party for each calendar month (the "Reporting Period"), by the
twenty-second (22nd) day of the following month, in a
<PAGE>
self-reporting format, the Providing Party's Interconnection Records, the Other
LEC Interconnection Records and the Other Party's Interconnection Records so
that the Parties can determine the Providing Party's compliance with the
Interconnection Performance Benchmarks. If (i) the Providing Party fails to
comply with an Interconnection Performance Benchmark with respect to an
Interconnection Performance Activity for a Reporting Period, (ii) the sample
size of the Interconnection Performance Activity measured for such Reporting
Period is statistically valid and (iii) the amount by which the applicable
Interconnection Performance Activity deviates from the corresponding
Interconnection Performance Benchmark is statistically significant, then the
Providing Party shall have committed a "Specified Performance Breach".
Notwithstanding anything to the contrary in this Section 3.8, the Parties
acknowledge that (x) the Providing Party shall not be required to provide to the
other Party those Other LEC Interconnection Records that correspond to and
measure levels of quality and performance levels and intervals of
Interconnection that are requested by an other LEC pursuant to 47 C.F.R. ss.
51.305(a)(4); (y) the Other LEC Interconnection Records shall be provided to the
other Party on an aggregate basis; and (z) such Other LEC Interconnection
Records shall be provided to the other Party in a manner that preserves the
confidentiality of each other LEC and any of such LEC's proprietary information
(including CPNI).
III.8.4 In no event shall the Providing Party
be deemed to have committed a Specified Performance Breach if the Providing
Party's failure to meet or exceed an Interconnection Performance Activity is
caused by a Delaying Event. If a Delaying Event (i) prevents the Providing Party
from performing a certain function or action that affects an Interconnection
Performance Activity, then such occurrence shall be excluded from the
calculation of such Interconnection Performance Activity and the determination
of the Providing Party's compliance with the applicable Interconnection
Performance Benchmark or (ii) only suspends the Providing Party's ability to
timely perform such Interconnection Performance Activity, then the applicable
time-frame in which the Providing Party's compliance with the Interconnection
Performance Benchmark is measured shall be extended on a like-time basis equal
to the duration of such Delaying Event.
III.8.5 Upon the occurrence of a Specified
Performance Breach by the Providing Party, the other Party may forego the
dispute escalation procedures set forth in Section 28.3 and (i) bring an action
against the Providing Party in an appropriate Federal district court, (ii) file
a complaint with the FCC pursuant to Sections 207 or 208 of the Act, (iii) seek
a declaratory ruling from the FCC, (iv) file a complaint in accordance with the
rules, guidelines and regulations of the Commission and/or (v) seek other relief
under Applicable Law.
III.8.6 The other Party shall also be entitled to
any Credit Allowances pursuant to the same terms and conditions that the
Providing Party offers Credit Allowances to its Customers, including those
described on Schedule 10.9.6.
<PAGE>
III.9 9-1-1 Service
III.9.1 Ameritech shall provide 9-1-1 Service
(or E9-1-1 or S9-1-1 Service if required by the applicable municipality) to 21st
Century's Customers on the same basis that Ameritech provides 9-1-1 Service to
its own Customers in the municipality where such 9-1-1 Service is provided
pursuant to the terms and conditions set forth in this Section 3.9 in each Rate
Center in which (i) 21st Century is authorized to provide local exchange
services and (ii) Ameritech is the 9-1-1 service provider.
III.9.2 Service and Facilities Provided.
(A) Ameritech will provide 21st Century with
multiplexing at a designated Ameritech
Central Office at the rates set forth at
Item I of the Pricing Schedule.
Ameritech will also provide 21st Century
with trunking from the Ameritech Central
Office to the designated Ameritech
Control Office(s) with sufficient
capacity to route 21st Century's
originating 9-1-1 calls over Service
Lines to the designated primary PSAP or
to designated alternate locations. Such
trunking will be provided at the rates
set forth at Item I of the Pricing
Schedule. If 21st Century forwards the
ANI information of the calling party to
the Control Office, Ameritech will
forward that calling number and the
associated street address to the PSAP
for display. If no ANI is forwarded by
21st Century, Ameritech will display a
Central Office identification code for
display at the PSAP.
(B) 21st Century will provide itself, or
lease from a third person, the necessary
trunking to route originating 9-1-1
traffic from 21st Century's Switches to
the Ameritech Control Office(s). The
point of Interconnection for 21st
Century's Primary and Diverse Routes,
where available, to the mux/co-location
and 9-1-1 Control Offices is at the
Ameritech Central Office. If Diverse
Routes are not available, Ameritech
shall, at the request of 21st Century,
provide diversity to 21st Century, and
21st Century shall pay local channel
mileage charges for Diverse Routes as
set forth at Item I of the Pricing
Schedule. 21st Century will be
responsible for determining the proper
quantity of trunks from its switches to
the Ameritech Central Office(s). Trunks
between the Ameritech Central Office and
the Ameritech Control Office shall be
delivered by Ameritech within twenty
(20) Business Days following order by
21st Century. Following delivery, 21st
Century and Ameritech will cooperate to
promptly test all transport facilities
between 21st Century's network and the
Ameritech Control Office to assure
proper functioning of the 9-1-1 service.
(C) Ameritech will provide to 21st Century
in paper, on diskette or mechanized
format information (the "9-1-1 A&R
Information") that
<PAGE>
will (i) enable 21st Century to make
pre-edits to validate the street
addresses of 21st Century Customers
and (ii) specify which 9-1-1 Control
Office serves as the jurisdictional
9-1-1 answering point for Customers
within the Exchange Areas served by
21st Century. The 9-1-1 A&R
Information will be provided by
exchange rate center or community
upon request. A specified charge as
set forth at Item I of the Pricing
Schedule will apply per request.
Until such time as a mechanized
process for provision of this
information is made available by
Ameritech, Ameritech shall provide
to 21st Century in a paper format
any updates to the 9-1-1 A&R
Information on a quarterly basis or
as soon as reasonably practicable
after such updates occur. Ameritech
will provide 21st Century the format
rules and definitions of 9-1-1 A&R
Information at the time it provides
such 9-1-1 A&R Information.
(D) Ameritech will coordinate access to the
Ameritech ALI database for the initial
loading and updating of 21st Century
Customer information. Access coordination
will include:
(1) Ameritech-provided format
requirements and a delivery
address for 21st Century to
supply an electronic version
of Customer telephone numbers,
addresses and other
information, both for the
initial load and, where
applicable, daily updates.
Ameritech shall confirm
receipt of this data as
described in Section 3.9.2(h);
(2) Coordination of error
resolution involving entry
and update activity;
(3) Provisioning of specific
9-1-1 routing information on
each access line;
(4) Updating the Ameritech ALI
database from paper records of
service order activity
supplied by 21st Century is
optional. The charge for this
service is separate and set
forth at Item I of the Pricing
Schedule under the category
"Optional Manual Update"; and
(5) Providing 21st Century with
reference data required to
ensure that 21st Century's
Customer will be routed to the
correct Control Office when
originating a 9-1-1 call.
(E) 21st Century shall pay Ameritech a
one-time charge, as set forth at Item I of
the Pricing Schedule, per 9-1-1 Control
Office trunk group (the "9-1-1 Control
Office Software Enhancement Connection
Charge"). Although the services offered in
this Agreement and the
<PAGE>
charges set forth at Item I of the
Pricing Schedule contemplate that
each NXX will reside in a single
Control Office, 21st Century may, at
its sole option, designate that an
NXX shall reside in more than one
9-1-1 Control Office.
(F) In the event of an Ameritech or 21st
Century 9-1-1 trunk group failure, the
Party that owns the trunk group will
notify, on a priority basis, the other
Party of such failure, which notification
shall occur within two (2) hours of the
occurrence or sooner if required under
Applicable Law. The Parties will exchange
a list containing the names and telephone
numbers of the support center personnel
responsible for maintaining the 9-1-1
Service between the Parties.
(G) Ameritech will provide the order number
and circuit identification code in advance
of the service due date.
(H) 21st Century or its third-party agent
will provide CNA data to Ameritech for
use in entering the data into the 9-1-1
database. The initial CNA data will be
provided to Ameritech in a format
prescribed by Ameritech. 21st Century is
responsible for providing Ameritech
updates to the CNA data and error
corrections that may occur during the
entry of CNA data to the Ameritech 9-1-1
Database System. 21st Century shall
reimburse Ameritech for any additional
database charges, if any, incurred by
Ameritech for errors in CNA data updates
caused by 21st Century or its
third-party agent. Ameritech will
confirm receipt of such data and
corrections by the next Business Day by
providing 21st Century with a report of
the number of items sent, the number of
items entered correctly, and the number
of errors.
(I) 21st Century will monitor the 9-1-1
circuits for the purpose of determining
originating network traffic volumes. 21st
Century will notify Ameritech if the
traffic study information indicates that
additional circuits are required to meet
the current level of 9-1-1 call volumes.
(J) Incoming trunks for 9-1-1 shall be
engineered to assure minimum P.01 grade of
service, as measured using the "busy
day/busy hour" criteria.
(K) All 9-1-1 trunks must be capable of
transmitting and receiving Baudot code
necessary to support the use of
Telecommunications Devices for the Deaf
(TTY/TDDs).
(L) 21st Century shall be responsible for
reporting all errors, defects and
malfunctions to Ameritech. Ameritech shall
provide 21st Century
<PAGE>
with the point of contact for
reporting errors, defects and
malfunctions in the service and
shall also provide escalation
contacts.
III.9.3 Compensation.
In addition to the amounts specified in Section 3.9.2,
21st Century shall compensate Ameritech as set forth at Item I of the Pricing
Schedule.
III.9.4 Ameritech is not liable for the accuracy
and content of CNA data that 21st Century
delivers to Ameritech. 21st Century is
responsible for maintaining the accuracy
and content of that data as delivered.
However, as custodian of the data,
Ameritech must exercise reasonable care of
the data.
III.9.5 Database and Network Requirements.
The Implementation Team shall identify that information
that 21st Century must provide Ameritech so that Ameritech can provide 21st
Century with the 9-1-1 services described herein.
ARTICLE IV
TRANSMISSION AND ROUTING OF
TRAFFIC PURSUANT TO SECTION 251(c)(2)
IV.1 Scope of Traffic. Article IV prescribes parameters for
trunk groups (the "Local/IntraLATA Trunks") to be effected over the
Interconnections specified in Article III for the transmission and routing of
Local Traffic and IntraLATA Toll Traffic between the Parties' respective
Telephone Exchange Service Customers. Subject to Section 5.1, Exchange Access
traffic may also be routed over the Local/Intra LATA trunks pursuant to the
terms and conditions of this Article IV.
IV.2 Limitations. Until the Multijurisdictional Trunk Date
(as defined in Article V), no Party shall terminate Exchange Access traffic or
originate untranslated 800/888 traffic over Local/IntraLATA Interconnection
Trunks.
IV.3 Trunk Group Architecture and Traffic Routing. The
Parties shall engineer and configure Local/IntraLATA Trunks over the physical
Interconnection arrangements as follows:
IV.3.1 The Parties shall initially configure
either a one (1)-way or two (2)-way trunk group as agreed upon by the Parties as
a direct transmission path through the Interconnection Points specified in
Schedule 2.1. 21st Century shall specify the level of trunking: DS0, DS1 or,
where available, higher, consistent with the forecasting requirements in Section
19.5.2. 21st Century shall compensate Ameritech for the charges associated with
a percentage of the forecasted trunks, to be determined by the Implementation
Team, whether such capacity is actually used by 21st Century. 21st Century's
obligation to compensate Ameritech,
<PAGE>
however, shall not commence until such time that permanent rates for unbundled
Network Elements are determined by the regulatory body(ies) of the appropriate
jurisdiction and become effective. The Implementation Team shall determine the
procedures for forecasting and reporting 21st Century's trunking requirements
and shall determine the minimum volume commitments by 21st Century.
IV.3.2 Ameritech shall ensure that each Tandem
connection permits the transport of traffic to all End Offices that sub-tend
such Tandem to which transport is technically feasible. Each Party shall
establish and maintain separate logical trunk groups connected to each Ameritech
Tandem that serves, or is sub-tended by End Offices that serve, Customers within
the Exchange Areas served by such Tandem Switches. Only those valid NXX codes
served by an End Office may be accessed through a direct connection to that End
Office.
IV.3.3 Tandem Exhaust. If a Tandem through
which the Parties are Interconnected is unable to, or is forecasted to be unable
to, support additional traffic loads for any Busy Season, the Parties will
mutually agree on an End Office trunking plan that will alleviate the Tandem
capacity shortage and ensure completion of traffic between 21st Century and
Ameritech Customers. For purposes of this Agreement, "Busy Season" means any
three (3) consecutive month period.
IV.3.4 Traffic Volume. The Parties will
install and retain direct End Office trunking sufficient to handle actual or
reasonably forecasted traffic volumes, whichever is greater, between an 21st
Century switching center and an Ameritech End Office where traffic exceeds or is
forecast to exceed five hundred (500) Busy Hour CCS or nine hundred (900) busy
hour minutes of use for a six (6)-week period. The Parties will install
additional capacity between such points when overflow traffic between the 21st
Century switching center and Ameritech access Tandem exceeds or is forecast to
exceed five hundred (500) Busy Hour CCS or nine hundred (900) busy hour minutes
of use for such six (6)-week period.
IV.3.5 Mutual Agreement. As mutually agreed
upon by the Parties, the Parties may install additional direct End Office
trunking in the absence of the conditions set forth in Sections 4.3.3 and 4.3.4
above.
IV.4 Signaling
IV.4.1 Where available, Common Channel
Interoffice Signaling (CCIS) signaling shall be used by the Parties to set up
calls between the Parties' Telephone Exchange Service networks. Each Party shall
supply Calling Party Number (CPN) within the SS7 signaling message, if
available. If CCIS is unavailable, MF (Multi-Frequency) signaling shall be used
by the Parties. Each Party is responsible for providing its portion of the
signaling links and ports on its STPs necessary to provide CCIS signaling to
support the exchange of traffic under this Agreement. Each Party shall charge
the other Party equal and reciprocal rates for CCIS signaling, as set forth at
Item V on the Pricing Schedule.
<PAGE>
IV.4.2 Each Party is responsible for
requesting Interconnection to the other Party's CCIS network where SS7 signaling
on the trunk group(s) is desired. Each Party shall connect to a pair of access
STPs in each LATA where traffic will be exchanged or shall arrange for signaling
connectivity through a third-party provider that is connected to the other
Party's signaling network. The Parties shall establish Interconnection at the
STP.
IV.4.3 The Parties will cooperate on the
exchange of Transactional Capabilities Application Part (TCAP) messages to
facilitate interoperability of CCIS-based features between their respective
networks, including all CLASS features and functions, to the extent each Party
offers such features and functions to its Customers. All CCIS signaling
parameters will be provided, including Calling Party Number (CPN), Originating
Line Information (OLI), calling party category and charge number. For
terminating Exchange Access, such information shall be passed by a Party to the
extent that such information is provided to such Party.
IV.4.4 Where available, and upon the request of
the other Party, each Party shall cooperate to ensure that its trunk groups are
configured utilizing the B8ZS ESF protocol for 64 Kbps clear channel
transmission to allow for ISDN interoperability between the Parties' respective
networks.
IV.5 Grades of Service. The Parties shall initially engineer
and shall jointly monitor and enhance all trunk groups consistent with the
Implementation Plan. A blocking standard of one percent (0.01) during the
average busy hour, as defined by industry standards, shall be maintained.
IV.6 Measurement and Billing. The Parties shall measure
Interconnection in accordance with this Section 4.6 and bill in accordance with
Article XXVII and this Section 4.6.
IV.6.1 For billing purposes, each Party shall
pass Calling Party Number (CPN) information on each call that it originates over
the Local/IntraLATA Trunks; provided that all calls exchanged without CPN
information shall be billed as either Local Traffic or IntraLATA Toll Traffic
based upon a percentage of local usage (PLU) factor calculated based on the
amount of actual volume during the preceding three (3) months. The factors will
be reevaluated every three (3) months and provided to the other Party within
twenty (20) calendar days after the end of each quarter. If a PLU factor is not
provided, the one already in effect stays in effect (i.e., no default). If
either Party fails to pass at least ninety percent (90%) of calls with CPN that
it originates within a monthly period on a specific trunk, then either Party may
require that separate trunk groups for Local Traffic and IntraLATA Toll Traffic
and, if applicable, Exchange Access Traffic be established for that specific
trunk.
On and after the Multijurisdictional Trunk Date, the Parties shall
also exchange percent of interstate usage (PIU) factors to distinguish between
types of traffic that are exchanged without CPN.
IV.6.2 21st Century and Ameritech agree to
exchange such reports and/or data as provided in this Section 4.6 to facilitate
the proper billing of traffic. Either Party may
<PAGE>
request an examination pursuant to Section 28.2 of such usage reports upon
thirty (30) days' written notice. Such examination shall be requested within six
(6) months of having received the PLU factor and usage reports from the other
Party and shall be performed during normal business hours.
IV.6.3 Measurement of Telecommunications
traffic billed hereunder shall be (i) in actual conversation time for Local
Traffic and (ii) in accordance with applicable tariffs for all other types of
Telecommunications traffic. The total conversation seconds will be totaled for
the entire monthly bill cycle and then rounded to the next whole minute.
IV.7 Reciprocal Compensation Arrangements -- Section
251(b)(5). Compensation for the transport and termination of Local Traffic and
IntraLATA Toll Traffic shall be pursuant to this Section 4.7. Compensation for
the transport and termination of any Exchange Access Traffic shall be pursuant
to Article VI.
IV.7.1 Reciprocal Compensation applies for
transport and termination of Local Traffic billable by Ameritech or 21st Century
that a Telephone Exchange Service Customer originates on Ameritech's or 21st
Century's network for termination on the other Party's network. The Parties
shall compensate each other for such transport and termination of Local Traffic
at the rates provided at Item II of the Pricing Schedule; provided that when
Ameritech terminates Local Traffic to 21st Century, Ameritech shall only be
required to pay 21st Century the rate for End Office Local Termination.
IV.7.2 The Reciprocal Compensation
arrangements set forth in this Agreement are not applicable to Switched Exchange
Access Service. All Switched Exchange Access Service and all IntraLATA Toll
Traffic shall continue to be governed by the terms and conditions of the
applicable federal and state tariffs.
IV.7.3 Each Party shall charge the Other Party
its effective applicable federal- and state-tariffed IntraLATA FGD-switched
access rates for the transport and termination of all IntraLATA Toll Traffic.
IV.7.4 Compensation for transport and
termination of all traffic that has been subject to performance of INP by one
Party for the other Party pursuant to Article XIII shall be as specified in
Section 13.8.
<PAGE>
ARTICLE V
TRANSMISSION AND ROUTING OF EXCHANGE
ACCESS TRAFFIC PURSUANT TO 251(c)(2)
V.1 Scope of Traffic. Article V prescribes parameters for
certain trunk groups ("Access Toll Connecting Trunks") to be established over
the Interconnections specified in Article III for the transmission and routing
of Exchange Access traffic and non-translated 800 traffic between 21st Century
Telephone Exchange Service Customers and Interexchange Carriers. Until such time
as the Parties mutually agree that it is "technically feasible" to route
Exchange Access traffic over the Local/IntraLATA Trunks (the
"Multijurisdictional Trunk Date"), Exchange Access traffic shall be routed
pursuant to this Article V. For purposes of this Section 5.1, "technically
feasible" shall include the ability to route Exchange Access traffic between a
Local Exchange Carrier and an Interexchange Carrier over the Local/IntraLATA
Trunks with (i) the necessary signaling to ensure proper termination of such
traffic and (ii) the measurement and recording by both Parties in their
Switching Centers or Wire Centers of call detail information sufficient to meet
the billing and auditability requirements of Interexchange Carriers. On or after
the Multijurisdictional Trunk Date, at 21st Century's option, Exchange Access
traffic shall be routed over the Local/IntraLATA Trunks pursuant to Article IV.
Notwithstanding anything to the contrary contained herein, compensation for
routing of Exchange Access traffic shall be pursuant to Article VI.
V.2 Trunk Group Architecture and Traffic Routing
5.2.1 The Parties shall jointly establish Access
Toll Connecting Trunks by which they will jointly
provide Tandem-transported Switched Exchange Access Services to Interexchange
Carriers to enable such Interexchange Carriers to originate and terminate
traffic from and to 21st Century's Customers.
5.2.2 Access Toll Connecting Trunks shall
be used solely for the transmission and routing of Exchange Access and
non-translated Toll Free traffic (e.g., 800/888) to allow 21st Century's
Customers to connect to or be connected to the interexchange trunks of any
Interexchange Carrier that is connected to an Ameritech access Tandem.
5.2.3 The Access Toll Connecting Trunks shall
be two-way trunks connecting an End Office Switch that 21st Century utilizes to
provide Telephone Exchange Service and Switched Exchange Access Service in a
given LATA to an access Tandem Switch Ameritech utilizes to provide Exchange
Access in such LATA.
V.3 Logical Trunk Groups. In each LATA identified on
Schedule 2.1, each 21st Century Switching Center Switch in that LATA shall
subtend each Ameritech access Tandem in that LATA via logical trunk groups, as
provided in Section 4.3.2.
V.4 End Office Access. Only those valid NXX codes served by
an End Office may be accessed through a direct connection to that End Office.
<PAGE>
ARTICLE VI
MEET-POINT BILLING ARRANGEMENTS
VI.1 Meet-Point Billing Services
VI.1.1 Pursuant to the procedures described in
Multiple Exchange Carrier Access Billing ("MECAB") document SR-BDS-000983, issue
5, June 1994, the Parties shall provide to each other the Switched Access Detail
Usage Data and the Switched Access Summary Usage Data to bill for jointly
provided switched access service, such as switched access Feature Groups B and
D. The Parties agree to provide this data to each other at no charge. If the
procedures in the MECAB document are amended or modified, the Parties shall
implement such amended or modified procedures within a reasonable period of
time. The billing procedures set forth in this Article VI shall remain in effect
until such time as both Parties mutually agree in writing to a billing
arrangement to supersede Meet-Point Billing.
VI.1.2 21st Century shall designate access
Tandems or any other reasonable facilities or points of Interconnection for the
purpose of originating or terminating IXC traffic. For each such access Tandem
designated, the Parties shall mutually agree upon a billing percentage as set
forth in Schedule 6.0 and shall further agree, within thirty (30) days of the
Effective Date,3/ upon billing percentages for additional routes, which billing
percentages shall be set forth in Schedule 6.0 as amendments hereto. Either
Party may make this billing percentage information available to IXCs. The
billing percentages shall be calculated according to one of the methodologies
specified for such purposes in the MECAB document.
VI.1.3 The Parties shall undertake all
reasonable measures to ensure that the billing percentage and associated
information are maintained in their respective federal and state access tariffs,
as required, until such time as such information can be included in the National
Exchange Association ("NECA") FCC Tariff No. 4. 21st Century shall use its best
efforts to include in such tariff the billing percentage and associated
information as a non-member of NECA.
VI.1.4 Each Party shall implement the "Multiple
Bill/Single Tariff" option in order to bill the IXC for each Party's own portion
of jointly provided Telecommunications Service.
VI.2 Data Format and Data Transfer
VI.2.1 Necessary billing information will be
exchanged on magnetic tape or via electronic data transfer (when available)
using the EMR format. The Parties shall agree to a fixed billing period in the
Implementation Plan.
- ---------------
3/ Because the terms of this Agreement are the result of 21st Century's
adoption under Section 252(i) of the Act of the MCI Agreement (as
defined in Footnote 11), the Parties agree that the term "Effective
Date", for purposes of this Section 6.1.2, shall mean April 20, 1998.
<PAGE>
VI.2.2 21st Century shall provide to Ameritech,
on a monthly basis, the Switched Access Summary Usage Data (category 1150XX
records) on magnetic tape or, when available, via electronic data transfer using
the EMR format.
VI.2.3 Ameritech shall provide to 21st Century,
on a daily basis, the Switched Access Detail Usage Data (category 1101XX
records) on magnetic tape no later than fourteen (14) Business Days from the
usage recording date. Where available, Ameritech shall instead provide the
information via daily electronic data transfer (e.g., EDI) via dedicated
dial-up, using EMR format. Ameritech and 21st Century shall use best efforts to
utilize electronic data transfer.
VI.2.4 Each Party shall coordinate and exchange
the billing account reference ("BAR") and billing account cross reference
("BACR") numbers for the Meet-Point Billing service. Each Party shall notify the
other Party if the level of billing or other BAR/BACR elements change, resulting
in a new BAR/BACR number.
VI.2.5 When Ameritech records on behalf of
21st Century and Access Detail Usage Data is not submitted to 21st Century by
Ameritech in a timely fashion or if such Access Detail Usage Data is not in
proper format as previously defined and if as a result 21st Century is delayed
in billing IXC, then late payment charges will be payable by Ameritech to 21st
Century. Late payment charges will be calculated on the total amount of late
access usage at the rate of 0.000493% per day (annual percentage rate of
eighteen percent (18%)) compounded daily for the number of days late.
VI.2.6 If Summary Access Usage Data is not
submitted to Ameritech in a timely fashion or if it is not
in proper format as previously defined and if as a result Ameritech is delayed
in billing IXC, then late payment charges will be payable by 21st Century to
Ameritech. Late payment charges will be calculated on the total amount of late
access usage charges at the rate of 0.000493% per day (annual percentage rate of
eighteen percent (18%)) compounded daily for the number of days late. Excluded
from this provision will be any detailed usage records not provided by the SBC
in a timely fashion.
VI.3 Errors or Loss of Access Usage Data
VI.3.1 Errors may be discovered by 21st
Century, the IXC or Ameritech. Each Party agrees to use reasonable efforts to
provide the other Party with notification of any discovered errors within two
(2) Business Days of such discovery.
VI.3.2 In the event of a loss of data, both
Parties shall cooperate to reconstruct the lost data. If such reconstruction is
not possible, the Parties shall use a reasonable estimate of the lost data,
based on twelve (12) months of prior usage data; provided that if twelve (12)
months of prior usage data is not available, the Parties shall base the estimate
on as much prior usage data that is available; provided, however, that if
reconstruction is required prior to the availability of at least three (3)
months of prior usage data, the Parties shall defer such reconstruction until
three (3) months of prior usage data is available.
<PAGE>
VI.4 Payment. The Parties shall not charge one another for
the services rendered pursuant to this Article VI.
ARTICLE VII
BLV/BLVI TRAFFIC
VII.1 Busy Line Verification. Busy Line Verification ("BLV")
is performed when one Party's Customer requests assistance from the operator
bureau to determine if the called line is in use; provided, however, the
operator bureau will not complete the call for the Customer initiating the BLV
inquiry. Only one BLV attempt will be made per Customer operator bureau call.
VII.2 Busy Line Verification Interrupt. Busy Line Verification
Interrupt ("BLVI") is performed when one Party's operator bureau interrupts a
telephone call in progress after BLV has occurred. The operator bureau will
interrupt the busy line and inform the called party that there is a call
waiting. The operator bureau will only interrupt the call and will not complete
the telephone call of the Customer initiating the BLVI request. The operator
bureau will make only one BLVI attempt per Customer operator telephone call, and
the applicable charge applies whether or not the called party releases the line.
VII.3 BLV/BLVI Traffic. Each Party's operator bureau shall
accept BLV and BLVI inquiries from the operator bureau of the other Party in
order to allow transparent provision of BLV/BLVI Traffic between the Parties'
networks. Each Party shall route BLV/BLVI Traffic inquiries over separate direct
trunks (and not the Local/IntraLATA Trunks) established between the Parties'
respective operator bureaus. Unless otherwise mutually agreed, the Parties shall
configure BLV/BLVI trunks over the Interconnection architecture defined in
Article III, consistent with the Plan.
VII.4 BLV/BLVI Compensation. Each Party shall compensate the
other Party for BLV/BLVI Traffic as set forth at Item IV of the Pricing
Schedule.
ARTICLE VIII
TRANSIT SERVICE
VIII.1 Although Ameritech is not required to provide Transit
Service by the Act, Ameritech shall provide 21st Century Transit Service as
provided in this Article VIII.
VIII.2 Transit Service Defined. "Transit Service" means the
delivery of certain traffic between 21st Century and a third-party LEC or CMRS
provider by Ameritech over the Local/IntraLATA Trunks. Transit Service shall be
provided only at Ameritech's Tandem Switches and not at any Ameritech End
Office. The following traffic types will be delivered: (i) Local Traffic and
IntraLATA Toll Traffic originated from 21st Century to such third-party LEC
<PAGE>
or CMRS provider and (ii) IntraLATA Toll Traffic originated from such
third-party LEC or CMRS provider and terminated to 21st Century where Ameritech
carries such traffic pursuant to the Commission's primary toll carrier ("PTC")
plan or other similar plan.
VIII.3 Compensation for Transit Service. The Parties shall
compensate each other for Transit Service as follows:
8.3.1 For Local Traffic and IntraLATA Toll Traffic originating
from 21st Century that is delivered over the Transit
Service ("Transit Traffic"):
(a) 21st Century shall:
(1) Pay to Ameritech a Transit
Service charge as set forth
at Item II of the Pricing
Schedule; and
(2) Reimburse Ameritech for any
charges, including switched
access charges, that a
third-party LEC or CMRS
provider with which Ameritech
does not have a Transit
Service agreement similar to
that set forth in this Article
VIII imposes or levies on
Ameritech for delivery or
termination of any such
Transit Traffic.
(b) Ameritech shall remit to 21st Century any
access charges Ameritech receives from
such third-party LEC or CMRS provider in
connection with the delivery of such
Transit Traffic.
8.3.2 For Local Traffic and IntraLATA Toll Traffic that is to
be terminated to 21st Century from a third-party LEC or
CMRS provider (i) that is not subject to PTC
arrangements (regardless of whether Ameritech is the
PTC) and (ii) Ameritech has a transiting arrangement
with such third-party LEC or CMRS provider that
authorizes Ameritech to deliver such traffic to 21st
Century ("Other Party Transit Agreement"), then
Ameritech shall deliver such Local Traffic and IntraLATA
Toll Traffic to 21st Century in accordance with the
terms and conditions of such Other Party Transit
Agreement, and such third-party LEC or CMRS provider
(and not 21st Century) shall be responsible to pay
Ameritech the applicable Transit Service charge.
8.3.3 For IntraLATA Toll Traffic that is subject to a PTC
arrangement and where Ameritech is the PTC, Ameritech
shall deliver such IntraLATA Toll Traffic to or from
21st Century in accordance with the terms and conditions
of such PTC arrangement.
VIII.4 Duration of Obligation. While the Parties agree that it
is the responsibility of each third-party LEC or CMRS provider to enter into
arrangements to deliver Local Traffic and IntraLATA Toll Traffic to 21st
Century, they acknowledge that such arrangements are not currently in place and
an interim arrangement is necessary to ensure traffic completion.
<PAGE>
Accordingly, until the earlier of (i) the date on which either Party has entered
into an arrangement with such third-party LEC or CMRS provider to deliver Local
Traffic and IntraLATA Toll Traffic to 21st Century and (ii) the termination of
this Agreement, Ameritech will provide 21st Century with Transit Service.
VIII.5 Signaling. Ameritech expects that all networks involved
in transit traffic will deliver each call to each involved network with CCIS and
the appropriate Transactional Capabilities Application Part ("TCAP") message to
facilitate full interoperability and billing functions, and to the extent such
CCIS and TCAP messages are delivered by the originating third-party LEC or CMRS
provider, Ameritech will deliver such information to the terminating third-party
LEC or CMRS provider. In all cases, 21st Century is responsible to follow the
Exchange Message Record ("EMR") standard and exchange records with both
Ameritech and the terminating LEC or CMRS provider to facilitate the billing
process to the originating network.
VIII.6 Nondiscrimination. For purposes of this Article VIII,
Ameritech agrees that it shall make available to 21st Century, at 21st Century's
sole option, any transiting arrangement Ameritech offers to another LEC at the
same rates, terms and conditions provided to such other LEC.
ARTICLE IX
UNBUNDLED ACCESS -- SECTION 251(c)(3)
IX.1 Access to Network Elements
IX.1.1 Ameritech shall provide 21st Century
access to Ameritech's Network Elements on an unbundled basis at any technically
feasible point in accordance with the terms and conditions of this Article IX
and the requirements of the Act, the FCC or the Commission. Ameritech shall
provide 21st Century access to each unbundled Network Element, along with all of
such unbundled Network Element's features, functions and capabilities in
accordance with the terms and conditions of Article II and as required by the
Act, the FCC or the Commission, in a manner that shall allow 21st Century to
provide any Telecommunications Service that can be offered by means of that
Network Element; provided that the use of such Network Element is consistent
with the Act.
IX.1.2 Notwithstanding anything to the
contrary in this Article IX, Ameritech shall not be required to provide Network
Elements beyond those identified in 47 C.F.R. ss. 51.319 to 21st Century if:
(a) The Commission concludes that:
(1) such Network Element is proprietary or
contains proprietary information that will
be revealed if such Network Element is
provided to 21st Century on an unbundled
basis; and
<PAGE>
(2) 21st Century could offer the same
proposed Telecommunications Service
through the use of other, non-proprietary
Network Elements within Ameritech's
network; or
(b) The Commission concludes that the failure
of Ameritech to provide access to such
Network Element would not decrease the
quality of, and would not increase the
financial or administrative cost of, the
Telecommunications Service 21st Century
seeks to offer, compared with providing
that service over other unbundled Network
Elements in Ameritech's network.
IX.1.3 Ameritech shall be required to make
available Network Elements only where such Network Elements, including
facilities and software necessary to provide such Network Elements, are
available. If Ameritech makes available Network Elements that require special
construction, 21st Century shall pay to Ameritech any applicable special
construction charges, as determined in accordance with the Act. The Parties
shall mutually agree on the nature and manner of any required special
construction, the applicable charges thereto and the negotiated interval(s) that
will apply to the provisioning of such Network Element(s) in lieu of the
standard intervals set forth on Schedule 9.10.
IX.1.4 Ameritech shall permit 21st Century
to connect 21st Century's facilities or facilities provided to 21st Century by
third parties with each of Ameritech's unbundled Network Elements at any point
on Ameritech's network designated by 21st Century that is technically feasible.
IX.2 Network Elements. At the request of 21st Century,
Ameritech shall provide 21st Century access to the following Network Elements on
an unbundled basis:
IX.2.1 Local Loops, as more fully described on
Schedule 9.2.1;
IX.2.2 The Network Interface Device, as more
fully described on Schedule 9.2.2;
IX.2.3 Switching Capability, as more fully
described on Schedule 9.2.3;
IX.2.4 Interoffice Transmission Facilities, as
more fully described on Schedule 9.2.4;
IX.2.5 Signaling Links and Call-Related
Databases, as more fully described on
Schedule 9.2.5;
IX.2.6 Operations Support Systems ("OSS")
functions, as more fully described on
Schedule 9.2.6; and
IX.2.7 Operator Services and Directory
Assistance, as more fully described on
Schedule 9.2.7.
<PAGE>
9.2.8 Dark Fiber, as more fully described on
Schedule 9.2.4.
IX.3 Combination of Network Elements
IX.3.1 Ameritech shall provide Network
Elements to 21st Century in a manner that shall allow 21st Century to combine
such Network Elements (a "Combination") in order to provide a Telecommunications
Service. When purchasing a Combination, 21st Century will have access to all
features and capabilities of each individual Network Element that comprises such
Combination and the specific technical and interface requirements for each of
the Network Elements shall apply, to the extent technically feasible given the
specific manner in which 21st Century has requested that the elements be
combined.
IX.3.2 Except upon the request of 21st Century,
Ameritech shall provide Network Elements separately from each other and shall
not separate Network Elements it normally provides in combination into separate
Network Elements.
IX.3.3 Upon 21st Century's request, Ameritech
shall perform the functions necessary to combine Ameritech's Network Elements,
even if those elements are not ordinarily combined in Ameritech's network;
provided that such combination is (i) technically feasible and (ii) would not
impair the ability of other Telecommunications Carriers to obtain access to
unbundled Network Elements or to Interconnect with Ameritech's network. In
addition, upon request that is consistent with the above criteria and subject to
Section 9.1.4, Ameritech shall perform the functions necessary to combine or
connect Ameritech's Network Elements with elements or other equipment or
facilities possessed, leased or owned by 21st Century in any technically
feasible manner to allow 21st Century to provide a Telecommunications Service.
IX.3.4 Ameritech shall make available to 21st
Century the following Combinations at the rates set forth at Item V of the
Pricing Schedule:
9.3.4.1 Unbundled Element Platform
with Operator Services and
Directory Assistance. This
Combination is described on
Schedule 9.3.4.
9.3.4.2 Loop Combination. This
Combination is described on
Schedule 9.3.4.
9.3.4.3 Switching Combination #1. This
Combination is described on
Schedule 9.3.4.
IX.3.5 The following Network Elements and
Combinations shall be requested by 21st Century in accordance with Section 9.6:
9.3.5.1 Unbundled Loop - Distribution.
9.3.5.2 Unbundled Loop -
Concentrators/Multiplexers.
<PAGE>
9.3.5.3 Unbundled Loop - Feeder.
9.3.5.4 Loop/Network Combination.
This Combination is described
on Schedule 9.3.5.
9.3.5.5 Switching Combination #2. This
Combination is described on
Schedule 9.3.5.
9.3.5.6 Switching Combination #3. This
Combination is described on
Schedule 9.3.5.
9.3.5.7 Switched Data Services. This
Combination is described on
Schedule 9.3.5.
9.3.5.8 Unbundled Element Platform
without Operator Services
and Directory Assistance.
This Combination is described
on Schedule 9.3.5.
IX.3.6 Any request by 21st Century for Ameritech
to provide any Combination other than as set forth in Section 9.3.4, to combine
the unbundled Network Elements of Ameritech with 21st Century or to perform any
other function under this Section 9.3 shall be made by 21st Century in
accordance with Section 9.6.
IX.4 Nondiscriminatory Access to and Provision of Network
Elements
IX.4.1 Subject to Section 9.4.3, the quality of
an unbundled Network Element, as well as the quality of the access to such
unbundled Network Element that Ameritech provides to 21st Century, shall be (i)
the same for all Telecommunications Carriers requesting access to such Network
Element and (ii) at least equal in quality to that which Ameritech provides to
itself, its subsidiaries, Affiliates or any other person, unless Ameritech
proves to the Commission that it is not technically feasible to provide the
Network Element requested by 21st Century or access to such Network Element at a
level of quality that is equal to that which Ameritech provides to itself.
IX.4.2 Subject to Section 9.4.3, Ameritech shall
provide 21st Century access to Network Elements, on terms and conditions no less
favorable than the terms and conditions under which Ameritech provides such
elements to itself, its subsidiaries, Affiliates and any other person, including
the time within which Ameritech provisions such access to Network Elements,
except as may be provided by the Commission pursuant to Section 9.1.2.
IX.4.3 Upon the request of 21st Century,
Ameritech shall provide to 21st Century a Network Element and access to such
Network Element that is different in quality to that required under Sections
9.4.1 and 9.4.2, unless Ameritech proves to the Commission that it is not
technically feasible to provide the requested Network Element or access to such
Network Element at the requested level of quality. Any request by 21st Century
for Ameritech to provide
<PAGE>
any Network Element or access thereto that is different in quality shall be made
by 21st Century in accordance with Section 9.6.
IX.5 Provisioning of Network Elements
IX.5.1 Ameritech shall provide 21st Century unbundled
Network Elements as set forth on Schedule 9.5.
IX.5.2 Ameritech shall provide 21st Century
access to the functionalities for Ameritech's pre-ordering, ordering,
provisioning, maintenance and repair, and billing functions of the Operations
Support Systems functions that relate to the Network Elements that 21st Century
purchases hereunder. Access to such functionalities for the Operations Support
Systems functions shall be as provided in Schedule 9.2.6 and the Implementation
Plan.
IX.5.3 Prior to submitting an order for a
Network Element that replaces, in whole or in part, a service offered by
Ameritech or any other telecommunications provider for which Ameritech changes a
primary local exchange carrier, 21st Century shall comply with the requirements
of Section 10.11.1.
IX.6 Availability of Additional or Different Quality Network
Elements. Any request by 21st Century for access to a Network Element or a
Combination or a standard of quality thereof that is not otherwise provided by
the terms of this Agreement at the time of such request shall be made pursuant
to a Bona Fide Request, as described in Schedule 2.2, and shall be subject to
the payment by 21st Century of all applicable costs in accordance with Section
252(d)(1) of the Act to provide such Network Element, Combination or access.
IX.7 Pricing of Unbundled Network Elements
IX.7.1 Ameritech shall charge 21st Century the
non-recurring (including any applicable connection charges) and monthly
recurring rates for unbundled Network Elements (including the monthly recurring
rates for these specific Network Elements, service coordination fee and
Cross-Connect charges) as specified at Item V of the Pricing Schedule. If 21st
Century requests or approves an Ameritech technician to perform services in
excess of or not otherwise contemplated by the Line Connection Service,
Ameritech may charge 21st Century for any additional and reasonable labor
charges to perform such services. For purposes of this Agreement, "Line
Connection Service" means any non-recurring activity performed at the Ameritech
Central office or the Ameritech side of the network interface required to
connect a specific Network Element to any Customer-or enduser-provided element
or required to interconnect contiguous Network Elements.
IX.7.2 In addition to any other applicable
charges under this Article IX, if 21st Century purchases unbundled Local
Switching elements, 21st Century shall pay Ameritech:
(A) for interstate minutes of use traversing
such unbundled Local Switching elements,
the carrier common line charge described
in 47 C.F.R. ss. 69.105 and a charge equal
to seventy-five percent (75%) of the
<PAGE>
interconnection charge described in 47
C.F.R. ss. 69.124, only until the earliest
of the following, and not thereafter:
(1) June 30, 1997;
(2) The later of the effective date of a
final FCC decision in CC Docket No. 94-45,
Federal-State Joint Board on Universal
Service, or the effective date of a final
FCC decision in a proceeding to consider
reform of interstate access charges; or
(3) The date on which Ameritech is
authorized to offer in-region InterLATA
service in Illinois, pursuant to Section
271 of the Act; and
(B) for intrastate toll minutes of use
traversing such unbundled Local Switching
elements, intrastate access charges
comparable to those listed in Section
9.7.2(a) and any explicit intrastate
universal service mechanism based on
access charges, only until the earliest of
the following, and not thereafter:
(1) June 30, 1997;
(2) The effective date of the Commission's
decision that Ameritech may not assess
such charges; or
(3) The date on which Ameritech is
authorized to offer in-region InterLATA
service in Illinois, pursuant to Section
271 of the Act.
IX.7.3 If 21st Century orders a Combination
identified in Section 9.3.4 and the provision of any such Combination requires
Ameritech to modify any of its existing systems, service development processes
or its network (beyond that required for Ameritech to provision its own retail
services) to provide access to such Combination, 21st Century shall be required
to compensate Ameritech for any costs incurred to provide access to such
Combination.
IX.7.4 Subject to Sections 29.3 and 29.5, the
rates and charges set forth or identified in this Agreement are inclusive, and
no other charges apply.
IX.8 Billing. Ameritech shall bill 21st Century for access to
unbundled Network Elements pursuant to the requirements of Article XXVII to this
Agreement.
IX.9 Maintenance of Unbundled Network Elements
IX.9.1 If (i) 21st Century reports to Ameritech
a suspected failure of a Network Element, (ii) 21st Century requests a dispatch,
(iii) Ameritech dispatches a technician and (iv) such trouble was not caused by
Ameritech's facilities or equipment, then 21st Century shall pay Ameritech a
trip charge and time charges as set forth at Item V of the Pricing Schedule.
<PAGE>
IX.9.2 Ameritech shall provide 21st Century
maintenance of unbundled Network Elements provided by Ameritech hereunder on
terms and conditions no less favorable than Ameritech provides for itself,
consistent with the Act.
IX.10 Standards of Performance
IX.10.1 Ameritech shall provide to 21st Century
access to unbundled Network Elements (i) in accordance with Section 9.4, as
determined by this Section 9.10 (including any Combinations, service levels and
intervals that may be requested by 21st Century and agreed upon by the Parties
pursuant to a Bona Fide Request), and (ii) as required by the Commission
(collectively, the "Ameritech Network Element Performance Benchmarks").
IX.10.2 To determine Ameritech's compliance with
the Ameritech Network Element Performance Benchmarks, Ameritech shall maintain
records of (i) specific criteria listed in Schedule 9.10, which criteria are the
criteria that Ameritech currently measures to evaluate its provision of
unbundled Network Elements, and (ii) such additional criteria the Parties agree
upon regarding Ameritech's compliance with different performance levels and
intervals of such Network Elements (and Combinations thereof) requested by 21st
Century and provided by Ameritech pursuant to Section 9.6 and a Bona Fide
Request (each, a "Network Element Performance Activity"). Ameritech shall
provide records relating to the access to unbundled Network Elements Ameritech
provides to itself, its subsidiaries and Affiliates (the "Ameritech NE Records")
and parallel records of the access to unbundled Network Elements Ameritech
provides to (x) 21st Century (the "21st Century NE Records") and (y) other LECS
in the aggregate (the "Other LEC NE Records").
IX.10.3 Ameritech shall provide to 21st Century
for each Reporting Period, by the twenty-second (22nd) day of the following
month, in a self-reporting format, the Ameritech NE Records, the 21st Century NE
Records and the Other LEC NE Records so that the Parties can determine
Ameritech's compliance with the Ameritech Network Element Performance
Benchmarks. If (i) Ameritech fails to comply with an Ameritech Network Element
Performance Benchmark with respect to a Network Element Performance Activity for
a Reporting Period, (ii) the sample size of the Network Element Performance
Activity measured for such Reporting Period is statistically valid and (iii) the
amount by which the applicable Ameritech Network Element Performance Activity
deviates from the corresponding Network Element Performance Benchmark is
statistically significant, then Ameritech shall have committed a "Specified
Performance Breach". Notwithstanding anything to the contrary in this Section
9.10.3, the Parties acknowledge that (i) Ameritech shall not be required to
provide to 21st Century those Other LEC NE Records that correspond to and
measure a level of quality and performance levels and intervals of unbundled
Network Elements that are requested by an other LEC pursuant to 47 C.F.R. ss.
51.311(c) and Section 9.6 and that are superior to that which 21st Century
requested Ameritech provide to 21st Century hereunder, (ii) the Other LEC NE
Records shall be provided to 21st Century on an aggregate basis and (iii) such
Other LEC NE Records shall be provided to 21st Century in a manner that
preserves the confidentiality of each other LEC and any of such LEC's
proprietary information (including CPNI).
<PAGE>
IX.10.4 In no event shall Ameritech be deemed to
have committed a Specified Performance Breach if Ameritech's failure to meet or
exceed a Network Element Performance Activity is caused by a Delaying Event. If
a Delaying Event (i) prevents Ameritech from performing a certain function or
action that affects a Network Element Performance Activity, then such occurrence
shall be excluded from the calculation of such Network Element Performance
Activity and the determination of Ameritech's compliance with the applicable
Ameritech Network Element Performance Benchmark or (ii) only suspends
Ameritech's ability to timely perform such Network Element Performance Activity,
then the applicable time-frame in which Ameritech's compliance with the
Ameritech Network Element Performance Benchmark is measured shall be extended on
a like-time basis equal to the duration of such Delaying Event.
IX.10.5 Upon the occurrence of a Specified
Performance Breach by Ameritech, 21st Century may forego the dispute escalation
procedures set forth in Section 28.3 and (i) bring an action against Ameritech
in an appropriate Federal district court, (ii) file a complaint against
Ameritech with the FCC pursuant to Sections 207 or 208 of the Act, (iii) seek a
declaratory ruling from the FCC, (iv) file a complaint in accordance with the
rules, guidelines and regulations of the Commission or (v) seek other relief
under Applicable Law.
IX.10.6 21st Century shall also be entitled to
any Credit Allowances pursuant to the same terms and conditions that Ameritech
offers Credit Allowances to its Customers, including those described on Schedule
10.9.6.
ARTICLE X
RESALE AT WHOLESALE RATES -- SECTION 251(c)(4)
RESALE AT RETAIL RATES -- SECTION 251(b)(1)
X.1 Telecommunications Services Available for Resale at
Wholesale Rates. Commencing on the date on which the Commission approves this
Agreement, at the request of 21st Century, Ameritech will make available to 21st
Century for resale at wholesale rates those Telecommunications Services that
Ameritech provides at retail to subscribers who are not Telecommunications
Carriers, as required in Section 251(c)(4) of the Act. Subject to the terms,
conditions and limitations set forth in this Agreement, Ameritech will make
available to 21st Century for such resale all Telecommunications Services which
it offers to its retail Customers, including the following categories of
Telecommunications Services (the "Wholesale Resale Services") as identified on
Schedule 10.1:
(I) Local Service - Residence, as described
in ILL.C.C. No. 20;
(II) Local Service - Business, as described in
ILL.C.C. No. 20;
(III) Message Toll Service, as described in
ILL.C.C. No. 20;
(IV) PBX Trunk, as described in ILL.C.C. No.20;
(V) ISDN Direct Service, as described in
ILL.C.C. No. 20;
<PAGE>
(VI) ISDN Prime Services, as described in
ILL.C.C. No. 20;
(VII) Ameritech Centrex Service and associated
features and functionalities, as described
in ILL.C.C. No. 20;
(VIII) Dedicated Communications Services, as
described in ILL.C.C. No. 20;
(IX) Inbound Services, as described in
ILL.C.C. No. 20; and
(X) Customer Owned Pay Telephone Services, as described
in ILL.C.C. No. 20.
The Wholesale Resale Services shall be made available to 21st Century
at the rates set forth at Item VI of the Pricing Schedule, which rates shall be
set in accordance with the Act.
X.2 Telecommunications Services Available for Resale at
Retail Rates. Each Party shall make available to the other Party its
Telecommunications Services for resale at retail rates ("Retail Resale
Services") in accordance with Section 251(b)(1) of the Act and applicable
tariffs.
X.3 Limitations on Availability of Resale Services. The
following limitations shall apply to both Wholesale Resale Services and Retail
Resale Services (collectively, "Resale Services"):
X.3.1 Any Telecommunications Services that
Ameritech offers to existing retail subscribers, but not to new subscribers
("Grandfathered Services"), are listed on Schedule 10.3.1. Schedule 10.3.1 may
be revised or supplemented from time to time to include those additional
services that Ameritech may, to the extent permitted by Applicable Law, classify
as Grandfathered Services. Ameritech agrees to make Grandfathered Services
available to 21st Century for resale to any Customer of Ameritech that
subscribes to a Grandfathered Service from Ameritech at the time of its
selection of 21st Century as its primary local exchange carrier; provided,
however, that if such Grandfathered Services are provided under a Shared Tenant
Service Agreement, such Grandfathered Services shall be available for resale by
21st Century pursuant to the terms and conditions of such Shared Tenant Service
Agreement to all tenants, existing or in the future, in the specific facility
subject to such Shared Tenant Service Agreement. If a local Telecommunications
Service is subsequently classified as a Grandfathered Service by Ameritech,
Ameritech agrees to continue to sell such Grandfathered Service (subject to the
terms of Section 10.3.2) to 21st Century for resale to 21st Century's Customers
that subscribe to such Grandfathered Service at the time it is so classified by
Ameritech. Grandfathered Services shall be made available to 21st Century at
wholesale rates determined in accordance with the Act. To the extent that
Ameritech is unable to provide wholesale systems support and billing within the
first ninety (90) days from the date each 21st Century Resale Customer is
provided such Grandfathered Service, Ameritech shall retroactively apply such
wholesale rate as a credit to 21st Century and will bill such service to 21st
Century from its retail billing systems. Such billing
<PAGE>
will be in the same format and using the same standards and interfaces as other
billing to 21st Century of Resale Services. Nothing in this Section 10.3.1 shall
prevent 21st Century from taking a position before any regulatory body or court
of law in opposition to any classification of a service by Ameritech as a
Grandfathered Service.
X.3.2 Any Telecommunications Services that
Ameritech currently intends to discontinue offering to any retail subscriber
("Sunsetted Services") are set forth on Schedule 10.3.1. Schedule 10.3.1 may be
revised or supplemented from time to time to include those additional
Telecommunications Services that Ameritech may, to the extent permitted by
Applicable Law, classify as Sunsetted Services. Ameritech agrees to make
Sunsetted Services available to 21st Century for resale to 21st Century's
Customers who are subscribers to the Sunsetted Service either from Ameritech or
21st Century at the time so classified (subject to the provisions of Section
10.3.1 if such Sunsetted Service was previously classified as a Grandfathered
Service) until the date such service is discontinued. Nothing in this Section
10.3.2 shall prevent 21st Century from taking a position before any regulatory
body or court of law in opposition to any such withdrawal of service by
Ameritech.
X.3.3 Each Party acknowledges that Resale
Services shall be available to 21st Century on the same basis as offered by
Ameritech to itself or to any subsidiary, Affiliate or any other person to which
Ameritech directly provides the Resale Services, including Ameritech's retail
Customers and other resellers of Ameritech's Telecommunications Services (i)
only in those service areas in which such Resale Services (or any feature or
capability thereof) are offered by Ameritech to itself or to any subsidiary,
Affiliate or any other person, including Ameritech's retail Customers, and (ii)
to the same extent as Ameritech's retail Telecommunications Services are subject
to the availability of facilities. Each Party also acknowledges and agrees that
certain Resale Services and the rights and obligations of each Party may be
subject to certain rights of third persons pursuant to its agreements with such
third persons.
X.4 Additional Charges for Resale Services. In addition to
the rates set forth at Item VI of the Pricing Schedule, 21st Century shall pay
Ameritech (i) for any applicable one-time start-up and nonrecurring fees, (e.g.,
special construction charges), if any, incident to the establishment or
provision of the Resale Services requested by 21st Century and (ii) the
applicable non-discounted end user common line charge, as set forth in F.C.C.
No. 2, Section 4.
X.5 Restrictions on Resale Services
X.5.1 To the extent provided by the Commission,
21st Century may not offer Resale Services that are made available only to
residential Customers or to a limited class of residential Customers to classes
of Customers that are not eligible to subscribe to such services from Ameritech.
X.5.2 In the case of promotional offerings,
Ameritech shall apply the wholesale discount to the ordinary rate for a
Wholesale Resale Service as set forth at Item VI of the Pricing Schedule, rather
than a special promotional rate, only if:
<PAGE>
(A) Such promotions involve rates that will
be in effect for no more than ninety (90)
days; and
(B) Such promotional offerings are not used to
evade the wholesale rate obligation, for
example, by making available a sequential
series of ninety (90)-day promotional
rates.
X.5.3 Nothing in this Agreement shall require
Ameritech to provide to 21st Century promotional service elements that are not
Telecommunications Services (i.e., customer-premises equipment).
X.5.4 The Parties agree that applicable access
charges, as established pursuant to methodologies approved by the FCC and/or the
Commission, shall apply to Resale Services.
X.5.5 As provided in the Act, 21st Century may
not purchase Resale Services unless such services are resold to a person other
than 21st Century. 21st Century may, at its option, purchase from Ameritech, at
wholesale rates, all Telecommunications Services available for resale under the
Act and resell such Services to its affiliates pursuant to the terms and
conditions of this Agreement.
X.5.6 Ameritech may impose additional
restrictions on 21st Century's sale of Resale Services only as permitted by the
Act, Commission and the FCC.
X.6 New Resale Services; Changes in Provision of Resale
Services. Ameritech shall, via tariff filings and as provided in the
Implementation Plan, notify 21st Century of any changes in the terms and
conditions under which Ameritech offers Resale Services, including the
introduction of any new features, functions, services or promotions. If a tariff
filing provides less than forty-five (45) days' notice, Ameritech shall provide
not less than forty-five (45) days' advance notice of such introduction. In
addition, Ameritech shall furnish 21st Century with reasonable quantities of
publicly available collateral information regarding the Resale Services.
X.7 Operations Support Systems Functions. Ameritech shall
provide 21st Century, upon 21st Century's request and pursuant to the
Implementation Plan, nondiscriminatory access to Ameritech's Operations Support
Systems functions for pre-ordering, ordering, provisioning, maintenance and
repair, and billing. Written notice of any changes to Ameritech's Operations
Support Systems functions shall be as provided in Article XI.
X.8 Nondiscriminatory Provision of Resale Services
X.8.1 Resale Services made available by
Ameritech for resale hereunder and Operations Support Systems functions for
ordering, provisioning, repair, and maintenance and billing shall be equal in
quality to that provided by Ameritech to itself or to any subsidiary, Affiliate
or any other person to which Ameritech directly provides the Resale Service,
including Ameritech's retail Customers.
<PAGE>
X.8.2 Ameritech shall provision Resale Services
with the same timeliness that such Resale Services are provisioned to
Ameritech's subsidiaries, Affiliates or other persons to whom Ameritech directly
provides the Resale Service, including Ameritech's retail Customers.
X.8.3 Ameritech shall provide to 21st Century
equivalent functionality of blocking calls (e.g., 700, 900 and 976) and Billed
Number Screening (BNS), including necessary LIDB updates, or equivalent service
for blocking completion of bill-to-third party and collect calls to the extent
that such functionalities are provided to Ameritech's retail Customers.
X.9 Standards of Performance
X.9.1 Ameritech shall provide Resale Services
to 21st Century (i) in accordance with Section 10.8, as determined by this
Section 10.9, and (ii) as required by the Commission (collectively, the "Resale
Performance Benchmarks").
X.9.2 To determine Ameritech's compliance with
the Resale Performance Benchmarks, Ameritech shall maintain records of specific
criteria listed in Schedule 10.9 (each, a "Resale Performance Activity")
relating to Resale Services it provides to its subsidiaries, Affiliates and
Ameritech's retail Customers (the "Ameritech Resale Records") and parallel
records of the Resale Services provided to (i) 21st Century (the "21st Century
Resale Records") and (ii) on an aggregate basis, resellers of Telecommunications
Services other than 21st Century (the "Other Reseller Records"). The Resale
Performance Activities will be revised in accordance with Article XVIII and the
procedures set forth in the Implementation Plan if Ameritech no longer measures
a criterion in assessing its performance in providing such Resale Service to
Ameritech's retail Customers or begins measuring additional criteria.
X.9.3 Ameritech shall provide to 21st Century
for each Reporting Period, by the twenty-second (22nd) day of the following
month, in a self-reporting format, the Ameritech Resale Records, the 21st
Century Resale Records and the Other Reseller Records so that the Parties can
determine Ameritech's compliance with the Resale Performance Benchmarks. If (i)
Ameritech fails to comply with a Resale Performance Benchmark with respect to a
Resale Performance Activity for a Reporting Period, (ii) the sample size of the
Resale Performance Activity measured for such Reporting Period is statistically
valid and (iii) the amount by which the applicable Resale Performance Activity
deviates from the corresponding Resale Performance Benchmark is statistically
significant, then Ameritech shall have committed a "Specified Performance
Breach." Notwithstanding anything to the foregoing in this Section 10.9.3, the
Parties acknowledge that the Other Reseller Records shall be provided to 21st
Century (x) on an aggregate basis and (y) in a manner that preserves the
confidentiality of each other reseller and any of such reseller's proprietary
information (including CPNI). Information regarding reporting and levels of
content shall be set forth in the Implementation Plan.
X.9.4 In no event shall Ameritech be deemed
to have committed a Specified Performance Breach if Ameritech's failure to meet
or exceed a Resale Performance Activity is caused by a Delaying Event. If a
Delaying Event (i) prevents Ameritech from performing a certain function or
action that affects a Resale Performance Activity, then such occurrence shall be
excluded from the calculation of such Resale Performance Activity and the
<PAGE>
determination of Ameritech's compliance with the applicable Resale Performance
Benchmark or (ii) only suspends Ameritech's ability to timely perform such
Resale Performance Activity, then the applicable time-frame in which Ameritech's
compliance with the Resale Performance Benchmark is measured shall be extended
on a like-time basis equal to the duration of such Delaying Event.
X.9.5 Upon the occurrence of a Specified
Performance Breach by Ameritech, 21st Century may elect one of the following two
remedies:
(A) Forego the dispute escalation procedures set forth
in Section 28.3 and (i) bring an action against
Ameritech in an appropriate Federal district court, (ii) file a complaint
against Ameritech with the FCC pursuant to Sections 207 or 208 of the Act, (iii)
seek a declaratory ruling from the FCC, (iv) file a complaint in accordance with
the rules, guidelines and regulations of the Commission and/or (v) seek other
relief under Applicable Law; or
(B) Ameritech shall pay to 21st Century as liquidated
damages any amounts that 21st Century is entitled to receive under then-existing
Commission procedures relating to the failure by Ameritech to comply with the
Commission performance standards.
X.9.6 21st Century shall also be entitled to
any Credit Allowances pursuant to the same terms and conditions that Ameritech
offers Credit Allowances to its retail Customers, including those described on
Schedule 10.9.6.
X.10 Branding
X.10.1 If Operator Call Completion or Directory
Assistance Service is a feature of an offered Resale Service, then Ameritech
shall rebrand or unbrand such features of such offered Resale Service as
requested by 21st Century for 21st Century's Customers, unless Ameritech places
a restriction on such rebranding or unbranding that is approved by the
Commission as reasonable and nondiscriminatory, such as by proving that
Ameritech lacks the technical capability to comply with such rebranding or
unbranding request.
X.10.2 Ameritech shall make available to 21st
Century, upon 21st Century's request, the ability to route:
(I) Local Directory Assistance calls dialed by 21st
Century's Customers directly to 21st Century Directory
Assistance Services platform, to the extent such routing
is technically feasible; and
(II) Local Operator Services calls (0+, 0-) dialed by 21st
Century Customers directly to the 21st Century Local
Operator Services platform. Such traffic shall be routed
over trunk groups between Ameritech End Offices and the
21st Century Local Operator Services platform, using
standard Operator Services dialing protocols of 0+ or
0-, to the extent such routing is technically feasible.
<PAGE>
The routing capabilities described above will be implemented according to the
Implementation Plan. To the extent technically feasible, all direct routing
capabilities described in this Section 10.10.2 shall permit 21st Century
Customers to dial the same telephone numbers for Ameritech Directory Assistance
and Local Operator Service that similarly situated Ameritech Customers dial for
reaching equivalent Ameritech services.
X.10.3 Notwithstanding anything to the contrary
in this Agreement, the Parties agree that Ameritech shall have no obligation to
unbrand or rebrand its service technicians or trucks, any customer premises
equipment, other customer-owned facilities or its outside plant.
X.10.4 21st Century shall not, without
Ameritech's prior written consent, offer any Resale Service to any Customer
under any brand name of Ameritech, its subsidiaries or its Affiliates, nor shall
21st Century state or imply that there is any joint business association or any
similar arrangement with Ameritech in the provision of Resale Service to 21st
Century's Customers, except to the extent 21st Century deems it necessary to
advise its Customers that Ameritech's personnel will perform work on behalf of
21st Century under this Agreement or that some facilities used in provisioning
service are owned and maintained by Ameritech; provided, however, 21st Century
shall make no disparaging statements about such facilities or services.
X.10.5 In those instances where 21st Century
requires Ameritech personnel to interface directly with 21st Century's
Customers, either orally in person or by telephone, or in writing, such
personnel shall identify themselves as Ameritech's employees representing 21st
Century.
X.10.6 Service Call Materials. Any "no access"
cards and time and materials invoices furnished during service calls by
Ameritech personnel to 21st Century's Customers shall be available to 21st
Century for review and shall be provided to 21st Century Customers in an
unbranded form.
X.10.7 In no event shall Ameritech personnel
acting on behalf of 21st Century pursuant to this Agreement provide information
to any existing 21st Century Customer about Ameritech products or services or
disparage 21st Century and/or 21st Century service or products.
X.10.8 21st Century shall pay Ameritech's costs,
if any, pursuant to the pricing standard in Section 252(d)(1) of the Act and in
such amounts or levels as determined by the Commission for providing any
requested branding under this Section 10.10.
X.11 Primary Local Exchange and Interexchange Carrier
Selections
X.11.1 The Parties shall apply all of the
principles set forth in 47 C.F.R.ss. 64.1100 to the process for Customer
selection of a primary local exchange carrier. Ameritech shall not require a
disconnect order from an 21st Century Customer or another LEC in order to
process an 21st Century order for Resale Service for an 21st Century Customer.
Ameritech shall advise 21st Century whenever an 21st Century Customer has
selected another primary local
<PAGE>
exchange carrier by giving notice via an electronic interface within twenty-four
(24) hours of the change being provisioned by Ameritech. Until the FCC or the
Commission adopts final rules and procedures regarding selection of a primary
local exchange carrier, 21st Century shall deliver to Ameritech a representation
of authorization in the form set forth on Schedule 10.11.1 that applies to all
orders submitted by 21st Century under this Agreement that require a primary
local exchange carrier change. Such representation of authorization shall be
delivered to Ameritech prior to the first order submitted by 21st Century prior
to submitting its first order hereunder. 21st Century shall retain on file all
applicable Documentation of Authorization (as defined in Schedule 10.11.1),
including letters of agency or any other method permitted by Applicable Law
relating to the Customer's selection of 21st Century as its primary local
exchange carrier, which documentation shall be provided to Ameritech at its
request, when such documentation is at issue.
X.11.2 Carrier Selection Disputes. If any
disputes should occur concerning the selection of primary local exchange
carriers by the Customers of a Party, the following dispute escalation
procedures shall be followed:
(A) If a Customer denies authorizing a
change in his or her primary local
exchange carrier selection to a
different LEC ("Unauthorized
Switching"), Ameritech shall switch that
Customer back to 21st Century in
accordance with Applicable Law,
including the terms of ILL. C.C. No. 20,
Part 22 (the "Resale Tariff"). However,
in the case of unauthorized changes of
21st Century Customers to Ameritech,
Ameritech shall also have the duties of
the "Carrier", as enumerated in such
Resale Tariff, but will pay the $50
compensation, as described in the Resale
Tariff, to 21st Century.
(B) If Ameritech reports or otherwise provides
information on unauthorized primary local
exchange carrier changes to the FCC, the
Commission or any other governmental
entity, Ameritech agrees to report on 21st
Century unauthorized primary local
exchange carrier changes separately from
unauthorized PIC changes.
(C) The Parties agree that in the event that
either (i) the Resale Tariff is withdrawn
by Ameritech or materially revised or (ii)
there is no other Applicable Law relating
to Local Exchange Carrier selection
disputes, they will promptly meet and
negotiate in good faith a revised
procedure for resolving carrier selection
disputes. If the Parties are unable to
agree upon such revised procedure within
thirty (30) days of a Party's request to
commence the negotiations, the dispute
resolution procedures set forth in Section
28.3 will be implemented.
X.11.3 When Ameritech receives an order for
Resale Service from 21st Century for 21st Century's Customer and Ameritech
currently provides resale local exchange Telecommunications Services to another
carrier ("Carrier of Record") for the same Customer,
<PAGE>
Ameritech shall notify such Carrier of Record of such order coincident with
processing the order. It shall then be the responsibility of the Carrier of
Record and 21st Century to resolve any issues related to that Customer. 21st
Century agrees to indemnify and hold Ameritech harmless against any and all
Losses that may result from Ameritech acting under this Section 10.11.3.
X.11.4 When notified by 21st Century or through
the Customer Access Record Exchange system (CARE) that a Customer has changed
its primary interexchange carrier ("PIC") selection only from one IXC to another
IXC, Ameritech shall only provision the PIC change. Ameritech will modify its
process to conform with industry-accepted standards and the requirements of the
FCC or the Commission. Ameritech shall bill 21st Century, not the 21st Century
Customer, for the PIC change charge.
X.12 Functionality Required To Support Resale Service
X.12.1 Directory Listing Requirements.
Ameritech shall make available to 21st Century for 21st Century Customers
directory listings in accordance with the provisions of Article XV.
X.12.2 LEC-Assigned Telephone Calling Card
Numbers. Effective as of the date of a Customer's subscription to 21st Century's
service, Ameritech will block the LEC-assigned telephone line calling card
number Line Identification Database ("LIDB"), unless otherwise agreed to in the
Implementation Plan.
X.12.3 Telephone Assistance Programs. Upon
conversion to 21st Century's Resale Service of an existing Telecommunications
Assistance Program Customer, no exchange of qualification documentation is
necessary. Ameritech will continue to administer the Telecommunications
Assistance Program for the Customer on behalf of 21st Century. If 21st Century's
Customer is newly qualified for a Telecommunications Assistance Program, 21st
Century must send Ameritech the necessary qualification documentation.
X.12.4 Special Services. If Ameritech makes a
notation on the Customer Service Records (CSR) of Customers who qualify for
certain services available to physically challenged individuals (e.g., special
discounts) ("Special Services"), Ameritech shall provide such data to 21st
Century on the CSR made available to Ameritech for its Customers. For usage by
an 21st Century Customer of a Telephone Relay Service, Ameritech will provide
21st Century with all billing information furnished to Ameritech by the provider
of the Telephone Relay Service.
X.12.5 Law Enforcement Interfaces. Interfaces
with law enforcement agencies and other security matters shall be conducted as
specified in Schedule 10.12.5.
X.12.6 Ameritech shall cooperate with 21st
Century to provide services and equipment necessary to serve TTY/TDD customers
at rates, terms and conditions set forth in a separate agreement to be
negotiated between the Parties.
X.13 Service Functions
<PAGE>
X.13.1 Point of Contact for Resale Purchase
Customer.
(A) Primary Point of Contact. Except as
otherwise provided in this Agreement, 21st
Century shall be the primary point of
contact for all 21st Century Customers.
(B) Service Referrals. Ameritech shall refer
all questions from any 21st Century
resale Customer regarding any 21st
Century service or product directly to
21st Century in accordance with the
procedures set forth in the
Implementation Plan. Ameritech shall use
its best efforts to ensure that all
Ameritech representatives who receive
such inquiries regarding 21st Century
services do not in any way disparage or
discriminate against 21st Century or its
products or services and do not provide
information about Ameritech products or
services during such Customer contact.
(C) Customer Contact Employee Training.
Ameritech shall provide training for all
its employees who may communicate, either
by telephone or face to face, with 21st
Century Customers to assure that the
requirements of this Agreement are met.
Furthermore, the same quality standards
that Ameritech requires of its employees
when contacting an Ameritech Customer
(e.g., honesty, respect and courtesy)
shall apply when its employees are in
contact with 21st Century Customers.
X.13.2 Operations Support Systems Functions
- -- Provisioning.
(A) Electronic Interface for Pre-Ordering,
Ordering and Provisioning. Ameritech
will provide an electronic interface for
the transfer and receipt of data
necessary to perform the pre-ordering,
ordering and provisioning functions
(e.g., order entry, telephone number
selection and due date selection)
associated with Resale Services.
Initially, the interface for ordering
will be separate from the interface used
for pre-ordering and provisioning. By
the end of the first quarter of 1997,
the interface for ordering will migrate
to the pre-ordering and provisioning
interface. The interface will be
administered through a gateway that will
serve as a single point of contact for
the transmission of such data. This
gateway will provide for equivalent
functionality for pre-ordering, ordering
and provisioning (as such terms are
described in this Section 10.13.2) as
Ameritech uses in its provision of
retail services for the above functions.
The interface will be consistent with
the Alliance for Telecommunications
Industry Solutions (ATIS),
Telecommunications Industry Forum
(TCIF), Electronic Data Interchange
(EDI) Customer Service Guideline, issue
5, and provide the functionality
described in Schedule 10.13.2 and
<PAGE>
Ameritech's Service Order Interface
Document, version 2.00. The electronic
interface to be provided by Ameritech
will provide system- to-system
communications on a real-time basis
(response in seconds), with built-in
error recovery and built-in operations,
administration and maintenance
functionality, at a ninety-five percent
(95%) network reliability level.
However, as an industry standard
interface is developed by the
appropriate industry forum, and
generally accepted for implementation by
the industry, Ameritech shall implement
such interface.
(B) Service Ordering and Provisioning. Service
Orders will be placed by 21st Century and
provisioned by Ameritech in accordance
with the procedures described in this
Section 10.13 and the Implementation Plan.
Any Service Order activity resulting in
primary local exchange carrier changes
will comply with the requirements of 47
C.F.R. ss. 64.1100 and Section 10.9.1.
(C) Provisioning Support. Ameritech shall
provide provisioning support to 21st
Century on the same basis Ameritech
provides to its retail Customers.
Provisioning support may be expanded as
mutually agreed by the Parties.
(D) Status Reports. After receipt and
acceptance of a Service Order, Ameritech
shall provide 21st Century with service
status notices on an exception basis.
(E) Engineering Support. When requested by
21st Century, Ameritech shall provide
timely engineering support.
(F) Requests for Service Changes. Where
Ameritech provides installation,
Ameritech's representatives shall inform
an 21st Century Customer to contact 21st
Century if such Customer requests a
service change at the time of
installation.
(G) Non-Interruption of Service. Except as
specifically provided in this Agreement or
pursuant to an order of a court or
commission of competent jurisdiction,
Ameritech may not initiate any disconnect,
suspension or termination of an 21st
Century Customer's Resale Service, unless
directed to do so by 21st Century by
transmission of a Service Order or
Ameritech's receipt of proper
authorization to change such Customer's
primary local exchange carrier to a
carrier other than 21st Century.
X.13.3 Operations Support Systems Functions
- -- Maintenance.
<PAGE>
(A) Electronic Interface for Maintenance and
Repair. Ameritech will provide an
electronic interface for the transfer
and receipt of data necessary to perform
the maintenance and repair functions
(e.g., trouble receipt and trouble
status). This interface will be
administered through a gateway that will
serve as a single point of contact for
the transmission of such data. This
gateway will provide for equivalent
functionality for maintenance and repair
(as such terms are described in this
Section 10.13.3) as Ameritech uses for
maintenance and repair of its retail
services. The interface will be
consistent with the Alliance for
Telecommunications Industry Solutions
(ATIS), T1-Telecommunications (T1) -
Operations, Administration, Maintenance
and Provisioning (OAM&P), standard
T1.227-95 and T1.228-95, and the
Ameritech Electronic Bonding Interface
(EBI) document. However, as an industry
standard interface is developed by the
appropriate industry forum, and
generally accepted for implementation by
the industry, Ameritech shall implement
such interface. Procedures for
implementing any changes to the
interface will be included in the
Implementation Plan.
(B) Maintenance. Maintenance will be provided
by Ameritech as set forth in the
Implementation Plan and in accordance with
the requirements set forth in Sections
10.7 and 10.8 and Schedule 10.13.
X.14 Responsibilities of 21st Century
X.14.1 21st Century shall be responsible for
providing to its Customers and to Ameritech a telephone number or numbers that
21st Century's Customers can use to contact 21st Century in the event of service
or repair requests. If 21st Century's Customers contact Ameritech with regard to
such requests, Ameritech shall inform such Customers that they should call 21st
Century and will provide 21st Century's contact number to such Customers. At
21st Century's request, Ameritech shall provide a "warm" transfer to 21st
Century of calls Ameritech receives from 21st Century Customers for service or
repair requests at the rates set forth at Item VI of the Pricing Schedule.
X.14.2 21st Century shall provide Ameritech
with accurate and complete information regarding 21st Century's Customers in a
method reasonably prescribed by Ameritech to allow Ameritech to keep its
Emergency Telephone Number Service database updated, if Ameritech maintains such
a database.
<PAGE>
X.14.3 Prior to the Effective Date,4/ 21st
Century shall have received and communicated to Ameritech its Carrier
Identification Code and its Access Carrier Name Abbreviation or Interexchange
Access Customer Code.
X.15 Responsibilities of Ameritech. Ameritech shall provide
access to the following services where Ameritech is the underlying 9-1-1 service
provider:
(I) Universal Emergency Number service, a telephone exchange
communication service that includes lines and equipment
necessary for answering, transferring and dispatching
public emergency telephone calls originated by persons
within the telephone Central Office areas arranged for
9-1-1 calling.
(II) Basic 9-1-1 service (where available), which provides
for routing all 9-1-1 calls originated by Customers
having telephone numbers beginning with a given Central
Office prefix code or codes to a single PSAP equipped to
receive those calls.
(III) Enhanced 9-1-1 ("E9-1-1") service, which provides
additional features to Basic 9-1-1 service, such as
selective routing of 9-1-1 calls to a specific PSAP that
is selected from the various PSAPs serving Customers
within that Central Office area.
(IV) 9-1-1 call routing to the appropriate PSAP. Ameritech
shall provide and validate 21st Century Customer
information to the PSAP. Ameritech shall use its service
order process to update and maintain, on the same
schedule that it uses for its retail Customers, the 21st
Century Customer service information in the ALI/DMS
(Automatic Location Identification/Data Management
System) used to support 9-1-1 services.
Both 21st Century and its Customers purchasing Resale Service under this
Agreement are not charged for calls to the 9-1-1 number, except as provided in
any applicable tariff or pursuant to Applicable Law.
X.16 Exchange of Billing Information
X.16.1 Ameritech shall provide 21st Century a
specific Daily Usage File ("DUF") for Resale Services provided hereunder
("Customer Usage Data"). Such Customer Usage Data shall be recorded by Ameritech
in accordance with the Ameritech Electronic Billing System (AEBS) and EMR. The
DUF shall include specific daily usage, including both Local Traffic and
IntraLATA Toll Traffic, in EMR format, for each individual Resale Service and
shall include sufficient detail to enable 21st Century to bill its Customers for
Resale Services provided
- ---------------
4/ Because the terms of this Agreement are the result of 21st Century's
adoption under Section 252(i) of the Act of the MCI Agreement, the
Parties agree that the term "Effective Date", for purposes of this
Section 10.14.3, shall mean April 20, 1998.
<PAGE>
by Ameritech. Ameritech will provide to 21st Century detailed specifications
that will enable 21st Century to develop an interface for the exchange of
Customer Usage Data. Procedures and processes for implementing the interface
will be included in the Implementation Plan. Except as provided in Section
10.16.4, no other detailed billing shall be provided by Ameritech to 21st
Century.
X.16.2 Interexchange call detail forwarded to
Ameritech for billing, which would otherwise be processed by Ameritech, will be
returned to the IXC and will not be passed through to 21st Century. This call
detail will be returned to the IXC with a transaction code indicating that the
returned call originated from a resold account. Billing for 900 and 976 calls or
other Information Services Traffic will be passed through when Ameritech records
the message. If 21st Century does not wish to be responsible for 900 and 976
calls, it must order blocking for resold lines. When the IXC records the 900 and
976 calls, the call detail will be returned to the IXC. Upon 21st Century's
request, Ameritech will recourse charges on 900 and 976 calls to the Information
Service provider in accordance with existing agreements with such providers. If
the provider will not accept recourse, Ameritech will notify 21st Century, and
21st Century, at its option and expense, may pursue any rights that Ameritech
may have under such agreements to contest such charge. If 21st Century elects
not to contest such charges or such Information Service provider does not accept
the recourse, 21st Century will promptly pay Ameritech for such charges, and the
dispute shall be solely between 21st Century and the Information Service
provider.
X.16.3 21st Century shall be responsible for
providing all billing information to its Customers who purchase Resale Services
from 21st Century.
X.16.4 Ameritech shall bill 21st Century for
Resale Services provided by Ameritech to 21st Century pursuant to the provisions
of Article XXVII. Ameritech shall recognize 21st Century as the Customer of
Record for all Resale Services and will send all notices, bills and other
pertinent information directly to 21st Century. The bill will include sufficient
data to enable 21st Century to (i) bill all charges to its Customers that are
not included as Customer Usage Data and (ii) reconcile the billed charges with
the Customer Usage Data.
X.17 Use of Service
X.17.1 21st Century, and not Ameritech, shall be
responsible to ensure that its and its Customers' use of the Resale Services
complies at all times with Applicable Law. Ameritech may refuse to furnish or
may disconnect Resale Services of 21st Century or, as appropriate, to an 21st
Century Customer when:
(A) An order is issued by a court, the
Commission or any other duly authorized
agency, finding that probable cause exists
to believe that the use made or to be made
of a Resale Service is prohibited by
Applicable Law, or
(B) Ameritech is notified in writing by a law
enforcement agency acting within its
jurisdiction that any facility furnished
by Ameritech is
<PAGE>
being used or will be used
for the purpose of transmitting or
receiving gambling information in
interstate or foreign commerce in
violation of law.
X.17.2 Termination of Resale Service shall take
place after reasonable notice is provided to 21st Century or as ordered by a
court.
X.17.3 If communications facilities have been
physically disconnected by law enforcement officials at the premises where
located, and if there is not presented to Ameritech the written finding of a
judge, then upon written request of 21st Century and agreement to pay restoral
of Resale Service charges and other applicable charges, Ameritech shall promptly
restore such Resale Service.
X.17.4 To the extent provided under the
Telephone Consumer Protection Act (47 U.S.C.ss. 227) and regulations thereunder,
Resale Service shall not be used for the purpose of solicitation by recorded
message when such solicitation occurs as a result of unrequested calls initiated
by the solicitor by means of automatic dialing devices. Such devices, with
storage capability of numbers to be called or a random or sequential number
generator that produces numbers to be called and having the capability, working
alone or in conjunction with other equipment, of disseminating a prerecorded
message to the number called and that are calling party- or called
party-controlled, are expressly prohibited.
X.17.5 The Resale Services shall not be used in
any manner that interferes with other persons in the use of their
Telecommunications Service, prevents other persons from using their
Telecommunications Services, or otherwise impairs the quality of service to
other carriers or Ameritech's Customers.
X.17.6 If 21st Century's use of Resale Services
interferes unreasonably with the Resale Services of other carriers or their
customers or of 21st Century's or Ameritech's Customers, 21st Century shall be
required to take Resale Services in sufficient quantity or of a different class
or grade to correct such interference.
ARTICLE XI
NOTICE OF CHANGES -- SECTION 251(c)(5)
If a Party makes (i) a change in its network that will materially
affect the interoperability of its network with the other Party or (ii) changes
Operations Support Systems functions that affect the operations of the other
Party, the Party making the change shall provide reasonable advance written
notice of such change to the other Party within such time period as determined
by the FCC or the Commission and their respective rules and regulations.
<PAGE>
ARTICLE XII
COLLOCATION -- SECTION 251(c)(6)
XII.1 Physical Collocation. Ameritech shall provide to 21st
Century Physical Collocation on its Premises for equipment necessary for
Interconnection (pursuant to Article III) or for access to unbundled Network
Elements (pursuant to Article IX), except that Ameritech will provide for
Virtual Collocation of such equipment if Ameritech demonstrates to the
Commission that Physical Collocation is not practical for technical reasons or
because of space limitations, as provided in Section 251(c)(6) of the Act.
Ameritech shall provide 21st Century Collocation only for the purpose of
Interconnection or access to Ameritech's Network Elements.
XII.2 Virtual Collocation in Physical Collocation Space. Where
21st Century is Virtually Collocated on the Effective Date5/ in a space that was
initially prepared for Physical Collocation, 21st Century may elect to (i)
retain its Virtual Collocation on that Premises and expand that Virtual
Collocation according to Ameritech's applicable tariffs or (ii) revert to
Physical Collocation, in which case 21st Century shall coordinate with Ameritech
for rearrangement of its transmission equipment and facilities, for which
Ameritech shall impose no conversion charge. All applicable Physical Collocation
recurring charges shall apply.
XII.3 Virtual Collocation in Virtual Collocation Space. Where
21st Century is Virtually Collocated in a space that was initially prepared for
Virtual Collocation, 21st Century may elect to (i) retain its Virtual
Collocation in that space and expand that Virtual Collocation according to the
terms of this Agreement and applicable tariffs or (ii) unless it is not
practical for technical reasons or because of space limitations, as demonstrated
by Ameritech to the Commission, convert its Virtual Collocation to Physical
Collocation at such Premises, in which case 21st Century shall coordinate the
construction and rearrangement with Ameritech of its transmission equipment and
facilities, for which 21st Century shall pay Ameritech at the rates set forth at
Item VII of the Pricing Schedule. In addition, all applicable Physical
Collocation recurring charges shall apply.
XII.4 Nondiscriminatory Collocation. Collocation shall be made
available to 21st Century by Ameritech on a basis that is at parity to the
priorities that Ameritech provides to itself, its subsidiaries, Affiliates or
other persons. The quality of design, performance, features, functions,
maintenance and other characteristics of Collocation made available to 21st
Century under this Agreement shall be at parity to that which Ameritech provides
in its network to itself, its subsidiaries, its Affiliates or other persons.
XII.5 Eligible Equipment
- ---------------
5/ Because the terms of this Agreement are the result of 21st Century's
adoption under Section 252(i) of the Act of the MCI Agreement, the
Parties agree that the term "Effective Date", for purposes of this
Section 12.2, shall mean April 20, 1998.
<PAGE>
XII.5.1 21st Century may Collocate equipment
necessary for Interconnection, or access to Ameritech's Network Elements,
including the following types of equipment:
(A) OLTM equipment;
(B) Multiplexers;
(C) Digital Cross-Connect Panels;
(D) Optical Cross-Connect Panels;
(E) Digital Loop Carrier, including Next
Generation Digital Loop Carrier (in all
cases utilizing transmission capabilities
only);
(F) Data voice equipment;
(G) Equipment used to facilitate hubbing
architectures (e.g., SONET terminating
equipment used for hubbing); and
(H) any other transmission equipment
collocated as of August 1, 1996 necessary
to terminate basic transmission facilities
pursuant to 47 C.F.R. ss.ss. 64.1401 and
64.1402.
XII.5.2 21st Century shall not Collocate
switching equipment or equipment used to provide enhanced services.
XII.5.3 Subject to the terms and conditions set
forth in this Article XII, Ameritech shall not restrict the types of equipment
or vendors of equipment to be installed.
XII.5.4 21st Century may use Collocated equipment
to transport Interconnection or Network Element traffic through one (1) or more
Ameritech Central Offices destined for termination at another Ameritech Central
Office; provided that the type and use of such Collocated equipment conforms to
the other restrictions in this Article XII.
XII.6 Transmission Facility Options. For both Physical
Collocation and Virtual Collocation, 21st Century may either purchase unbundled
transmission facilities (and any necessary Cross-Connection) from Ameritech or
provide its own or third-party leased transmission facilities and terminate
those transmission facilities in its equipment located in its Collocation space
at Ameritech's Premises.
XII.7 Interconnection with other Collocated Carriers. Upon
written request to Ameritech, 21st Century shall be permitted to Interconnect
its network with that of another collocating Telecommunications Carrier at
Ameritech's Premises by connecting its Collocated equipment to the Collocated
equipment of the other Telecommunications Carrier via a Cross-Connection or
other connecting transmission facilities ("Co-Carrier Cross-Connect") so long as
(i) 21st Century's and the other collocating Telecommunications Carrier's
collocated
<PAGE>
equipment are to be used for Interconnection with Ameritech or for access to
Ameritech's Network Elements (except that the Parties acknowledge that 21st
Century may Collocate equipment necessary to connect to such other collocating
Telecommunications Carrier (i.e., a multiplexer) that may not be directly
connected to Ameritech for access to Ameritech's Network Elements but will
connect at some point to Ameritech's network), (ii) 21st Century provides the
connection between the equipment in the collocated spaces via a Cross-Connection
or other connecting transmission facility that, at a minimum, complies in all
respects with Ameritech's technical and engineering requirements and (iii) the
connecting transmission facilities of 21st Century and the other collocating
Telecommunications Carrier are contained wholly within space provided solely for
Physical Collocation within Ameritech's Premises. In the event that such
Co-Carrier Cross-Connect is used to connect with the Virtual Collocation
equipment of 21st Century or another Telecommunications Carrier, Ameritech shall
provide the Cross-Connect at the rates set forth in Item VII of the Pricing
Schedule.
XII.8 Interconnection Points and Cables. Ameritech
shall:onnection Points and Cables
XII.8.1 provide 21st Century an Interconnection point
or points physically accessible by both Ameritech and 21st Century, at which the
fiber optic cable (or other necessary facility as per 21st Century's Bona Fide
Request) carrying 21st Century's circuits can enter Ameritech's Premises;
provided that Ameritech shall designate Interconnection Points as close as
reasonably possible to Ameritech's Premises;
XII.8.2 provide at least two (2) such Interconnection
points at Ameritech's Premises at which there are at least two (2) entry points
for 21st Century's cable facilities, and at which space is available for new
facilities in at least two (2) of those entry points;
XII.8.3 permit 21st Century Interconnection of copper
or coaxial cable if such Interconnection is first approved by the Commission;
and
XII.8.4 permit 21st Century Physical Collocation of
microwave transmission facilities, except where such
Collocation is not practical for technical reasons or because of space
limitations, in which case Ameritech shall provide Virtual Collocation of such
facilities as required where technically feasible.
XII.9 Allocation of Collocation Space
XII.9.1 21st Century may reserve Collocation
space for its future use in Ameritech's Premises in accordance with the
provisions of Schedule 12.9.1. Ameritech shall notify 21st Century in writing if
another Telecommunications Carrier requests Collocation space that is reserved
by 21st Century. 21st Century shall, within five (5) Business Days of receipt of
such notice, provide Ameritech either (i) written notice that 21st Century
relinquishes such space or (ii) enforce its reservation of space in accordance
with the provisions of Schedule 12.9.1. Failure of 21st Century to respond to
Ameritech within the foregoing five (5) Business Day period shall be deemed an
election by 21st Century to relinquish such space.
<PAGE>
XII.9.2 Ameritech shall not be required to
lease or construct additional space in a Premises to provide 21st Century
Physical Collocation when existing space in such Premises has been exhausted.
XII.9.3 21st Century will provide Ameritech
with a non-binding two (2)-year rolling forecast of its estimated requirements
for Collocation that will be reviewed jointly on a yearly basis by the Parties,
in accordance with the planning processes described in Schedule 12.9.3.
Ameritech will attempt to deliver Collocation pursuant to 21st Century's
forecasts to the extent that Collocation space is then available.
XII.10 Security Arrangements. 21st Century shall comply with
reasonable security arrangements as designated by Ameritech to separate 21st
Century's Collocation space from Ameritech's facilities. 21st Century shall be
responsible for all direct costs relating to the construction of a collocation
cage for 21st Century's Physical Collocation space.
XII.11 Subcontractor and Vendor Approval. Ameritech shall
permit 21st Century to subcontract the construction and build-out of Physical
Collocation arrangements with contractors approved by Ameritech. Approval of
such subcontractors by Ameritech shall be based on the same criteria it uses in
approving contractors for its own purposes. In addition, Ameritech shall allow
21st Century to have an Ameritech-approved vendor install updates to Collocated
equipment, including software updates.
XII.12 Delivery of Collocated Space
XII.12.1 Ameritech shall provide 21st Century
with a single point of contact for all inquiries regarding Collocation. 21st
Century shall request space for Collocation by delivering a written request to
Ameritech. Each request for Collocation shall include (i) the Premises in which
Collocation is requested, (ii) the amount of space requested, (iii) the
interoffice transmission facilities 21st Century will require for such space,
(iv) the equipment to be housed in such space, (v) 21st Century's anticipated
power requirements for the space, (vi) any extraordinary additions or
modifications (i.e., security devices, node enclosures, HVAC, etc.) to the space
or to the Premises to accommodate 21st Century's Collocated equipment, (vii) the
specific level of diversity for fiber (or other facility as per 21st Century's
Bona Fide Request) and power cabling to and from the Collocated space and (viii)
the date on which 21st Century intends to initiate service from such space.
Ameritech shall notify 21st Century in writing within ten (10) Business Days of
receiving 21st Century's request for Collocation as to whether the requested
space is available. If the requested amount of space is not available for
Physical Collocation, Ameritech shall specify in its notice to 21st Century if
an amount of space other than as requested by 21st Century is available, when
the requested (and, if applicable, such other) space for Physical Collocation
will be made available to 21st Century and shall offer to 21st Century Virtual
Collocation Space in accordance with Section 12.12.3.
<PAGE>
XII.12.2 Physical Collocation.
(A) If space for Physical Collocation is
immediately available at the time of 21st
Century's request, Ameritech shall include
in its notice to 21st Century (i) the
space to be provided and (ii) whether
Ameritech can deliver the space to 21st
Century by the date set forth in Section
12.12.2(c).
(B) If 21st Century's requested Physical
Collocation space is available, Ameritech
and 21st Century shall have an initial
walkthrough of such space within ten (10)
Business Days after Ameritech's receipt of
21st Century's Initial COBO Payment.
(C) Ameritech shall deliver to 21st Century
the requested space on or before the later
of (i) one hundred twenty (120) days from
Ameritech's receipt of 21st Century's
request for Collocation, (ii) ninety (90)
days from the receipt of 21st Century's
Initial COBO Payment (as provided on
Schedule 12.12) and (iii) such other
reasonable date that the Parties may agree
upon if it is not feasible for Ameritech
to deliver to 21st Century such space
within the foregoing intervals (such date
of delivery referred to as the "Delivery
Date").
(D) Physical Collocation space ordered by 21st
Century will be made available to 21st
Century by Ameritech as more fully
described in Section 1 of Schedule 12.12.
(E) If Ameritech does not provide 21st Century
with its Collocated space by the Delivery
Date and such delay is caused directly by
Ameritech's actions or its failure to act
(and not by an 21st Century Delaying
Event), 21st Century shall receive a
credit of 1/120th of its COBO payment for
each day after the applicable Delivery
Date that such Collocated space is not
made available.
(F) Ameritech may begin billing 21st Century
for recurring charges for the Collocated
space on the Occupancy Date. For
purposes of this Article XII, "Occupancy
Date" shall mean the date on which (i)
the Parties have completed the
acceptance walkthrough of 21st Century's
Physical Collocation Space and (ii) no
bona fide exceptions for such space have
been noted or remain outstanding. 21st
Century shall vacate the Collocated
space if either (i) 21st Century fails
to install within ninety (90) days of
the Occupancy Date the equipment
necessary for Interconnection and/or
access to unbundled Network Elements to
be housed in such space or (ii) 21st
Century fails to Interconnect to the
Ameritech network within one hundred and
fifty (150) days of the Occupancy Date.
If 21st Century is required to vacate
the space pursuant to this Section
12.12.2(f), 21st Century
<PAGE>
shall vacate such space within
ninety (90) Business Days of the
earliest to occur of the foregoing
events. If, after vacating a space,
21st Century still requires
Collocation in that Premises, 21st
Century shall be required to submit
a new request for Collocation
pursuant to the provisions of
Section 12.12.1.
(G) Physical Collocation will be subject to
the additional rules and regulations set
forth in Section 2.0 of Schedule 12.12.
(H) Ameritech shall provide positive
confirmation to 21st Century when
construction of 21st Century Collocated
space is fifty percent (50%) completed.
This confirmation shall also include
confirmation of the scheduled completion
date and Delivery Date. The Implementation
Plan will include a process for
determining when construction is fifty
percent (50%) complete.
(I) After completion of construction but
prior to occupancy, 21st Century and
Ameritech will complete an acceptance
walkthrough of all Collocated space
requested from Ameritech. Exceptions
that are noted during this acceptance
walkthrough shall be corrected by
Ameritech as soon as possible but not
later than thirty (30) days after the
walkthrough. Ameritech shall conduct a
root-cause analysis of all exceptions
identified. The correction of these
exceptions from 21st Century's original
request for Collocation shall be at
Ameritech's expense and shall be subject
to an additional walkthrough and
acceptance by 21st Century.
(J) The Implementation Team shall establish,
pursuant to Section 18.2(a), contacts
(names and telephone numbers) for each
Party for the following areas relating to
Collocation:
1. Engineering; 2. Physical
and Logical Security; 3.
Provisioning; 4. Billing; 5.
Operations; 6. Site and
Building Managers; and 7.
Environmental and Safety.
(K) The Implementation Team shall also
establish an escalation process for each
Party's employees (names, telephone
numbers and escalation order) for any
disputes that may arise pursuant to the
Parties' Collocation of equipment
hereunder.
<PAGE>
XII.12.3 Virtual Collocation.
(A) If 21st Century requests Virtual
Collocation, or if requested Physical
Collocation space is not available at a
Premises and 21st Century elects Virtual
Collocation, and such Virtual Collocation
is available at the time of 21st Century's
request, Ameritech shall include in its
notice to 21st Century described in
Section 12.12.1, (i) the space to be
provided and (ii) whether Ameritech can
deliver the space to 21st Century by the
date set forth in Section 12.12.3(c).
(B) Ameritech and 21st Century will have an
initial walkthrough of the Collocated
space to be provided to 21st Century for
Virtual Collocation on the date that is
the earlier of (i) ten (10) Business Days
after Ameritech's verification of the
Virtual Collocation space to be provided
to 21st Century and (ii) fourteen (14)
calendar days after Ameritech's receipt of
21st Century's request for Virtual
Collocation.
(C) Ameritech shall deliver to 21st Century
the requested space on or before the later
of (i) twelve (12) weeks from Ameritech's
receipt of 21st Century's request for
Virtual Collocation and (ii) such other
reasonable date that the Parties may agree
upon if it is not feasible for Ameritech
to deliver to 21st Century such space
within twelve (12) weeks (such date of
delivery referred to as the "Delivery
Date") and Ameritech notified 21st Century
of this fact within ten (10) Business Days
from Ameritech's receipt of 21st Century's
request.
(D) Virtual Collocation space ordered by 21st
Century will be made available to 21st
Century by Ameritech, as more fully
described in Section 3 of Schedule 12.12.
(E) Ameritech shall provide positive
confirmation to 21st Century when
construction of 21st Century Collocated
space is fifty percent (50%) completed.
This confirmation shall also include
confirmation of the scheduled completion
date and the Delivery Date. The
Implementation Plan will include a process
for determining when construction is fifty
percent (50%) complete.
(F) After completion of construction and on
or before but prior to the Delivery
Date, 21st Century and Ameritech will
complete an acceptance walkthrough of
all Collocated space requested from
Ameritech. Exceptions that are noted
during this acceptance walkthrough shall
be corrected by Ameritech as soon as
possible but not later than thirty (30)
days after the walkthrough. Ameritech
shall conduct a root-cause analysis of
all exceptions identified. The
correction of these exceptions from 21st
Century's original request for
<PAGE>
Collocation shall be at Ameritech's
expense and shall be subject to an
additional walkthrough and acceptance by
21st Century.
XII.13 Pricing. The prices charged to 21st Century for
Collocation are set forth at Item VII of the Pricing Schedule.
XII.14 Ameritech shall bill 21st Century for Collocation
pursuant to the requirements of Article XXVII to this Agreement.
XII.15 Common Requirements. The requirements set forth on
Schedule 12.15 shall be applicable to both Physical and Virtual Collocation.
XII.16 Additional Requirements. The additional requirements set
forth on Schedule 12.16 shall be applicable to Physical Collocation.
XII.17 Protection of Service and Property. Both Parties shall
exercise reasonable care to prevent harm or damage to the other Party, its
employees, agents or Customers, or their property. Both Parties, their employees
and agents agree to take reasonable and prudent steps to ensure the adequate
protection of the other Party's property and services, including:
XII.17.1 Ameritech and 21st Century shall restrict
access to 21st Century equipment, support equipment, systems, tools and data, or
spaces that contain or house 21st Century equipment enclosures to 21st Century
employees and other authorized non-21st Century personnel to the extent
necessary to perform their specific job functions.
XII.17.2 21st Century shall comply at all times
with reasonable security and safety procedures and existing requirements that
are established by Ameritech and communicated to 21st Century.
XII.17.3 Ameritech shall allow 21st Century (i)
for 21st Century's Physical Collocation spaces, seven (7)-day, twenty-four
(24)-hour access to inspect or observe spaces that house or contain 21st Century
equipment or equipment enclosures and Ameritech shall furnish 21st Century with
keys, entry codes, lock combinations, and other materials or information that
may be needed to gain entry into any secured 21st Century space, subject to
Section 12.17.2 and Article XX, and (ii) for 21st Century's Virtual Collocated
space, access during the applicable Premises' normal business hours to inspect
or observe 21st Century equipment. 21st Century acknowledges that Ameritech may
require 21st Century's representative(s) to be escorted during such
inspections/observations of Virtual Collocated space, and 21st Century agrees to
pay the cost of Ameritech escorts.
<PAGE>
ARTICLE XIII
NUMBER PORTABILITY -- SECTION 251(b)(2)
XIII.1 Provision of Local Number Portability. Each Party shall
provide to the other Party, to the extent technically feasible, Local Number
Portability in accordance with the requirements of the Act. To the extent
technically feasible, Interim Local Number Portability will be provided by each
Party with minimum impairment of functionality, quality, reliability and
convenience to subscribers of the other Party's services. However, when a
Customer switches from one Telecommunications Carrier to another and retains its
telephone number, via Permanent Number Portability, each Party shall provide
such portability without any impairment of functionality, quality, reliability
or convenience.
13.1.1 Conventions. For purposes of this Article XIII,
Party A means the Carrier from which a telephone number is Ported, and Party B
means the carrier to which a telephone number is ported.
XIII.2 Interim Number Portability (INP) The Parties agree to
provide INP on a reciprocal basis between their networks to enable their
Customers to utilize telephone numbers associated with a Telephone Exchange
Service provided by one Party, in conjunction with a Telephone Exchange Service
provided by the other Party, upon the coordinated or simultaneous termination of
the first Telephone Exchange Service and activation of the second Telephone
Exchange Service. The Parties shall provide reciprocal INP via remote call
forwarding ("RCF"), Direct Inward Dialing ("DID"), NXX Migration or other
technically feasible methods made pursuant to a Bona Fide Request; provided, in
each case that the Customer whose telephone number is subject to INP remains
within the same serving Wire Center or Switching Center. Subject to the
restrictions set forth in this Article XIII, 21st Century shall specify on a per
telephone number basis which method of INP is to be employed, and Ameritech
shall provide such method to the extent technically feasible.
XIII.3 Remote Call Forwarding ("RCF") If a Telephone Exchange
Service Customer of Party A elects to become a Telephone Exchange Service
Customer of Party B, such Customer may elect to utilize the original telephone
number(s) corresponding to the Telephone Exchange Service(s) it previously
received from Party A in conjunction with the Telephone Exchange Service(s) it
shall now receive from Party B. Provided that Party B has complied with the
requirements of Section 10.11.1 and has issued an associated service order to
Party A to assign the number to Party B, Party A shall implement an arrangement
whereby all calls to the original telephone number(s) shall be forwarded on a
multiple-path basis to a new telephone number(s) designated by Party B. Party B
shall specify the number of paths, up to ninety-nine (99) paths, required for
each telephone number being ported. Party A shall route the forwarded traffic to
Party B over the appropriate trunks as if the call were a call that had
originated on Party A's network.
XIII.4 Direct Inward Dialing ("DID"). DID service provides
trunk-side access to End Office Switches for direct inward dialing to the other
Party's premises equipment from the telecommunications network to lines
associated with the other Party's switching equipment and
<PAGE>
must be provided on all trunks in a group arranged for inward service. In
addition, direct facilities are required from the End Office where a ported
number resides to the End Office serving the ported Customer. Transport mileage
will be calculated as the airline distance between the End Office where the
number is ported and the Interconnection Wire Center or Switching Center using
the V&H coordinate method. INP-DID must be established with a minimum
configuration of two (2) channels and one (1) unassigned telephone number per
switch, per arrangement for control purposes. Transport facilities arranged for
INP-DID may not be mixed with any other type of trunk group, with no outgoing
calls placed over said facilities. INP-DID will be provided only where such
facilities are available and where the switching equipment of the ordering Party
is properly equipped. Where INP-DID service is required from more than one (1)
Wire Center/Switching Center or from separate trunk groups within the same Wire
Center/Switching Center, such service provided from each Wire Center/Switching
Center or each trunk group within the same Wire Center/Switching Center shall be
considered a separate service.
XIII.5 NXX Migration. Where a Party has activated an entire NXX
for a single Customer, or activated a substantial portion of an NXX for a single
Customer with the remaining numbers in that NXX either reserved for future use
or otherwise unused, if such Customer chooses to receive service from the other
Party, the first Party shall cooperate with the second Party to have the entire
NXX reassigned (or subsequently re-assigned, in the case of subsequent carrier
changes) in the LERG (and associated industry databases, routing tables, etc.)
to an End Office operated by the second Party. Such transfer will be
accomplished with appropriate coordination between the Parties and subject to
standard industry lead times for movements of NXXs from one switch to another.
In the interim period, prior to the effective date of the LERG reassignment, the
requesting party may request the providing party to implement RCF, DID or
another method of INP that is consistent with the terms of this Agreement.
XIII.6 Other INP Methods. Methods of providing INP, other than
RCF, DID or NXX Migration, may be provided, to the extent technically feasible
and consistent with applicable FCC or Commission decisions, pursuant to a Bona
Fide Request.
XIII.7 Other Interim Portability Provisions
XIII.7.1 Party B shall become the Customer of
Record for the original Party A's telephone number(s), subject to the RCF or DID
or other applicable arrangements that are provided pursuant to a Bona Fide
Request. Party A shall use its reasonable efforts to provide Party B with a
consolidated billing statement for all collect and billed-to-third-number calls
associated with those numbers, with sub-account detail by retained number. Such
billing statement shall be delivered in a mutually agreed format via either
paper, Electronic File Transfer, daily magnetic tape or monthly magnetic tape.
Party A shall provide to Party B the Exchange Message Record ("EMR") containing
detailed records associated with the calls reflected on the billing statement,
as generated by the Ameritech Electronic Billing System ("AEBS").
XIII.7.2 Unless otherwise mutually agreed to in
the Implementation Plan, Party A may cancel line-based calling cards and shall,
as directed by Party B, update its LIDB
<PAGE>
listings for retained numbers, subject to RCF or DID. Ameritech will include
billing number information associated with numbers used for INP arrangements in
its LIDB and will store and administer such data in the same manner as
Ameritech's data for its Customers. Ameritech shall provide responses to on-line
queries to the stored information for the purpose of calling card validation,
fraud control and billed numbers screening without charge.
XIII.7.3 If a Customer elects to move its
Telephone Exchange Service back to Party A during the continuance of the RCF or
DID arrangement, Party A shall notify Party B of the Customer's termination of
service with Party B and the Customer's instructions regarding its telephone
number(s) within two (2) Business Days of receiving notification from the
Customer. Subject to procedures generally performed by Party A for potential new
Customers (e.g., credit checks, receipts of deposit), Party A shall reinstate
service to the Customer, cancel the RCF or DID or other applicable arrangement
currently being provisioned, or redirect the RCF or DID or other applicable
arrangement pursuant to the Customer's instructions at that time.
XIII.7.4 At the time a Party requests RCF or DID,
the other Party shall disclose to the other requesting Party any technical or
capacity limitations that would prevent use of a requested INP implementation in
a particular switching office.
XIII.7.5 Ameritech will provide SS7
functionalities (e.g., TCAP messages for CLASS Features) where such
functionalities are available and it is technically feasible to provide such
functionalities in conjunction with Interim Number Portability.
XIII.7.6 When RCF is used for 21st Century
Customers, both the ported numbers and RCF numbers shall be stored in the PSAP
database, to the extent that the database is capable of storing both numbers.
21st Century shall have the right to verify the accuracy of its information in
the PSAP databases. To the extent technically feasible, and subject to the other
terms and conditions of this Article XIII, Ameritech shall make available to
21st Century Customers the same 9-1-1 capabilities as Ameritech makes available
to its Customers.
XIII.7.7 When RCF is used to port a Customer, the
donor provider must maintain the Line Information Database (LIDB) record for
that number to reflect appropriate conditions as reported to it by the porting
service provider. If Party B has not blocked outclear call, Party A must provide
call records (e.g. third-party call collect or calling card calls) to 21st
Century for billing and collection from the Customer. Party A shall send a CARE
transaction to notify the appropriate IXC that access is no longer provided by
Party A for that number.
XIII.7.8 Neither Party shall be required to
provide Number Portability for non-geographic services (e.g., 500 and 900 NPAs,
976 NXX number services and coin telephone numbers) under this Agreement.
<PAGE>
XIII.8 Compensation on Traffic to INP'ed Numbers
XIII.8.1 The Parties agree that, under INP,
transport and terminating compensation on Exchange Access calls to INP'ed
numbers should be received by each Customer's chosen LEC through meet-point
billing arrangements, as if each call to the Customer had been originally
addressed by the caller to a telephone number bearing an NPA-NXX directly
assigned to the Customer's chosen LEC. In order to accomplish this objective
where INP is employed, the Parties shall utilize the process set forth in this
Section 13.8, whereby transport and terminating compensation on calls subject to
INP will be passed from the Party (the "Performing Party") that performs the INP
to the other Party (the "Receiving Party") for whose Customer the INP is
provided.
XIII.8.2 For such Exchange Access Traffic, the
Performing Party shall compensate the Receiving Party, consistent with Article
VI of this Agreement (i.e., the Receiving Party shall receive the following rate
elements of the Performing Party's effective interstate and intrastate access
charges): carrier common line (CCL), residual interconnection charge (RIC) or
transport interconnection charge (TIC), local switching (LS), one-half the local
termination (LTT) rate elements, and one-half of the local transport facility
(LTF) rate elements, based on a five (5)-mile LTF.
XIII.8.3 The provision of revenues for Exchange
Access from the Performing Party to the Receiving Party shall be governed by the
audit provisions of Article XXVIII.
XIII.9 Pricing for Interim Number Portability. Each Party shall
comply with the methodology (including recordkeeping) established by the FCC or
the Commission with respect to such Party's recovery in a competitively neutral
manner of its costs to provide Interim Number Portability. To the extent
permitted by the FCC or the Commission, such costs shall include a Party's costs
to deliver calls between the other Party's Customers via Number Portability.
Recovery of Interim Number Portability costs will be in a competitively neutral
manner, as determined by the Commission. Until such time that the Commission
determines a method for the recovery of INP costs, each Party shall provide INP
to each other at a zero rate, and record their marginal costs to a deferred
account. Such accumulated amounts will be treated in a manner consistent with
the Commission's ultimate conclusion in Docket 95-0296.
XIII.10 Permanent Number Portability. The Parties shall migrate
from RCF, DID, NXX Migration or another agreed-upon method to Permanent Number
Portability as soon as practically possible but no later than the date provided
for by the FCC. The Parties shall provide Permanent Number Portability on a
reciprocal basis to each other in accordance with rules and regulations as from
time to time prescribed by the FCC and/or the Commission. Number Portability
(NP) shall include the following requirements:
XIII.10.1 Customers must be able to change local service
providers and retain the same telephone number(s) consistent with FCC
rules and regulations.
XIII.10.2 The NP network architecture shall not require
either Party to rely on the network of the other Party for calls
completing to its ported Customers.
<PAGE>
XIII.10.3 When an office is equipped with NP, all NXXs
in the office shall be defined as portable and translations will be
changed in all service provider switches to open those NXXs for
database queries. If a switch serves multiple Rate Centers, then, at
a minimum, all of the NXXs for a Rate Center in that switch shall be
made portable when any one of them is turned up.
XIII.10.4 Both Parties agree to implement Location
Routing Numbers (LRN) as the Permanent Number Portability method,
unless the Commission adopts a different Permanent Number Portability
method consistent with FCC rules and regulations.
XIII.10.5 Processes and Procedures for the
implementation of LRN or any other applicable Permanent Number
Portability method shall be addressed by the Implementation Team, or
any other body established by the Parties or the Commission for the
purpose of addressing the implementation of Permanent Number
Portability.
XIII.10.6 Subject to the terms of the initial
reservation of numbers, when a Customer ports to another service
provider and has previously secured a reservation of line numbers
from the donor provider for possible activation at some future point,
these reserved but inactive numbers shall "port" along with the
active numbers being ported by the Customer in order to ensure that
such Customer will be permitted to expand its service using the same
number range it could use if it remained with the donor provider.
XIII.10.7 Joint Cooperation. Both 21st Century and
Ameritech shall jointly cooperate to implement all requirements for
Permanent Number Portability as set forth in the Act and FCC rules
and regulations, including:
(a) The provision of all emergency and
operator services.
(b) The provision of information necessary
to ensure that both carriers are able to
rate and bill all types of calls.
XIII.10.8 The terminating carrier shall be the default
carrier for database queries where a participating carrier is unable
to perform its own query due to abnormal conditions.
XIII.10.9 Party A will provide Party B INP and NP for
Customers moving to a different location, or staying at the same
location, within the same Wire Center or Switching Center area.
XIII.10.10 SMS Administration. Ameritech will work
cooperatively with other local service providers to establish the NP
Service Management System (SMS). The SMS shall be administered by a
neutral third party, to provide for the efficient porting of numbers
between carriers, in accordance with the directions of the FCC or the
Commission. Consistent with the FCC rules and regulations, Ameritech
and 21st Century shall cooperate to facilitate the selection of a
neutral third party and development of SMS,
<PAGE>
as well as SMS testing for effective procedures, electronic system
interfaces, and overall readiness for use consistent with that
specified for provisioning in this Agreement.
XIII.11 Requirements for INP and NP
XIII.11.1 White Page Listings. Ameritech shall
provide Directory listings in connection with ported Customers subject to the
requirements of Article XV.
XIII.11.2 Cut-Over Process and Installation
Intervals. Party A shall cooperate in the process of porting numbers from Party
A to Party B so as to limit service outage for the ported Customer. Party A
shall provide INP to Party B at the sooner of (i) the following intervals and
(ii) at parity with intervals that Party A provides INP to any other person:
1-10 Numbers per Service Order 5 days from Party A's Receipt of valid
Service Order
11-20 Numbers per Service Order 10 days from Party A's Receipt of valid
Service Order
21+ Numbers per Service Order to be Negotiated
XIII.11.3 Testing. The Parties shall cooperate in
conducting testing to ensure interconnectivity between systems. Each Party shall
inform the other Party of any system updates that may affect the other Party's
network and shall, at mutually agreeable times, perform tests to validate the
operation of the network. Additional testing requirements may apply as specified
by this Agreement.
XIII.11.4 Engineering and Maintenance. Ameritech
and 21st Century will cooperate to ensure that performance of trunking and
signaling capacity is engineered and managed at levels which are at least at
parity with that provided by Ameritech to its subscribers and to ensure
effective maintenance testing through activities such as routine testing
practices, network trouble isolation processes and review of operational
elements for translations, routing and network fault isolation. Additional
specific engineering and maintenance requirements shall apply as specified in
this Agreement.
XIII.11.5 Recording and Billing. Billing of Number
Portability arrangements shall be governed by Article XXVII, unless any
provision in Article XXVII is deemed inconsistent with the Act or a decision of
a regulatory body of appropriate jurisdiction, in which case such decision shall
apply. Subject to Section 13.7.5, calls originated from RCF ported numbers in
21st Century End Offices and sent to the 21st Century interLATA toll network
must signal the 21st Century number in the Calling Party Number (CPN) parameter
and ported number in the Charge Number (CN) parameter in the SS7 Initial Address
Message.
<PAGE>
XIII.11.6 Operator Services and Directory
Assistance. Operation Services and Directory Assistance provisions for Number
Portability arrangements shall be governed by Schedule 9.7.2.
ARTICLE XIV
DIALING PARITY -- SECTIONS 251(b)(3) and 271(e)(2)
NUMBER ADMINISTRATION -- SECTION 251(e)
XIV.1 Dialing Parity. The Parties shall provide Dialing Parity
to each other as required under Section 251(b)(3) of the Act, except as may be
limited by Section 271(e)(2)(B) of the Act.
XIV.2 Number Administration. Until Number Administration
functions are assumed by a neutral third party, in accordance with FCC rules and
regulations, Ameritech will provide nondiscriminatory access to and provisioning
of telephone numbers for assignment by 21st Century in accordance with the
current Central Office Code (NXX) Assignment Guidelines and the current NPA Code
Relief Planning Guidelines, and will comply with numbering administration
guidelines, plans, or rules which may be established in the future.
ARTICLE XV
DIRECTORY LISTINGS -- SECTION 251(b)(3)
XV.1 White Pages Directory Listings. Ameritech shall cause
the Publisher to include Primary Listings of 21st Century's Customers ("21st
Century Directory Customers") in its White Pages Directories under the following
terms and conditions:
XV.1.1 Publisher will publish the Primary
Listing of 21st Century Directory Customers located within the geographic scope
of Publisher's directories at no charge.
XV.1.2 Listings of 21st Century Directory
Customers shall be interfiled with listings of Customers of Ameritech and other
LECs serving the same geographic area where such listings are included within a
directory.
XV.1.3 Publisher shall provide 21st Century
with a copy of such listings prior to publication in such form and format as may
be mutually agreed to by the Parties. Both Parties shall use their best efforts
to ensure the accurate listing of such information.
XV.1.4 Ameritech or its Publisher must receive
all Primary Listings of 21st Century Directory Customers prior to the service
order close date for the directory in which those listings are to appear.
Ameritech or its Publisher will provide 21st Century with appropriate service
order close dates within thirty (30) days of this information becoming
available.
<PAGE>
XV.1.5 Publisher may include, at no charge,
Primary Listings of 21st Century Directory Customers and provided to Ameritech
or its Publisher in other directories published by Publisher or its Affiliate.
XV.1.6 Nothing in this Agreement shall restrict
Ameritech's Publisher's authority as publisher of the directories from altering
the geographic scope, directory life, headings, content or format of the
directories. Publisher will provide information on such alterations at the same
time such information is provided to Ameritech.
XV.2 Listing and Listing Updates. 21st Century will provide
21st Century Directory Customer Primary Listings and Listing Updates to
Ameritech or its Publisher on a non-exclusive basis as follows:
XV.2.1 21st Century shall provide its 21st
Century Directory Customer Primary Listings to Ameritech or its Publisher in a
mutually agreeable form and format. 21st Century acknowledges that Ameritech or
its Publisher may impose a charge for changes to 21st Century Directory Customer
Primary Listings previously provided by 21st Century to Ameritech or its
Publisher; however, in no event shall such charge be greater than the amount
Ameritech charges its Customers and such charge shall be calculated in the same
manner as Publisher charges Ameritech for such changes.
XV.2.2 Within one (1) Business Day of
installation, disconnection or other change in service (including change of
non-listed or non-published status) affecting the directory assistance database
or the directory listing of an 21st Century Directory Customer, 21st Century
shall provide Listing Updates to Ameritech or its Publisher in a form and format
acceptable to Publisher. Listing Updates on 21st Century Directory Customers are
to be provided to Ameritech and Listing Updates for facilities-based Customers
of 21st Century shall be provided to Publisher.
XV.2.3 21st Century will cooperate with
Publisher to develop a cost-effective, mutually satisfactory, mechanized or
electronic process for the provision of 21st Century's Listing Updates to
Publisher, which process shall be available for joint testing within six (6)
months of the Effective Date.6/
XV.2.4 Publisher or Ameritech may sell or
license the use of Customer Listings, or Listing Updates to
third persons without the prior written consent of 21st Century; provided,
however, that neither Publisher nor Ameritech will:
(A) disclose non-listed name and address information to any third
person, except as may be necessary to undertake delivery of
directories or to perform other services contemplated under this
Agreement;
- ---------------
6/ Because the terms of this Agreement are the result of 21st Century's
adoption under Section 252(i) of the Act of the MCI Agreement, the
Parties agree that the term "Effective Date", for purposes of this
Section 15.2.3, shall mean April 20, 1998.
<PAGE>
(B) disclose to any third person the identity of a Customer's or
resale Customer's LEC;
(C) sell or license such Customer listing information sorted by
carrier; or
(D) disclose listing information for individual cases where 21st
Century has notified Ameritech.
XV.3 White Pages Directories Delivery. Publisher shall
provide initial and secondary delivery of appropriate White Page Directories for
resale Customers of 21st Century on the same basis as Publisher delivers White
Pages Directories to Ameritech's retail Customers. Publisher and 21st Century
may enter into a separate directory services agreement which, among the services
provided, would include the delivery of White Page Directories to facilities-
based Customers of 21st Century.
XV.4 Nondiscriminatory Formats. Ameritech shall cause
Publisher to make available to 21st Century Customers the same White Pages
formats that Publisher provides Ameritech's retail Customers.
ARTICLE XVI
ACCESS TO POLES, DUCTS, CONDUITS AND
RIGHTS-OF-WAY -- SECTIONS 251(b)(4) AND 224
XVI.1 Structure Availability
XVI.1.1 Ameritech shall make available, to the
extent it may lawfully do so, access to poles, ducts, conduits and Rights-of-way
(individually and collectively, "Structure") owned or controlled by Ameritech
for the placement of 21st Century's wires, cables and related facilities
(individually and collectively, "Attachments"). "Rights-of-way" means (i) a
legal interest of Ameritech in property of others, such as an easement or
license, suitable for use for communications distribution facilities or (ii)
Ameritech's own or leased property if such property is used for communications
distribution facilities; provided, however until such time as may be ordered
otherwise by the FCC or Commission, it does not generally include controlled
environment vaults, remote equipment buildings, huts or enclosures,
cross-connect cabinets, panels and boxes, equipment closets or enclosures in
buildings, or any like or similar equipment enclosures or locations, or the
ducts or conduit connecting any of the foregoing to manholes or conduit runs
between manholes. The availability of Ameritech Structure for 21st Century's
Attachments is subject to and dependent upon all rights, privileges, franchises
or authorities granted by governmental entities with jurisdiction, existing and
future agreements with other persons not inconsistent with Section 16.20, all
interests in property granted by persons or entities public or private, and
Applicable Law, and all terms, conditions and limitations of any or all of the
foregoing, by which Ameritech owns and controls Structure or interests therein.
XVI.1.2 Ameritech will not make Structure
available: (1) where, after taking all reasonable steps to accommodate such
request, there is insufficient Capacity to accommodate the requested Attachment,
and (2) an Attachment cannot be accommodated based upon
<PAGE>
nondiscriminatorily applied considerations of safety, reliability or engineering
principles. For purposes of this Article XVI, "Capacity" means space available
on or in Structure for a requesting party's Attachment without the requirement
of modifications to the Structure. Before denying a request for access based
upon insufficient Capacity, Ameritech will, in good faith, explore potential
accommodations with 21st Century. If Ameritech denies a request by 21st Century
for access to its Structure for insufficient Capacity, safety, reliability or
engineering reasons, Ameritech will provide 21st Century a detailed, written
reason for such denial (i) as soon as practicable but in any event within
forty-five (45) days of the date of such request if Ameritech has actual or
constructive knowledge of the reasons for such denial or (ii) promptly upon
Ameritech's receipt of such reasons for denial if such reasons are not known
until after the expiration of such forty-five (45)-day period.
XVI.2 Franchises, Permits and Consents. 21st Century shall be
solely responsible to secure any necessary franchises, permits or consents from
federal, state, county or municipal authorities and from the owners of private
property, to construct and operate its Attachments at the location of the
Ameritech Structure it uses. 21st Century shall submit to Ameritech satisfactory
evidence of 21st Century's lawful authority to occupy such Rights-of-way and
construct its Attachments therein.
XVI.3 Access and Modifications. Where necessary to accommodate
a request for access of 21st Century, Ameritech will modify its Structure in
order to accommodate the Attachments of 21st Century as set forth in this
Section 16.3, unless (i) Ameritech has denied access as described in Section
16.1.2, and/or (ii) because Ameritech may not lawfully make the Structure
available. Ameritech may permit 21st Century to conduct Field Survey Work and
Make-Ready Work itself or through its own contractors in circumstances where
Ameritech is unable to complete such work in a reasonable time frame.
XVI.3.1 Before commencing the work necessary to
provide such additional Capacity, Ameritech will notify all other parties having
Attachments on or in the Structure of the proposed modification to the
Structure. The modification to accommodate 21st Century may, at Ameritech's
option, include modifications required to accommodate other attaching parties,
including Ameritech, that desire to modify their Attachments.
XVI.3.2 If 21st Century requests access to an
Ameritech Right-of-way where Ameritech has no existing Structure, Ameritech
shall not be required to construct new poles, conduits or ducts, or to bury
cable for 21st Century but will be required to make the Right-of-way available
to 21st Century to construct its own poles, conduits or ducts or to bury its own
cable; provided, however, if Ameritech desires to extend its own Attachments,
Ameritech will construct Structure to accommodate 21st Century's Attachments.
XVI.3.3 The costs of modifying a Structure to
accommodate 21st Century's request, the requests of another attaching party or
the needs of Ameritech shall be borne by 21st Century, the other requesting
party or Ameritech, respectively, except that if other parties obtain access to
the Structure as a result of the modification, such parties shall share in the
cost of modification proportionately with the party initiating the modification.
An attaching party, including Ameritech, with a pre-existing Attachment to the
Structure to be modified to
<PAGE>
accommodate 21st Century shall be deemed to directly benefit from the
modification if, after receiving notification of the modification, it adds to or
modifies its Attachment. If a party, including Ameritech, uses the modification
to bring its Structure or Attachments into compliance with applicable safety or
other requirements specified in Section 16.6, it shall be considered as sharing
in the modification and shall share the costs of the modification attributable
to its upgrade. Notwithstanding the foregoing, an attaching party or Ameritech
with a pre-existing Attachment to the Structure shall not be required to bear
any of the costs of rearranging or replacing its Attachment if such
rearrangement or replacement is necessitated solely as a result of an additional
Attachment or the modification of an existing Attachment sought by another
attaching party. If an attaching party, including Ameritech, makes an Attachment
to the facility after the completion of the modification, such party shall share
proportionately in the cost of the modification if such modification rendered
the added attachment possible.
XVI.3.4 All modifications to Ameritech's
Structure will be owned by Ameritech. 21st Century and other parties, including
Ameritech, who contributed to the cost of a modification, may recover their
proportionate share of the depreciated value of such modifications from parties
subsequently seeking Attachment to the modified structure. Any necessary
procedures with respect to a Party's recovery of its proportionate share of the
value of any modifications shall be as prescribed by the Implementation Team.
XVI.4 Installation and Maintenance Responsibility. 21st
Century shall, at its own expense, install and maintain its Attachments in a
safe condition and in thorough repair so as not to conflict with the use of the
Structure by Ameritech or by other attaching parties. Work performed by 21st
Century on, in or about Ameritech's Structures shall be performed by competent
workmen skilled in the trade with qualifications and training at least
equivalent to that of the workers and contractors of Ameritech. Ameritech will
specify the location on the Structure where 21st Century's Attachment shall be
placed, which location shall be designated in a nondiscriminatory manner. 21st
Century shall construct each Attachment in conformance with the permit issued by
Ameritech for such Attachment. Other than routine maintenance and service wire
Attachments, 21st Century shall not modify, supplement or rearrange any
Attachment without first obtaining any permit required by the applicable party.
21st Century shall provide Ameritech with notice before entering any Structure
for construction or maintenance purposes.
XVI.5 Emergency Repairs. In the event of an emergency,
Ameritech shall begin repair of its facilities containing 21st Century's
Attachments as soon as reasonably possible after notification by 21st Century.
XVI.6 Installation and Maintenance Standards. 21st Century's
Attachments shall be installed and maintained in accordance with the rules,
requirements and specifications of the National Electrical Code, National
Electrical Safety Code, Bellcore Construction Practices, the Commission, the
Occupational Safety & Health Act and the valid and lawful rules, requirements
and specifications of any other governing authority having jurisdiction over the
subject matter.
XVI.7 Implementation Team. The Implementation Team to be
formed pursuant to Article XVIII shall develop cooperative procedures for
implementing the terms of this Article XVI and to set out such procedures in the
Implementation Plan. The Parties, through the
<PAGE>
Implementation Team, shall develop mutually agreeable intervals for completion
of process steps in providing 21st Century access to Ameritech's Structure and
appropriate penalties for failure to timely complete process steps for which
fixed intervals have been assigned. Ameritech will provide 21st Century with
access to information regarding the provision of access to Ameritech's Structure
which will be sufficient for 21st Century to verify that Ameritech is providing
21st Century with access to its Structure that is comparable to that provided by
Ameritech to itself, its subsidiaries, Affiliates and other persons requesting
access to Ameritech's Structure.
XVI.8 Access Requests. Any request by 21st Century for access
to Ameritech's Structure shall be in writing and submitted to Ameritech's
Structure Leasing Coordinator. Ameritech may not unreasonably limit the number
and scope of requests from 21st Century being processed at any one time and may
prescribe a reasonable non-discriminatory process for orderly administration of
such requests. 21st Century's Attachment to Ameritech's Structure shall be
pursuant to a permit issued by Ameritech for each request for access.
XVI.9 Unused Space. Excepting maintenance ducts as provided in
Section 16.10 and ducts required to be reserved for use by municipalities, all
useable but unused space on Structure owned or controlled by Ameritech shall be
available for the Attachments of 21st Century, Ameritech or other providers of
Telecommunications Services or cable television systems. 21st Century may not
reserve space on Ameritech Structure for its future needs. Ameritech shall not
reserve space on Ameritech Structure for the future need of Ameritech nor permit
any other person to reserve such space. Notwithstanding the foregoing, 21st
Century may provide Ameritech with a two (2)-year rolling forecast of its growth
requirements for Structure that will be reviewed jointly on an annual basis.
XVI.10 Maintenance Ducts
XVI.10.1 One duct and one inner-duct in each conduit
section shall be kept vacant as maintenance ducts.
Maintenance ducts shall be made available to 21st Century for maintenance
purposes if it has a corresponding Attachment.
XVI.10.2 Where a spare innerduct does not exist,
upon the mutual agreement of the Parties, Ameritech shall allow 21st Century to
install an innerduct in Ameritech conduit.
XVI.11 Applicability. The provisions of this Agreement shall
apply to all Ameritech Structure now occupied by 21st Century.
XVI.12 Other Arrangements. 21st Century's use of Ameritech
Structure is subject to any valid, lawful and nondiscriminatory arrangements
Ameritech may now or hereafter have with others pertaining to the Structure.
XVI.13 Cost of Certain Modifications. If at the request of a
governmental entity, third person, court or Commission or property owner,
Ameritech moves, replaces or changes the location, alignment or grade of its
conduits or poles, each Party shall bear its own expenses of relocating its own
equipment and facilities.
<PAGE>
XVI.14 Maps and Records. Ameritech will provide 21st Century,
at 21st Century's request and expense, with access to and copies of maps,
records and additional information relating to its Structure within the time
frames agreed upon by the Implementation Team; provided that Ameritech may
redact any proprietary information (of Ameritech or third parties) contained or
reflected in any such maps, records or additional information before providing
such information to 21st Century. Upon request, Ameritech will meet with 21st
Century to clarify matters relating to maps, records or additional information.
Ameritech does not warrant the accuracy or completeness of information on any
maps or records.
XVI.15 21st Century Access. 21st Century shall provide
Ameritech with notice before entering any Ameritech Structure.
XVI.16 Occupancy Permit. 21st Century occupancy of Structure
shall be pursuant to a permit issued by Ameritech for each requested Attachment.
Any such permit shall terminate (a) if 21st Century's franchise, consent or
other authorization from federal, state, county or municipal entities or private
property owners is terminated, (b) if 21st Century has not placed and put into
service its Attachments within one hundred eighty (180) days from the date
Ameritech has notified 21st Century that such Structure is available for 21st
Century's Attachments, and such delay is not caused by an Ameritech Delaying
Event, (c) if 21st Century ceases to use such Attachment for any period of one
hundred eighty (180) consecutive days, (d) if 21st Century fails to comply with
a material term or condition of this Article XVI and does not correct such
noncompliance within sixty (60) days after receipt of notice thereof from
Ameritech or (e) if Ameritech ceases to have the right or authority to maintain
its Structure, or any part thereof, to which 21st Century has Attachments. If
Ameritech ceases to have the right or authority to maintain its Structure, or
any part thereof, to which 21st Century has Attachments, Ameritech shall (i)
provide 21st Century notice within ten (10) Business Days after Ameritech has
knowledge of such fact and (ii) not require 21st Century to remove its
Attachments from such Structure prior to Ameritech's removal of its own
attachments. Ameritech will provide 21st Century with at least sixty (60) days'
written notice prior to (x) terminating a permit or service to an 21st Century
Attachment or removal thereof for a material breach of the provisions of this
Article XVI, (y) any increase in the rates for Attachments to Ameritech's
Structure permitted by the terms of this Agreement, or (z) any modification to
Ameritech's Structure to which 21st Century has an Attachment, other than a
modification associated with routine maintenance or as a result of an emergency.
If 21st Century surrenders its permit for any reason (including forfeiture under
the terms of this Agreement), but fails to remove its Attachments from the
Structure within one hundred eighty (180) days after the event requiring 21st
Century to so surrender such permit, Ameritech shall remove 21st Century's
Attachments at 21st Century's expense.
XVI.17 Inspections. Ameritech may make periodic inspections of
any part of the Attachments of 21st Century located on Ameritech Structures.
When reasonably practicable to do so, Ameritech shall provide prior written
notice to 21st Century of such inspections.
XVI.18 Damage to Attachments. Both 21st Century and Ameritech
will exercise precautions to avoid damaging the Attachments of the other or to
any Ameritech Structure to
<PAGE>
which 21st Century obtains access hereunder. Subject to the limitations in
Article XXVI, the Party damaging the Attachments of the other shall be
responsible to the other therefor.
XVI.19 Charges. Ameritech's charges for Structure provided
hereunder shall be determined in compliance with the regulations to be
established by the FCC pursuant to Section 224 of the Act. Prior to the
establishment of such rates, Ameritech's charges for Structure will be those of
the lowest existing contract available to an attaching party in the State of
Illinois, including any Affiliate of Ameritech. The charges as of the Effective
Date are set forth at Item VIII of the Pricing Schedule and Ameritech reserves
the right to periodically adjust such charges consistent with the foregoing. A
reasonable deposit shall be required for map preparation, make-ready surveys and
Make-Ready Work.
XVI.20 Nondiscrimination. Except as otherwise permitted by
Applicable Law, access to Ameritech owned or controlled Structure shall be
provided to 21st Century on a basis that is nondiscriminatory to that which
Ameritech provides to itself, its Affiliates, Customers, or any other person.
XVI.21 Interconnection
XVI.21.1 Upon request by 21st Century, Ameritech
will permit the interconnection of ducts or conduits owned by 21st Century in
Ameritech manholes.
XVI.21.2 Except where required herein, requests by
21st Century for interconnection of 21st Century's Attachments in or on
Ameritech Structure with the Attachments of other attaching parties in or on
Ameritech Structure will be considered on a case-by-case basis and permitted or
denied based on the applicable standards set forth in this Article XVI for
reasons of insufficient Capacity, safety, reliability and engineering. Ameritech
will provide a written response to 21st Century's request within forty-five (45)
days of Ameritech's receipt of such request.
XVI.21.3 21st Century shall be responsible for the
costs of any Make-Ready-Work required to accommodate any interconnection
pursuant to this Section 16.21.
XVI.22 Cost Imputation. Ameritech will impute costs consistent
with the rules under Section 224(g) of the Act.
XVI.23 Structure Leasing Coordinator. Requests for access to
Ameritech Structure shall be made through Ameritech's Structure Leasing
Coordinator, who shall be 21st Century's single point of contact for all matters
relating to 21st Century's access to Ameritech's Structure. The Structure
Leasing Coordinator shall be responsible for processing requests for access to
Ameritech's Structure, administration of the process of delivery of access to
Ameritech's Structure and for all other matters relating to access to
Ameritech's Structure.
XVI.24 State Regulation. The terms and conditions in this
Article XVI shall be modified through negotiation between the Parties to comply
with the regulations of the state in which Ameritech owns or controls Structure
to which 21st Century seeks access if such state
<PAGE>
meets the requirements of Section 224(c) of the Act for regulating rates, terms
and conditions for pole attachments and so certifies to the FCC under Section
224(c) of the Act and the applicable FCC rules pertaining hereto. Until the
terms and conditions of this Article XVI are renegotiated, the rules,
regulations and orders of such state so certifying shall supersede any provision
herein inconsistent therewith.
XVI.25 Abandonments, Sales or Dispositions. Ameritech shall
notify 21st Century of the proposed abandonment, sale, or other intended
disposition of any Structure.
ARTICLE XVII
REFERRAL ANNOUNCEMENT
When a Customer changes its service provider from Ameritech to 21st
Century, or from 21st Century to Ameritech, and does not retain its original
telephone number, the Party formerly providing service to such Customer shall
provide a referral announcement ("Referral Announcement") on the abandoned
telephone number which provides details on the Customer's new number. Referral
Announcements shall be provided reciprocally, free of charge to both the other
Party and the Customer, for a period of four (4) months after the date the
Customer changes its telephone number in the case of business Customers and
sixty (60) days after the date the Customer changes its telephone number in the
case of residential Customers. However, if either Party provides Referral
Announcements for a period different (either shorter or longer) than the above
respective periods when its Customers change their telephone numbers, such Party
shall provide the same level of service to Customers of the other Party.
<PAGE>
ARTICLE XVIII
IMPLEMENTATION TEAM AND IMPLEMENTATION PLAN
XVIII.1 Implementation Team. This Agreement sets forth the
overall standards of performance for the services, processes, and systems
capabilities that the Parties will provide to each other, and the intervals at
which those services, processes and capabilities will be provided. The Parties
understand that the arrangements and provision of services described in this
Agreement shall require technical and operational coordination between the
Parties. Accordingly, the Parties agree to form a team (the "Implementation
Team") which shall develop and identify those processes, guidelines,
specifications, standards and additional terms and conditions necessary to
support and satisfy the standards set forth in this Agreement and implement each
Party's obligations hereunder. Within five (5) days after the Effective Date,7/
each Party shall designate, in writing, not more than four (4) persons to be
permanent members of the Implementation Team; provided that either Party may
include in meetings or activities such technical specialists or other
individuals as may be reasonably required to address a specific task, matter or
subject. Each Party may replace its representatives on the Implementation Team
by delivering written notice thereof to the other Party. Each Party represents
and warrants that its representatives on the Implementation Team shall have
authority to make decisions on behalf of such Party and bind such Party.
XVIII.2 Implementation Plan. Within ninety (90) days after the
date on which the Commission (or the FCC if the Commission fails to act)
approves this Agreement under Section 252 of the Act, the agreements reached by
the Implementation Team shall be documented in an operations manual (the
"Implementation Plan"). The Implementation Plan shall address the following
matters, and may include any other matters agreed upon by the Implementation
Team:
(1) the respective duties and responsibilities of the
Parties with respect to the administration and
maintenance of the Interconnections (including
signaling) specified in Article III and the trunk
groups specified in Article IV and, including
standards and procedures for notification and
discoveries of trunk disconnects;
(2) disaster recovery and escalation provisions;
(3) Access to Operations Support Systems functions
provided hereunder, including interfaces and
gateways;
(4) Escalation procedures for ordering, provisioning,
billing, and maintenance;
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7/ Because the terms of this Agreement are the result of 21st Century's
adoption under Section 252(i) of the Act of the MCI Agreement, the
Parties agree that the term "Effective Date", for purposes of this
Section 18.1, shall mean April 20, 1998.
<PAGE>
(5) Single points of contact for ordering,
provisioning, billing, and maintenance;
(6) Service ordering and provisioning procedures,
including provision of the trunks and facilities;
(7) Provisioning and maintenance support;
(8) Conditioning and provisioning of Collocation space
and maintenance of Virtually Collocated equipment;
(9) Procedures and processes for Directories and
Directory Listings;
(10) Service referral procedures, including procedures
for handling misdirected inquiries and calls and
procedures for handling out-of-service or irate
Customers;
(11) Training;
(12) Billing processes and procedures, including
measurements and ratings;
(13) Network planning components, including system
architecture, planning SONET equipment
configuration, fiber hand-off, test and acceptance
of SONET ring, trunking, signaling, and augment
process;
(14) Joint systems readiness and operational readiness
plans;
(15) Appropriate testing of services, equipment,
facilities and Network Elements;
(16) Monitoring of inter-company operational processes;
(17) Procedures for coordination of local PIC changes
and processing;
(18) Information regarding reporting and levels of
content for performance benchmark records;
(19) Physical and network security concerns; and
(20) Such other matters specifically referenced in this
Agreement that are to be agreed upon by the
Implementation Team and/or contained in the
Implementation Plan.
XVIII.3 Action of Implementation Team. The Implementation Plan
may be amended from time to time by the Implementation Team as the team deems
appropriate. Unanimous
<PAGE>
written consent of the permanent members of the Implementation Team shall be
required for any action of the Implementation Team. If the Implementation Team
is unable to act, the existing provisions of the Implementation Plan shall
remain in full force and effect.
XVIII.4 Further Coordination and Performance. Except as
otherwise agreed upon by the Parties, on a mutually agreed-upon day and time
once a month during the Term, the Implementation Team shall discuss the
performance of the Parties under this Agreement. At each such monthly meeting
the Parties will discuss: (i) the administration and maintenance of the
Interconnections and trunk groups provisioned under this Agreement; (ii) the
Parties' provisioning of the services provided under this Agreement; (iii) the
Parties' compliance with the Performance Benchmarks set forth in this Agreement
and any areas in which such performance may be improved; (iv) any problems that
were encountered during the preceding month or anticipated in the upcoming
month; (v) the reason underlying any such problem and the effect, if any, that
such problem had, has or may have on the performance of the Parties and (vi) the
specific steps taken or proposed to be taken to remedy such problem. In addition
to the foregoing, the Parties through their representatives on the
Implementation Team or such other appropriate representatives will meet to
discuss any matters that relate to the performance of this Agreement, as may be
requested from time to time by either of the Parties.
XVIII.5 Dispute Resolution. If the Implementation Team is unable
to agree upon any of the matters to be included in the Implementation Plan, then
either Party may invoke the procedures set forth in Section 28.3.
ARTICLE XIX
GENERAL RESPONSIBILITIES OF THE PARTIES
XIX.1 Compliance with Implementation Schedule. Each of
Ameritech and 21st Century shall use its best efforts to comply with the
Implementation Schedule.
XIX.2 Compliance with Applicable Law. Each Party shall comply
at its own expense with all applicable federal, state, and local statutes, laws,
rules, regulations, codes, effective orders (not subject to an effective stay),
decisions, injunctions, judgments, awards and decrees ("Applicable Laws") that
relate to its obligations under this Agreement.
XIX.3 Necessary Approvals. Each Party shall be responsible for
obtaining and keeping in effect all approvals from, and rights granted by,
governmental authorities, building and property owners, other carriers, and any
other persons that may be required in connection with the performance of its
obligations under this Agreement. Each Party shall reasonably cooperate with the
other Party in obtaining and maintaining any required approvals and rights for
which such Party is responsible.
XIX.4 Environmental Hazards. Each Party will be solely
responsible at its own expense for the proper handling, storage, transport,
treatment, disposal and use of all Hazardous Substances by such Party and its
contractors and agents. "Hazardous Substances" includes those substances (i)
included within the definition of hazardous substance, hazardous waste,
<PAGE>
hazardous material, toxic substance, solid waste or pollutant or contaminant
under any Applicable Law and (ii) listed by any governmental agency as a
hazardous substance.
XIX.5 Forecasting Requirements
XIX.5.1 The Parties shall exchange technical
descriptions and forecasts of their Interconnection and traffic requirements in
sufficient detail necessary to establish the Interconnections required to assure
traffic completion to and from all Customers in their respective designated
service areas.
XIX.5.2 Thirty (30) days after the Effective
Date/8/ and each month during the term of this Agreement, - each Party shall
provide the other Party with a rolling, six (6)-calendar-month forecast (which
forecast shall be non-binding, except as provided in Section 4.3.1) of its
traffic and volume requirements for the Interconnection and Network Elements
provided under this Agreement, in the form and in such detail as agreed by the
Parties. Notwithstanding Section 20.1.1, the Parties agree that each forecast
provided under this Section 19.5.2 shall be deemed "Proprietary Information"
under Article XX.
XIX.6 Certain Network Facilities. Each Party is individually
responsible to provide facilities within its network which are necessary for
routing, transporting, measuring, and billing traffic from the other Party's
network and for delivering such traffic to the other Party's network using
industry standard format and to terminate the traffic it receives in that
standard format to the proper address on its network. Such facility shall be
designed based upon the description and forecasts provided under Sections 19.5.1
and 19.5.2. The Parties are each solely responsible for participation in and
compliance with national network plans, including The National Network Security
Plan and The Emergency Preparedness Plan.
XIX.7 Traffic Management and Network Harm
XIX.7.1 Each Party may use protective network
traffic management controls such as 7-digit and 10-digit code gaps on traffic
toward the other Party's network, when required to protect the public-switched
network from congestion due to facility failures, switch congestion or failure
or focused overload. Each Party shall immediately notify the other Party of any
protective control action planned or executed.
XIX.7.2 Where the capability exists, originating
or terminating traffic reroutes may be implemented by either Party to
temporarily relieve network congestion due to facility failures or abnormal
calling patterns. Reroutes shall not be used to circumvent normal trunk
servicing. Expansive controls shall be used only when mutually agreed to by the
Parties.
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8/ Because the terms of this Agreement are the result of 21st Century's
adoption under Section 252(i) of the Act of the MCI Agreement, the
Parties agree that the term "Effective Date", for purposes of this
Section 19.5.2, shall mean April 20, 1998.
<PAGE>
XIX.7.3 The Parties shall cooperate and share
pre-planning information regarding cross-network call-ins expected to generate
large or focused temporary increases in call volumes, to prevent or mitigate the
impact of these events on the public-switched network.
XIX.7.4 Neither Party shall use any product or
service provided under this Agreement or any other service related thereto or
used in combination therewith in any manner that interferes with any person in
the use of such person's Telecommunications Service, prevents any person from
using its Telecommunications Service, impairs the quality of Telecommunications
Service to other carriers or to either Party's Customers, causes electrical
hazards to either Party's personnel, damage to either Party's equipment or
malfunction of either Party's billing equipment.
XIX.8 Insurance. At all times during the term of this
Agreement, each Party shall keep and maintain in force at such Party's expense
all insurance required by Applicable Law, general liability insurance in the
amount of at least $10,000,000 and worker's compensation insurance in accord
with statutory limits. Upon request from the other Party, each Party shall
provide to the other Party evidence of such insurance (which may be provided
through a program of self-insurance).
XIX.9 Labor Relations. Each Party shall be responsible for
labor relations with its own employees. Each Party agrees to notify the other
Party as soon as practicable whenever such Party has knowledge that a labor
dispute concerning its employees is delaying or threatens to delay such Party's
timely performance of its obligations under this Agreement and shall minimize
impairment of service to the other Party (by using its management personnel to
perform work or by other means) in the event of a labor dispute to the extent
permitted by Applicable Law.
XIX.10 Good Faith Performance. Each Party shall act in good
faith in its performance under this Agreement and, in each case in which a
Party's consent or agreement is required or requested hereunder, such Party
shall not unreasonably withhold or delay such consent or agreement, as the case
may be.
XIX.11 Responsibility to Customers. Each Party is solely
responsible for the services it provides to its Customers and to other
Telecommunications Carriers.
XIX.12 Unnecessary Facilities. No Party shall construct
facilities which require another Party to build unnecessary facilities.
XIX.13 Cooperation. Consistent with Section 18.1, the Parties
shall work cooperatively to minimize fraud associated with third-number billed
calls, calling card calls, and any other services related to this Agreement.
XIX.14 NXX Code Administration. Each Party is responsible for
administering NXX codes assigned to it.
<PAGE>
XIX.15 LERG Listings. Each Party is responsible for obtaining
Local Exchange Routing Guide ("LERG") listings of CLLI codes assigned to its
switches.
XIX.16 Lerg Use. Each Party shall use the LERG published by
Bellcore or its successor for obtaining routing information and shall provide
all required information to Bellcore for maintaining the LERG in a timely
manner.
XIX.17 Switch Programming. Each Party shall program and update
its own Switches and network systems to recognize and route traffic to and from
the other Party's assigned NXX codes. Except as mutually agreed or as otherwise
expressly defined in this Agreement, neither Party shall impose any fees or
charges on the other Party for such activities.
XIX.18 Transport Facilities. Each Party is responsible for
obtaining transport facilities sufficient to handle traffic between its network
and the other Party's network. Each Party may provide the facilities itself,
order them through a third party, or order them from the other Party.
XIX.19 Time is of the Essence. The Parties agree that each of
their respective obligations set forth herein, including the performance
standards, intervals, and technical requirements contained herein, are material
obligations hereof and that time is of the essence.
ARTICLE XX
PROPRIETARY INFORMATION
XX.1 Definition of Proprietary Information
XX.1.1 "Proprietary Information" means:
(A) all proprietary or confidential
information of a Party (a "Disclosing
Party") including specifications,
drawings, sketches, business
information, forecasts, records
(including each Party's records
regarding Performance Benchmarks),
Customer Proprietary Network
Information, Customer Usage Data, audit
information, models, samples, data,
system interfaces, computer programs and
other software and documentation,
including any and all information
subject to any intellectual property
rights of such Party, that is furnished
or made available or otherwise disclosed
to the other Party or any of such other
Party's Affiliates (individually and
collectively, a "Receiving Party")
pursuant to this Agreement and, if
written, is marked "Confidential" or
"Proprietary" or by other similar notice
or if oral or visual, is identified as
"Confidential" or "Proprietary" at the
time of disclosure; and
(B) any portion of any notes, analyses,
data, compilations, studies,
interpretations, programs, or other
documents or works prepared by
<PAGE>
or on behalf of any Receiving Party
to the extent the same contain,
reflect, are derived from, or are
based upon, any of the information
described in subsection (a) above,
unless such information contained or
reflected in such notes, analyses,
etc. is so commingled with the
Receiving Party's information that
disclosure could not possibly
disclose the underlying proprietary
or confidential information (such
portions of such notes, analyses,
etc. referred to herein as
"Derivative Information").
XX.1.2 The Disclosing Party will use its
reasonable efforts to follow its customary practices regarding the marking of
tangible Proprietary Information as "confidential," "proprietary," or other
similar designation, but the failure to mark or otherwise designate any
information described in this Section 20.1.2 as confidential or proprietary
shall not affect its status as Proprietary Information. The Parties agree that
the designation in writing by the Disclosing Party that information is
confidential or proprietary shall create a presumption that such information is
confidential or proprietary to the extent such designation is reasonable.
XX.1.3 Notwithstanding the requirements of this
Article XX, all information relating to the Customers of a Party, including
information that would constitute Customer Proprietary Network Information
(CPNI) of a Party pursuant to the Act and FCC rules and regulations, and
Customer Usage Data, whether disclosed by one Party to the other Party or
otherwise acquired by a Party in the course of the performance of this
Agreement, shall be deemed "Proprietary Information" of that Party. A Party may
only use CPNI consistent with the Act and the appropriate authorization from the
Customer.
XX.2 Disclosure and Use
XX.2.1 Each Receiving Party agrees that, from and after
the Effective Date:
(A) all such Proprietary Information
communicated, whether before, on or after
the Effective Date,9/ to it or any of its
contractors, consultants or agents
("Representatives") in connection with
this Agreement shall be held in confidence
to the same extent as such Receiving Party
holds its own confidential information;
provided, that such Receiving Party or
Representative shall not use less than a
reasonable standard of care in maintaining
the confidentiality of such information;
(B) it will not, and it will not permit any of
its employees, Affiliates or
Representatives to disclose such
Proprietary Information to any third
person;
- ---------------
9/ Because the terms of this Agreement are the result of 21st Century's
adoption under Section 252(i) of the Act of the MCI Agreement, the
Parties agree that the term "Effective Date", for purposes of this
Section 20.2.1(a), shall mean April 20, 1998.
<PAGE>
(C) it will disclose Proprietary Information
only to those of its employees, Affiliates
and Representatives who have a need for it
in connection with the use or provision of
services required to fulfill this
Agreement;
(D) it will, and will cause each of its
employees, Affiliates and Representatives
to use such Proprietary Information to
effectuate the terms and conditions of
this Agreement and for no other purpose;
and
(E) it will, and will cause each of its
employees, Affiliates and Representatives
to, use such Proprietary Information to
create only that Derivative Information
necessary for such Receiving Party's
compliance with Applicable Law or its
performance under the terms of this
Agreement.
XX.2.2 A Receiving Party may disclose
Proprietary Information of a Disclosing Party to its Representatives who need to
know such information to perform the Receiving Party's obligations under this
Agreement; provided that, before disclosing any Proprietary Information to any
Representative, such Party shall notify such Representative of such person's
obligation to comply with this Agreement. Any Receiving Party so disclosing
Proprietary Information to its Representatives shall be responsible for any
breach of this Agreement by any of its Representatives and such Receiving Party
agrees, at its sole expense, to use its reasonable efforts (including court
proceedings) to restrain its Representatives from any prohibited or unauthorized
disclosure or use of the Proprietary Information. Each Receiving Party making
such disclosure shall notify the Disclosing Party as soon as possible if it has
knowledge of a breach of this Agreement in any material respect. A Disclosing
Party shall not disclose Proprietary Information directly to a Representative of
the Receiving Party without the prior written authorization of the Receiving
Party. A Disclosing Party may, however, disclose Proprietary Information
directly to an Affiliate of the Receiving Party without the prior written
authorization of the Receiving Party.
XX.2.3 Proprietary Information shall not be
reproduced by any Receiving Party in any form except to the extent (i) necessary
to comply with the provisions of Section 20.3 and (ii) reasonably necessary to
perform its obligations under this Agreement. All such reproductions shall bear
the same copyright and proprietary rights notices as are contained in or on the
original.
XX.2.4 This Section 20.2 shall not apply to any
Proprietary Information which the Receiving Party can establish to have:
(A) been disclosed by the Receiving Party
with the Disclosing Party's prior written
consent;
(B) become generally available to the
public other than as a result of
disclosure by a Receiving Party;
<PAGE>
(C) been independently developed by a
Receiving Party by an individual who has
not had knowledge of or direct or indirect
access to such Proprietary Information;
(D) been rightfully obtained by the Receiving
Party from a third person without
knowledge that such third person is
obligated to protect its confidentiality;
provided that such Receiving Party has
used all commercially reasonable efforts
to determine whether such third person has
any such obligation; or
(E) been obligated to be produced or disclosed
by Applicable Law; provided that such
production or disclosure shall have been
made in accordance with this Article XX.
XX.2.5 Except as expressly provided, nothing in
this Article XX shall be construed as limiting the rights of either Party with
respect to its customer information under any Applicable Law, including Section
222 of the Act.
XX.3 Government Disclosure
XX.3.1 If a Receiving Party desires to disclose
or provide to the Commission, the FCC or any other governmental authority any
Proprietary Information of the Disclosing Party, such Receiving Party shall,
prior to and as a condition of such disclosure, (i) provide the Disclosing Party
with written notice and the form of such proposed disclosure as soon as possible
but in any event early enough to allow the Disclosing Party to protect its
interests in the Proprietary Information to be disclosed and (ii) attempt to
obtain in accordance with the applicable procedures of the intended recipient of
such Proprietary Information an order, appropriate protective relief or other
reliable assurance that confidential treatment shall be accorded to such
Proprietary Information.
XX.3.2 If a Receiving Party is required by any
governmental authority or by Applicable Law to disclose any Proprietary
Information, then such Receiving Party shall provide the Disclosing Party with
written notice of such requirement as soon as possible and prior to such
disclosure. Upon receipt of written notice of the requirement to disclose
Proprietary Information, the Disclosing Party, at its expense, may then either
seek appropriate protective relief in advance of such requirement to prevent all
or part of such disclosure or waive the Receiving Party's compliance with this
Section 20.3 with respect to all or part of such requirement.
XX.3.3 The Receiving Party shall use all
commercially reasonable efforts to cooperate with the Disclosing Party in
attempting to obtain any protective relief which such Disclosing Party chooses
to seek pursuant to this Section 20.3. In the absence of such relief, if the
Receiving Party is legally compelled to disclose any Proprietary Information,
then the Receiving Party shall exercise all commercially reasonable efforts to
preserve the confidentiality of the Proprietary Information, including
cooperating with the Disclosing Party to obtain an
<PAGE>
appropriate order or other reliable assurance that confidential treatment will
be accorded the Proprietary Information.
XX.4 Ownership
XX.4.1 All Proprietary Information shall remain
the property of the Disclosing Party, and all documents or other tangible media
delivered to the Receiving Party that embody such Proprietary Information shall
be, at the option of the Disclosing Party, either promptly returned to the
Disclosing Party or destroyed, except as otherwise may be required from time to
time by Applicable Law (in which case the use and disclosure of such Proprietary
Information will continue to be subject to this Agreement), upon the earlier of
(i) the date on which the Receiving Party's need for it has expired and (ii) the
expiration or termination of this Agreement (including any applicable Transition
Period).
XX.4.2 At the request of the Disclosing Party,
any Derivative Information shall be, at the option of the Receiving Party,
either promptly returned to the Disclosing Party or destroyed, except as
otherwise may be required from time to time by Applicable Law (in which case the
use and disclosure of such Proprietary Information will continue to be subject
to this Agreement), upon the earlier of (i) the date on which the Receiving
Party's need for it has expired and (ii) the expiration or termination of this
Agreement (including any applicable Transition Period).
XX.4.3 The Receiving Party may at any time
either return to the Disclosing Party or destroy Proprietary Information.
XX.4.4 If destroyed, all copies shall be
destroyed and, upon the written request of the Disclosing Party, the Receiving
Party shall provide to the Disclosing Party written certification of such
destruction. The destruction or return of Proprietary Information shall not
relieve any Receiving Party of its obligation to treat such Proprietary
Information in the manner required by this Agreement.
XX.5 Equitable Relief. Each Party agrees that any breach by
either Party or any of its Representatives of any provisions of this Article XX
will cause immediate and irreparable injury to the other Party and that, in the
event of such breach, the injured Party shall be entitled to seek equitable
relief, including injunctive relief and specific performance to enforce such
provisions. Such remedies shall not be exclusive, but shall be in addition to
all other remedies available at law or in equity. Each Party shall have the
right to disclose Confidential Information to any mediator, arbitrator, state or
federal regulatory body, the Department of Justice or any court in the conduct
of any mediation, arbitration, approval or appeal of this Agreement.
<PAGE>
ARTICLE XXI
TERM AND TERMINATION
XXI.1 Term. The initial term of this Agreement shall be three
(3) years (the "Initial Term") which shall commence on the Effective Date. Upon
expiration of the Initial Term, this Agreement shall automatically be renewed
for additional one (1) year periods (each, a "Renewal Term") unless a Party
delivers to the other Party written notice of termination of this Agreement at
least ten (10) months prior to the expiration of the Initial Term or a Renewal
Term.
XXI.2 Renegotiation of Certain Terms. Notwithstanding the
foregoing, upon delivery of written notice at least ten (10) months prior to the
expiration of the Initial Term or any Renewal Term, either Party may require
negotiations of the rates, prices and charges, terms, and conditions of the
services to be provided under this Agreement effective upon such expiration. If
the Parties are unable to satisfactorily negotiate such new rates, prices,
charges and terms within thirty (30) days of such written notice, either Party
may petition the Commission or take such other action as may be necessary to
establish appropriate terms. If the Parties are unable to mutually agree on such
new rates, prices, charges, terms and conditions or the Commission does not
issue its order, the Parties agree that the rates, terms and conditions
ultimately ordered by such Commission or negotiated by the Parties shall be
effective retroactive to such expiration date.
XXI.3 Default. When a Party believes that the other Party is
in violation of a material term or condition of this Agreement ("Defaulting
Party"), it shall provide written notice to such Defaulting Party of such
violation prior to commencing the dispute resolution procedures set forth in
Section 28.3 and it shall be resolved in accordance with the procedures
established in Section 28.3.
XXI.4 Transitional Support
XXI.4.1 In the event of the termination or
expiration of this Agreement for any reason, each Party agrees to maintain the
level and quality of services still being provided by it as of the date of
termination or expiration of this Agreement ("Transition Date"), and to
cooperate reasonably in an orderly and efficient transition to a successor
provider.
XXI.4.2 Each Party agrees (i) to furnish services
during a period for up to one (1) year (or such longer period as may be agreed
by the Parties) after the Transition Date ("Transition Period") on terms and
conditions and at charges that are the same as those in effect upon the
Transition Date, and (ii) to enter into an agreement with the other Party for a
transition plan that specifies the nature, extent, and schedule of the services
to be provided during such Transition Period. During the Transition Period,
Ameritech and 21st Century will cooperate in good faith to effect an orderly
transition of service under this Agreement. Ameritech and 21st Century agree to
exercise their respective reasonable efforts to avoid or minimize service
disruptions or degradation in services during such transition.
XXi.5 Payment Upon Expiration or Termination. In the case of
the expiration or termination of this Agreement for any reason, each of the
Parties shall be entitled to payment for
<PAGE>
all services performed and expenses required to be paid in accordance with this
Agreement prior to such expiration or termination.
ARTICLE XXII
[NOT USED]
ARTICLE XXIII
CANCELLATION CHARGES
Except as set forth in this Agreement, cancellation charges shall not
be imposed upon, or payable by, either Party.
ARTICLE XXIV
SEVERABILITY
XXIV.1 Severability. If any provision of this Agreement shall
be held to be illegal, invalid or unenforceable, each Party agrees that such
provision shall be enforced to the maximum extent permissible so as to effect
the intent of the Parties, and the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby. If necessary to effect the intent of the Parties, the Parties
shall negotiate in good faith to amend this Agreement to replace the
unenforceable language with enforceable language that reflects such intent as
closely as possible.
XXIV.2 Non-Contravention of Laws. Nothing in this Agreement
shall be construed as requiring or permitting either Party to contravene any
mandatory requirement of Applicable Law.
ARTICLE XXV
INDEMNIFICATION
XXV.1 General Indemnity Rights. Each Party (the "Indemnifying
Party") shall defend and indemnify the other Party, its officers, directors,
employees and permitted assignees (collectively, the "Indemnified Party") and
hold such Indemnified Party harmless against
(A) any Loss to a third person arising out of:
the negligent acts or omissions, or
willful misconduct ("Fault") by such
Indemnifying Party or the Fault of its
employees, agents and subcontractors;
provided, however, that (1) with respect
to employees or agents of the Indemnifying
Party, such Fault occurs while performing
within the scope of their employment, (2)
with respect to subcontractors of the
Indemnifying Party, such Fault occurs in
the course of performing duties of the
subcontractor under its subcontract with
the Indemnifying Party, and (3) with
respect to the Fault of employees or
<PAGE>
agents of such subcontractor, such
Fault occurs while performing within
the scope of their employment by the
subcontractor with respect to such
duties of the subcontractor under
the subcontract;
(B) any Loss arising from such
Indemnifying Party's use of services
offered under this Agreement,
involving pending or threatened
claims, actions, proceedings or
suits ("Claims"), claims for libel,
slander, invasion of privacy, or
infringement of Intellectual
Property rights arising from the
Indemnifying Party's own
communications or the communications
of such Indemnifying Party's
Customers;
(C) any Loss arising from Claims for actual
or alleged infringement of any
Intellectual Property right of a third
person to the extent that such Loss
arises from an Indemnified Party's or an
Indemnified Party's Customer's use of a
service provided under this Agreement;
provided, however, that an Indemnifying
Party's obligation to defend and
indemnify the Indemnified Party shall
not apply in the case of (i) (A) any use
by an Indemnified Party of a service (or
element thereof) in combination with
elements, services or systems supplied
by the Indemnified Party or persons
other than the Indemnifying Party or (B)
where an Indemnified Party or its
Customer modifies or directs the
Indemnifying Party to modify such
service and (ii) no infringement would
have occurred without such combined use
or modification;
(D) any and all penalties imposed upon the
Indemnifying Party's failure to comply
with the Communications Assistance to Law
Enforcement Act of 1994 ("CALEA") and, at
the sole cost and expense of the
Indemnifying Party, any amounts necessary
to modify or replace any equipment,
facilities or services provided to the
Indemnified Party under this Agreement to
ensure that such equipment, facilities and
services fully comply with CALEA; and
(E) any Loss arising from such Indemnifying
Party's Failure to comply with Applicable
Law.
XXV.2 Limitation on Liquidated Damages. Notwithstanding
anything to the contrary contained herein, in no event shall an Indemnifying
Party have an obligation to indemnify, defend, hold the Indemnified Party
harmless or reimburse the Indemnified Party or its Customers for any Loss
arising out of a Claim for liquidated damages asserted against such Indemnified
Party.
XXV.3 Indemnification Procedures. Whenever a Claim shall arise
for indemnification under this Article XXV, the relevant Indemnified Party, as
appropriate, shall promptly notify the Indemnifying Party and request the
Indemnifying Party to defend the same. Failure to so notify the Indemnifying
Party shall not relieve the Indemnifying Party of any
<PAGE>
liability that the Indemnifying Party might have, except to the extent that such
failure prejudices the Indemnifying Party's ability to defend such Claim. The
Indemnifying Party shall have the right to defend against such liability or
assertion in which event the Indemnifying Party shall give written notice to the
Indemnified Party of acceptance of the defense of such Claim and the identity of
counsel selected by the Indemnifying Party. Until such time as the Indemnifying
Party provides such written notice of acceptance of the defense of such Claim,
the Indemnified Party shall defend such Claim, at the expense of the
Indemnifying Party, subject to any right of the Indemnifying Party, to seek
reimbursement for the costs of such defense in the event that it is determined
that the Indemnifying Party had no obligation to indemnify the Indemnified Party
for such Claim. The Indemnifying Party shall have exclusive right to control and
conduct the defense and settlement of any such Claims subject to consultation
with the Indemnified Party. The Indemnifying Party shall not be liable for any
settlement by the Indemnified Party unless such Indemnifying Party has approved
such settlement in advance and agrees to be bound by the agreement incorporating
such settlement. At any time, an Indemnified Party shall have the right to
refuse a compromise or settlement and, at such refusing Party's cost, to take
over such defense; provided that in such event the Indemnifying Party shall not
be responsible for, nor shall it be obligated to indemnify the relevant
Indemnified Party against, any cost or liability in excess of such refused
compromise or settlement. With respect to any defense accepted by the
Indemnifying Party, the relevant Indemnified Party shall be entitled to
participate with the Indemnifying Party in such defense if the Claim requests
equitable relief or other relief that could affect the rights of the Indemnified
Party and also shall be entitled to employ separate counsel for such defense at
such Indemnified Party's expense. If the Indemnifying Party does not accept the
defense of any indemnified Claim as provided above, the relevant Indemnified
Party shall have the right to employ counsel for such defense at the expense of
the Indemnifying Party. Each Party agrees to cooperate and to cause its
employees and agents to cooperate with the other Party in the defense of any
such Claim and the relevant records of each Party shall be available to the
other Party with respect to any such defense, subject to the restrictions and
limitations set forth in Article XX.
ARTICLE XXVI
LIMITATION OF LIABILITY
XXVI.1 Limited Responsibility. Each Party shall be responsible
only for service(s) and facility(ies) which are provided by that Party, its
Affiliates, authorized agents, subcontractors, or others retained by such
parties, and neither Party shall bear any responsibility for the services and
facilities provided by the other Party, the other Party's Affiliates, agents,
subcontractors, or other persons retained by such parties. No Party shall be
liable for any act or omission of another Telecommunications Carrier (other than
an Affiliate) providing a portion of a service , unless such Telecommunications
Carrier is an authorized agent, subcontractor or other person retained by the
Party providing such service.
XXVI.2 Apportionment of Fault. In the case of any Loss arising
from the negligence or willful misconduct of both Parties, each Party shall
bear, and its obligation shall be limited to, that portion of the resulting
expense caused by its negligence or
<PAGE>
misconduct or the negligence or misconduct of such Party's Affiliates, agents,
contractors or other persons acting in concert with it.
26.3 Limitation of Damages. Except for indemnity obligations
under Article XXV, Ameritech's liability to 21st Century for any Loss resulting
from any and all causes shall be as follows:
a) Except for Ameritech's willful misconduct, with respect to any
Claim for any Loss associated with the installation, provision, termination,
maintenance, repair, or restoration of an individual Network Element or
Combination provided for a specific 21st Century Customer, Ameritech's liability
shall be limited to the greater of: (i) the total amount that is or would have
been charged to 21st Century for the service or function not performed or
improperly performed and (ii) the amount Ameritech would have been liable to its
Customer if the Resale Service was provided directly to its Customer; and
b) For all other Claims, including any Claims resulting from the
failure of Ameritech to meet its parity obligations under this Agreement, 21st
Century shall be entitled to recover its proven damages, subject to the
limitations of Section 26.5.
26.4 Limitations in Tariffs. Each Party shall, to the maximum
extent permitted by Applicable Law, provide in its tariffs and contracts with
its Customers that relate to any Telecommunications Service or Network Element
provided or contemplated under this Agreement, that in no case shall such Party
or any of its agents, contractors or other persons retained by such parties be
liable to any Customer for any Consequential Damages (as defined in Section 26.5
below). If a Party breaches its obligations under this Section 26.4, the
breaching Party shall be liable to the nonbreaching party for any and all losses
resulting from such breach, including the indemnification of and/or
reimbursement of Losses arising from Claims by and from such breaching Party's
Customers, to the extent such Losses would have been limited had the tariff or
contract provisions referenced above in this Section been included.
26.5 Consequential Damages. In no event shall either Party
have any liability whatsoever to the other Party for any indirect, special,
consequential, incidental or punitive damages, including loss of anticipated
profits or revenue or other economic loss in connection with or arising from
anything said, omitted or done hereunder (collectively, "Consequential
Damages"), even if the other Party has been advised of the possibility of such
damages; provided that the foregoing shall not limit (i) a Party's obligation
under Section 25.1 to indemnify, defend and hold the other Party harmless
against any amounts payable to a third person, including any losses, costs,
fines, penalties, criminal or civil judgements or settlements, expenses
(including attorneys' fees) and Consequential Damages of such third person or
(ii) a Party's liability to the other for willful or intentional misconduct.
26.6 Remedies. Except as provided in Section 10.9.5, no
remedy set forth in this Agreement is intended to be exclusive and each and
every remedy shall be cumulative and in addition to any other rights or remedies
now or hereafter existing under applicable law or otherwise.
<PAGE>
ARTICLE XXVII
BILLING
XXVII.1 Billing
XXVII.1.1 Each Party will bill all applicable
charges, at the rates set forth herein, in the Pricing Schedule and as set forth
in applicable tariffs or contracts referenced herein, for the services provided
by that Party to the other Party in accordance with this Article XXVII and the
Implementation Plan.
XXVII.1.2 The Parties agree that in order to ensure
the proper performance and integrity of the entire billing process, each Party
will be responsible and accountable for transmitting to the other Party an
accurate and current bill. Each Party agrees to implement control mechanisms and
procedures to render a bill that accurately reflects the services ordered and
used by the other Party.
XXVII.2 Recording. To the extent technically feasible, the
Parties shall record all available call detail information associated with calls
originated or terminated to the other Party, in accordance with the
Implementation Plan and as specifically required herein.
XXVII.3 Payment of Charges. Subject to the terms of this
Agreement, 21st Century and Ameritech shall pay each other all undisputed
amounts on or before the date ("Bill Due Date") which is the earlier of (i)
thirty (30) calendar days after such Party's receipt of a bill, if such bill is
received by such Party within five (5) calendar days of the date of such bill
and (ii) thirty-five (35) calendar days after such Party's receipt of a bill, if
such bill is received more than five (5) calendar days after the date of such
bill. For purposes of this Article XXVII, a bill shall be deemed "received" by a
Party on the date evidenced by the billing Party's EDI confirmation. If the Bill
Due Date is on a day other than a Business Day, payment will be made on the next
Business Day. Payments shall be made in U.S. Dollars (i) via electronic funds
transfer ("EFT") to the other Party's bank account or (ii) in order to
accommodate 21st Century's existing payment arrangements with Ameritech and
established credit rating, by check. To the extent that either Party (the
"Paying Party") pays via EFT, within thirty (30) days of the Effective Date,10/
the other Party shall provide the Paying Party the name and address of its bank,
its account and routing number and to whom payments should be made payable. If
such banking information changes, the other Party shall provide the Paying Party
at least sixty (60) days' written notice of the change and such notice shall
include the new banking information. If a Party receives multiple invoices which
are payable on the same date, such Party may remit one payment for the sum of
all amounts payable to the other Party. Each Party shall provide the other Party
with a contact person for the handling of payment questions or problems.
- ---------------
10/ Because the terms of this Agreement are the result of 21st Century's
adoption under Section 252(i) of the Act of the MCI Agreement, the
Parties agree that the term "Effective Date", for purposes of this
Section 27.3, shall mean April 20, 1998.
<PAGE>
XXVII.4 Late Payment Charge. If either Party fails to remit
payment for any charges for services by the Bill Due Date, or if a payment or
any portion of a payment is received by either Party after the Bill Due Date,
then a late payment charge shall be assessed. The portion of the payment not
received by the Bill Due Date shall accrue interest as provided in Section 27.6.
In no event, however, shall interest be assessed on any previously assessed late
payment charges.
XXVII.5 Adjustments
XXVII.5.1 As provided in this Agreement, a Party
shall promptly reimburse or credit the other Party for any charges that should
not have been billed to the other Party as provided in this Agreement along with
accrued interest as provided in Section 27.6. Such reimbursements shall be set
forth in the appropriate section of the invoice.
XXVII.5.2 As provided in this Agreement, a Party
shall bill the other Party for any charges that should have been billed to the
other Party as provided in this Agreement, but have not been billed to the other
Party ("Underbilled Charges"); provided, however that, except as provided in
Article XXVIII, the Billing Party shall not bill for Underbilled Charges which
were incurred more than six (6) months prior to the date that the Billing Party
transmits a bill for any Underbilled Charges.
XXVII.6 Interest on Unpaid or Overbilled Amounts. Except as
otherwise provided in Sections 6.2.5 and 6.2.6, any undisputed amounts not paid
when due or any amounts paid that were the subject of a billing error, as the
case may be, shall accrue interest from the date such amounts were due or
received, as the case may be, at the lesser of (i) one and one-half percent (1
1/2%) per month or (ii) the highest rate of interest that may be charged under
Applicable Law, compounded daily for the number of days from the Bill Due Date
or date such overpayment was received until the date that payment is actually
received or the credit is issued, as the case may be.
XXVII.7 Single Point of Contact. Ameritech shall provide to 21st
Century a single point of contact for handling any billing questions or problems
that may arise during the implementation and performance of the terms and
conditions of this Agreement.
<PAGE>
ARTICLE XXVIII
DISPUTED AMOUNTS, AUDIT RIGHTS
AND DISPUTE RESOLUTION
XXVIII.1 Disputed Amounts
XXVIII.1.1 If any portion of an amount due to a
Party (the "Billing Party") under this Agreement is subject to a bona fide
dispute between the Parties, the Party billed (the "Non-Paying Party") shall,
prior to the Bill Due Date, give written notice to the Billing Party of the
amounts it disputes ("Disputed Amounts") and include in such written notice the
specific details and reasons for disputing each item; provided, however, a
failure to provide such notice by that date shall not preclude a Party from
subsequently challenging billed charges. The Non-Paying Party shall pay when due
all undisputed amounts to the Billing Party. Notwithstanding the foregoing,
except as provided in Section 28.2, a Party shall be entitled to dispute only
those charges for which the Bill Due Date was within the immediately preceding
eighteen (18) months of the date on which the other Party received notice of
such Disputed Amounts.
XXVIII.1.2 If the Non-Paying Party disputes a
charge and does not pay such Disputed Amounts by the Bill Due Date, such
Disputed Amounts shall be subject to late payment charges as set forth in
Section 27.4. If the Non-Paying Party disputes charges and the dispute is
resolved in favor of such Non-Paying Party, the Billing Party shall credit the
invoice of the Non-Paying Party for the amount of the Disputed Amounts along
with any applicable late payment charges no later than the second Bill Due Date
after the resolution of the Dispute. Accordingly, if a Non-Paying Party disputes
charges and the dispute is resolved in favor of the Billing Party, the
Non-Paying Party shall pay the Billing Party the amount of the Disputed Amounts
and any associated late payment charges no later than the second Bill Due Date
after the resolution of the Dispute. In no event, however, shall any late
payment charges be assessed on any previously assessed late payment charges.
XXVIII.1.3 If the Parties are unable to resolve the
issues related to the Disputed Amounts in the normal course of business within
sixty (60) days after delivery to the Billing Party of notice of the Disputed
Amounts, each of the Parties shall appoint a designated representative who has
authority to settle the Dispute and who is at a higher level of management than
the persons with direct responsibility for administration of this Agreement. The
designated representatives shall meet as often as they reasonably deem necessary
in order to discuss the Dispute and negotiate in good faith in an effort to
resolve such Dispute. The specific format for such discussions will be left to
the discretion of the designated representatives; however all reasonable
requests for relevant information made by one Party to the other Party shall be
honored.
XXVIII.1.4 If the Parties are unable to resolve
issues related to the Disputed Amounts within forty-five (45) days after the
Parties' appointment of designated representatives pursuant to Section 28.3,
then either Party may file a complaint with the Commission to resolve such
issues or proceed with any other remedy pursuant to law or equity. The
Commission or the FCC may direct payment of any or all Disputed Amounts
(including any
<PAGE>
accrued interest) thereon or additional amounts awarded, plus applicable late
fees, to be paid to either Party.
XXVIII.1.5 The Parties agree that all negotiations
pursuant to this Section 28.1 shall remain confidential in accordance with
Article XX and shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and state rules of evidence.
XXVIII.2 Audit Rights
XXVIII.2.1 Subject to the restrictions set forth in
Article XX, a Party ("Auditing Party") may audit the other Party's ("Audited
Party") books, records, data and other documents, as provided herein, two (2)
times each Contract Year for the purpose of evaluating the accuracy of Audited
Party's billing and invoicing. The scope of the audit shall be limited to the
period which is the shorter of (i) the period subsequent to the last day of the
period covered by the audit which was last performed (or if no audit has been
performed, the Effective Date11/) and (ii) the twenty-four (24)-month period
immediately preceding the date the Audited Party received notice of such
requested audit. Except as otherwise agreed upon by the Parties, such audit
shall begin no fewer than thirty (30) days after Audited Party receives a
written notice requesting an audit and shall be completed no later than
forty-five (45) calendar days after the start of such audit. Such audit shall be
conducted by one or more auditors as mutually agreed upon by the Parties. The
Parties shall select such auditor(s) by the thirtieth day following Audited
Party's receipt of a written audit notice. The Auditing Party shall cause the
auditor(s) to execute a nondisclosure agreement in a form agreed upon by the
Parties. Notwithstanding the foregoing, an Auditing Party may audit as provided
herein more than two (2) times during any Contract Year if the previous audit
found previously uncorrected net variances or errors in invoices in Audited
Party's favor with an aggregate value of at least one and one-half percent (1
1/2%) of the amounts payable by Auditing Party for audited services provided
during the period covered by the audit.
XXVIII.2.2 Each Party shall bear its own expenses
in connection with the conduct of the audit. Each audit shall be conducted on
the premises of Audited Party during normal business hours. Audited Party shall
cooperate fully in any such audit, providing the auditor reasonable access to
any and all appropriate Audited Party employees and books, records and other
documents reasonably necessary to assess the accuracy of Audited Party's billing
and invoicing. No Party shall have access to the data of the other Party, but
shall rely upon summary results provided by the auditor. Audited Party may
redact from the books, records and other documents provided to the auditor any
confidential Audited Party information that reveals the identity of other
Customers of Audited Party. Each Party shall maintain reports, records and data
relevant to the billing of any services that are the subject matter of this
Agreement for a period of
- ---------------
11/ Because the terms of this Agreement are the result of 21st Century's
adoption under Section 252(i) of the Act of the MCI Agreement, the
Parties agree that the term "Effective Date", for purposes of this
Section 28.2.1, shall mean April 20, 1998.
<PAGE>
not less than twenty-four (24) months after creation thereof, unless a longer
period is required by Applicable Law.
XXVIII.2.3 If any audit confirms any undercharge or
overcharge, then Audited Party shall (i) for any overpayment promptly correct
any billing error, including making refund of any overpayment by Auditing Party
in the form of a credit on the invoice for the first full billing cycle after
the Parties have agreed upon the accuracy of the audit results and (ii) for any
undercharge caused by the actions of or failure to act by Audited Party,
immediately compensate Auditing Party for such undercharge, in each case with
interest at the lesser of (x) one and one-half (1 1/2%) percent per month and
(y) the highest rate of interest that may be charged under Applicable Law,
compounded daily, for the number of days from the date on which such undercharge
or overcharge originated until the date on which such credit is issued or
payment is made and available, as the case may be. Notwithstanding the
foregoing, 21st Century shall not be liable for any Underbilled Charges for
which Customer Usage Data was not furnished by Ameritech to 21st Century within
six (6) months of the date such usage was incurred.
XXVIII.2.4 Any Disputes concerning audit results
shall be referred to the Parties' designated representative(s) who have
authority to settle the Dispute. If these individuals cannot resolve the Dispute
within thirty (30) days of the referral, either Party may request in writing
that one additional audit shall be conducted by an auditor acceptable to both
Parties, subject to the requirements set out in Section 28.2.1. Such additional
audit shall be at the requesting Party's expense. If the second audit fails to
resolve the Dispute, the matter shall be resolved in accordance with the
procedures set forth in Section 28.3.
XXVIII.3 Dispute Escalation and Resolution. Except as otherwise
provided herein, any dispute, controversy or claim (individually and
collectively, a "Dispute") arising under this Agreement shall be resolved in
accordance with the procedures set forth in this Section 28.3. In the event of a
Dispute between the Parties relating to this Agreement and upon the written
request of either Party, each of the Parties shall appoint a designated
representative who has authority to settle the Dispute and who is at a higher
level of management than the persons with direct responsibility for
administration of this Agreement. The designated representatives shall meet as
often as they reasonably deem necessary in order to discuss the Dispute and
negotiate in good faith in an effort to resolve such Dispute. The specific
format for such discussions will be left to the discretion of the designated
representatives; however, all reasonable requests for relevant information made
by one Party to the other Party shall be honored. If the Parties are unable to
resolve issues related to a Dispute within thirty (30) days after the Parties'
appointment of designated representatives as set forth above, the Parties shall
attempt in good faith to address any default or resolve any Dispute according to
the rules, guidelines or regulations of the Commission; provided, however, a
Party may pursue all available remedies in the event there is no satisfactory
resolution pursuant to this Section 28.3. Notwithstanding the foregoing, in no
event shall the Parties permit the pending of a Dispute to disrupt service to
any 21st Century Customer or Ameritech Customer.
<PAGE>
XXVIII.4 Equitable Relief. Notwithstanding the foregoing, this
Article XXVIII shall not be construed to prevent either Party from seeking and
obtaining temporary equitable remedies, including temporary restraining orders,
if, in its judgment, such action is necessary to avoid irreparable harm. Despite
any such action, the Parties will continue to participate in good faith in the
dispute resolution procedures described in this Article XXVIII.
ARTICLE XXIX
REGULATORY APPROVAL
XXIX.1. Commission Approval. The Parties understand and agree
that this Agreement will be filed with the Commission for approval by such
Commission (or the FCC if the Commission fails to act) pursuant to Section 252
of the Act. If the Commission, the FCC or any court rejects any portion of this
Agreement, the Parties agree to meet and negotiate in good faith to arrive at a
mutually acceptable modification of the rejected portion and related provisions;
provided that such rejected portion shall not affect the validity of the
remainder of this Agreement. The Parties acknowledge that nothing in this
Agreement shall limit a Party's ability, independent of such Party's agreement
to support and participate in the approval of this Agreement, to assert public
policy issues relating to the Act.
XXIX.1 Tariffs. If either Party is required by any governmental
authority to file a tariff or make another similar filing to implement any
provision of this Agreement (other than a tariff filed by a Party that generally
relates to one or more services provided under this Agreement but not
specifically to 21st Century or Ameritech) (an "Ameritech/21st Century
Interconnect Tariff"), such Party shall (i) consult with the other Party
reasonably in advance of such filing about the form and substance of such
Ameritech/21st Century Interconnect Tariff, (ii) provide to such other Party its
proposed Ameritech/21st Century Interconnect Tariff and obtain such other
Party's agreement on the form and substance of such Ameritech/21st Century
Interconnect Tariff prior to such filing, and (iii) take all steps reasonably
necessary to ensure that such Ameritech/21st Century Interconnect Tariff or
other filing imposes obligations upon such Party that are as close as possible
to those provided in this Agreement and preserves for such other Party the full
benefit of the rights otherwise provided in this Agreement. If, subsequent to
the effective date of any such Ameritech/21st Century Interconnect Tariff, a
Party is no longer required to file tariffs with the Commission or the FCC,
either generally or for specific services, the Parties agree to modify this
Agreement to reflect herein the relevant and consistent terms and conditions of
such Ameritech/21st Century Interconnect Tariffs as of the date on which the
requirement to file such Ameritech/21st Century Interconnect Tariffs was lifted.
Nothing in this Section 29.2 shall be construed to grant a Party any right to
review any tariff filing of the other Party other than the Ameritech/21st
Century Interconnection Tariff, other than as provided under Applicable Law.
XXIX.3 Amendment or Other Changes to the Act; Reservation of
Rights. The Parties acknowledge that the respective rights and obligations of
each Party as set forth in this Agreement are based on the text of the Act and
the rules and regulations promulgated thereunder by the FCC and the Commission
as of the Effective Date. In the event of any amendment to the Act, or any final
and nonappealable legislative, regulatory, judicial order, rule or regulation or
<PAGE>
other legal action that revises or reverses the Act, the FCC's First Report and
Order in CC Docket Nos. 96-98 and 95-185 or any applicable Commission order or
arbitration award purporting to apply the provisions of the Act (individually
and collectively, an "Amendment to the Act"), either Party may by providing
written notice to the other Party require that the affected provisions be
renegotiated in good faith and this Agreement be amended accordingly to reflect
the pricing, terms and conditions of each such Amendment to the Act relating to
any of the provisions in this Agreement. If any such amendment to this Agreement
affects any rates or charges of the services provided hereunder, each Party
reserves its rights and remedies with respect to the collection of such rates or
charges; including the right to seek a surcharge before the applicable
regulatory authority.
XXIX.4 Regulatory Changes. If any final and nonappealable
legislative, regulatory, judicial or other legal action (other than an Amendment
to the Act, which is provided for in Section 29.3) materially affects the
ability of a Party to perform any material obligation under this Agreement, a
Party may, on thirty (30) days' written notice to the other Party (delivered not
later than thirty (30) days following the date on which such action has become
legally binding and has otherwise become final and nonappealable), require that
the affected provision(s) be renegotiated, and the Parties shall renegotiate in
good faith such mutually acceptable new provision(s) as may be required;
provided that such affected provisions shall not affect the validity of the
remainder of this Agreement.
XXIX.5 Interim Rates. If the rates, charges and prices set
forth in this Agreement are "interim rates" established by the Commission or the
FCC, the Parties agree to substitute such interim rates with the rates, charges
or prices later established by the Commission or the FCC pursuant to the pricing
standards of Section 252 of the Act and such rates, charges and prices shall be
effective as determined by the Commission or the FCC.
ARTICLE XXX
MISCELLANEOUS
XXX.1 Authorization
XXX.1.1 Ameritech Services, Inc. is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Ameritech Information Industry Services, a division of
Ameritech Services, Inc., has full power and authority to execute and deliver
this Agreement and to perform the obligations hereunder on behalf of and as
agent for Ameritech Illinois.
XXX.1.2 21st Century is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois and has full power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. 21st Century represents and warrants
to Ameritech that it has been certified as a LEC by the Commission and is
authorized to provide in the State of Illinois the services it has contracted to
provide herein.
<PAGE>
XXX.2 Designation of Affiliate
XXX.2.1 Each Party may without the consent of the
other Party fulfill its obligations under this Agreement by itself or may cause
its Affiliates to take some or all of such actions to fulfill such obligations.
Upon such designation, the Affiliate shall become a co-obligor hereunder with
respect to the delegated matter, but such designation shall not relieve the
designating Party of its obligations as primary obligor hereunder. Any Party
which elects to perform its obligations through an Affiliate shall cause its
Affiliate to take all action necessary for the performance hereunder of such
Party's obligations. Each Party represents and warrants that if an obligation
under this Agreement is to be performed by an Affiliate, such Party has the
authority to cause such Affiliate to perform such obligation and such Affiliate
will have the resources required to accomplish the delegated performance.
XXX.2.2 All of the benefits to be provided
hereunder for Ameritech or 21st Century, as the case may be, will be provided to
its Affiliates if and to the extent that Ameritech or 21st Century desires to
conduct its respective business operations contemplated hereunder through
Affiliates; provided that any such Affiliate is eligible to request, or
obligated to provide, services in accordance with Section 251 and 252 of the
Act.
XXX.3 Subcontracting. Either Party may subcontract the
performance of its obligation under this Agreement without the prior written
consent of the other Party; provided, however, that the Party subcontracting
such obligation shall remain fully responsible for the performance of such
obligation and be solely responsible for payments due its subcontractors.
XXX.4 Independent Contractor. Each Party shall perform
services hereunder as an independent contractor and nothing herein shall be
construed as creating any other relationship between the Parties. Each Party and
each Party's contractor shall be solely responsible for the withholding or
payment of all applicable federal, state and local income taxes, social security
taxes and other payroll taxes with respect to their employees, as well as any
taxes, contributions or other obligations imposed by applicable state
unemployment or workers' compensation acts. Each Party has sole authority and
responsibility to hire, fire and otherwise control its employees.
XXX.5 Force Majure. No Party shall be responsible for delays
or failures in performance of any part of this Agreement (other than an
obligation to make money payments) resulting from acts or occurrences beyond the
reasonable control of such Party, including acts of nature, acts of civil or
military authority, any law, order, regulation, ordinance of any government or
legal body, embargoes, epidemics, terrorist acts, riots, insurrections, fires,
explosions, earthquakes, nuclear accidents, floods, work stoppages, power
blackouts, volcanic action, other major environmental disturbances, unusually
severe weather conditions (individually or collectively, a "Force Majeure
Event") or delays caused by the other Party or any other circumstances beyond
the Party's reasonable control. If a Force Majeure Event shall occur, the Party
affected shall give prompt notice to the other Party of such Force Majeure Event
specifying the nature, date of inception and expected duration of such Force
Majeure Event, whereupon such obligation or performance shall be suspended to
the extent such Party is affected by such Force Majeure Event during the
continuance thereof and/or be excused from such performance (and the other Party
shall likewise be excused from performance of its obligations
<PAGE>
to the extent such Party's obligations relate to the performance so interfered
with). The affected Party shall use its reasonable efforts to avoid or remove
the cause of nonperformance and the Parties shall give like notice and proceed
to perform with dispatch once the causes are removed or cease. Notwithstanding
the preceding, no delay or other failure to perform shall be excused pursuant to
this Section 30.5: (i) by the acts or omission of a Party's subcontractors,
materialmen, suppliers or other third persons providing products or services to
such Party unless such acts or omissions are themselves the product of a Force
Majeure Event, and unless such delay or failure and the consequences thereof are
beyond the control and without the fault or negligence of the Party claiming
excusable delay or other failure to perform, or (ii) if such Party fails to
implement any steps taken to mitigate the effects of a Force Majeure Event
(e.g., disaster recovery plans) in a nondiscriminatory manner during the period
performance is impaired.
XXX.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the Act, except insofar as state law may control
any aspect of this Agreement, in which case the domestic laws of the State of
Illinois shall govern, without reference to its conflict of law provisions.
XXX.7 Taxes
XXX.7.1 Each Party purchasing services hereunder
shall pay or otherwise be responsible for all federal, state, or local sales,
use, excise, gross receipts, transaction or similar taxes, fees or surcharges
levied against or upon such purchasing Party (or the providing Party when such
providing Party is permitted to pass along to the purchasing Party such taxes,
fees or surcharges), except for any tax on either Party's corporate existence,
status or income. Whenever possible, these amounts shall be billed as a separate
item on the invoice. To the extent a sale is claimed to be for resale, the
purchasing Party shall furnish the providing Party a proper resale tax exemption
certificate as authorized or required by statute or regulation by the
jurisdiction providing said resale tax exemption. Failure to timely provide said
resale tax exemption certificate will result in no exemption being available to
the purchasing Party for any charges invoiced prior to the date such exemption
certificate is furnished. To the extent that a Party includes gross receipts
taxes in any of the charges or rates of services provided hereunder, no
additional gross receipts taxes shall be levied against or upon the purchasing
Party.
XXX.7.2 The Party obligated to pay any such taxes
may contest the same in good faith, at its own expense, and shall be entitled to
the benefit of any refund or recovery; provided that such contesting Party shall
not permit any lien to exist on any asset of the other Party by reason of such
contest. The Party obligated to collect and remit shall cooperate in any such
contest by the other Party. As a condition of contesting any taxes due
hereunder, the contesting Party agrees to be liable and indemnify and reimburse
the other Party for any additional amounts that may be due by reason of such
contest, including any interest and penalties.
XXX.8 Non-Assignment. Neither Party may assign or transfer
(whether by operation of law or otherwise) this Agreement (or any rights or
obligations hereunder) to a third person without the prior written consent of
the other Party; provided that each Party may assign or transfer this Agreement
to an Affiliate in accordance with Section 30.2 by providing prior
<PAGE>
written notice to the other Party of such assignment or transfer; provided,
further, that such assignment is not inconsistent with Applicable Law or the
terms and conditions of this Agreement. No assignment or delegation hereof
should relieve the assignor of its obligation under this Agreement. Any
attempted assignment or transfer that is not permitted is void ab initio.
Without limiting the generality of the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the Parties' respective
successors and assigns and the assigning Party will remain liable for the
performance of any assignee.
XXX.9 Non-Waiver. No waiver of any provision of this Agreement
and no consent to any default under this Agreement shall be effective unless the
same shall be in writing and properly executed by or on behalf of the Party
against whom such waiver or consent is claimed. Failure of either Party to
insist on performance of any term or condition of this Agreement or to exercise
any right or privilege hereunder shall not be construed as a continuing or
future waiver of such term, condition, right or privilege.
XXX.10 Notices. Notices given by one Party to the other Party
under this Agreement shall be in writing (unless specifically provided otherwise
herein) and unless otherwise specifically required by this Agreement to be
delivered to another representative or point of contact, shall be (a) delivered
personally, (b) delivered by express delivery service, (c) mailed, certified
mail or first class U.S. mail postage prepaid, return receipt requested or (d)
delivered by telecopy, with a confirmation copy sent by a method described in
(a), (b) or (c) of this Section 30.10, to the following addresses of the
Parties:
To 21st Century:
21st Century
World Trade Center
350 North Orleans, Suite 600
Chicago, Illinois 60654
Attn: Eric D. Kurtz, Vice President Business Development
and Operations
Facsimile: (312) 470-2111
with a copy to:
Rowland & Moore
Attorneys for 21st Century
55 East Monroe Street, Suite 3230
Chicago, IL 60603
Attn: Thomas H. Rowland
Facsimile: (312) 803-0953
To Ameritech:
<PAGE>
Ameritech Information Industry Services
350 North Orleans, Floor 5
Chicago, IL 60654
Attn.: Vice President - Network Providers
Facsimile: (312) 335-2927
with a copy to:
Ameritech Information Industry Services
350 North Orleans, Floor 5
Chicago, IL 60654
Attn.: Vice President and General Counsel
Facsimile: (312) 595-1504
or to such other address as either Party shall designate by proper notice.
Notices will be deemed given as of the earlier of (i) the date of actual
receipt, (ii) the next Business Day when notice is sent via express mail or
personal delivery, (iii) three (3) days after mailing in the case of first class
or certified U.S. mail or (iv) on the date set forth on the confirmation in the
case of telecopy.
XXX.11 Publicity and Use of Trademarks or Service Marks.
Neither Party nor its subcontractors or agents shall use the other Party's
trademarks, service marks, logos or other proprietary trade dress in any
advertising, press releases, publicity matters or other materials without such
Party's prior written consent, except as permitted by Applicable Law. In no
event shall either Party mischaracterize the contents of this Agreement in any
public statement or in any representation to a governmental entity or member
thereof.
XXX.12 Nonexclusive Dealings. This Agreement does not prevent
either Party from providing or purchasing services to or from any other person
nor, except as provided in Section 252(i) of the Act, does it obligate either
Party to provide or purchase any services.
XXX.13 No Third Party Beneficiaries; Disclaimer of Agency. This
Agreement is for the sole benefit of the Parties and their permitted assigns,
and nothing herein express or implied shall create or be construed to create any
third-party beneficiary rights hereunder. Nothing in this Agreement shall
constitute one Party as the legal representative or agent of the other Party,
nor shall a Party have the right or authority to assume, create or incur any
liability or any obligation of any kind, express or implied, against or in the
name or on behalf of the other Party, unless otherwise expressly permitted by
such other Party. No Party undertakes to perform any obligation of the other
Party, whether regulatory or contractual, or to assume any responsibility for
the management of the other Party's business.
XXX.14 No License. No license under patents, copyrights,
trademarks, trade secrets or any Intellectual Property right (other than the
limited license to use same consistent with the terms, conditions and
restrictions of this Agreement) is granted by either Party or shall be implied
or arise by estoppel with respect to any transactions contemplated under this
Agreement.
<PAGE>
XXX.15 Survival. The Parties' obligations under this Agreement,
which by their nature are intended to continue beyond the termination or
expiration of this Agreement, shall survive the termination or expiration of
this Agreement, including Articles XX, XXI, XXIII, XXV and XXVI and Sections
3.9.4, 6.5, 10.11.3, 12.7, 16.16, 16.18, 28.1, 28.2, 28.3, 30.7, 30.11 and
30.14.
XXX.16 Scope of Agreement. This Agreement is intended to
describe and enable specific Interconnection and access to unbundled Network
Elements and compensation arrangements between the Parties. This Agreement does
not obligate either Party to provide arrangements not specifically provided
herein.
XXX.17 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original; but such
counterparts shall together constitute one and the same instrument.
30.18 Reservation of Rights. The Parties acknowledge that
certain terms of this Agreement were established by order of the Commission. The
terms of this Agreement may be altered or abrogated by a successful challenge
instituted under Applicable Law before or after the Agreement has been approved
pursuant to Section 252(e)(1) or has been deemed approved by operation of law
pursuant to Section 252(e)(4). By signing this Agreement, a Party does not waive
its right to pursue such a challenge.
30.19 Entire Agreement. The terms contained in this Agreement
and any Schedules, Exhibits, tariff provisions referenced herein and other
documents or instruments referred to herein, which are incorporated into this
Agreement by this reference, constitute the entire agreement between the Parties
with respect to the subject matter hereof, superseding all prior understandings,
proposals and other communications, oral or written. Neither Party shall be
bound by any terms additional to or different from those in this Agreement that
may appear subsequently in the other Party's form documents, purchase orders,
quotations, acknowledgments, invoices or other communications. This Agreement
may only be modified by a writing signed by an officer of each Party.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed as of this 20th day of April, 1998./12/
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12/ This Agreement is the result of 21st Century's adoption in its
entirety of the terms of that certain arbitrated Interconnection
Agreement under Sections 251 and 252 of the Telecommunications Act of
1996 dated May 5, 1997 by and between Ameritech Illinois and MCImetro
Access Transmission Services, Inc. ("MCI Agreement") that was
approved by the Commission as an effective Agreement in the state of
Illinois in Docket No. 97AA002 (the "MCI Arbitration"). This
Agreement does not represent a voluntary or negotiated agreement
under Section 252 of the Act but instead merely represents
Ameritech's compliance with 21st Century's statutory rights under
Section 252(i) of the Act. Filing and performance by Ameritech of
this Agreement does not in any way constitute a waiver by Ameritech
of its position of the illegality or unreasonableness of any rates,
terms or conditions set forth in this Agreement, nor does it
constitute a waiver by Ameritech of all rights and remedies it may
have to seek review of this Agreement or the MCI Agreement, or to
petition the Commission, other administrative body, or court for
reconsideration or reversal of any determination made by the
Commission pursuant to the MCI Arbitration, or seek review in any way
of any provisions included in this Agreement as a result of 21st
Century's election under Section 252(i) of the Act.
<PAGE>
21st CENTURY TELECOM OF ILLINOIS, AMERITECH INFORMATION INDUSTRY
INC. SERVICES, A DIVISION OF AMERITECH
SERVICES, INC., ON BEHALF OF
AMERITECH ILLINOIS
By: By:
Printed: Printed:
Title: Title:
SCHEDULE 1.2
DEFINITIONS
"9-1-1" means the services described in Section 3.9.
"9-1-1 Control Office Software Enhancement Connection Charge" is as
defined in Section 3.9.2(e) of this Agreement.
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Neither Ameritech nor 21st Century's execution of this Agreement and
compliance with the terms and conditions of this Agreement shall be
construed as or is intended to be a concession or admission by either
Party that any contractual provision required by the Commission in
the MCI Arbitration or any provision in this Agreement or the MCI
Agreement complies with the rights and duties imposed by the Act, a
decision by the FCC or the Commission, a decisions of the courts, or
other Applicable Law, and both Ameritech and 21st Century
specifically reserve their respective full rights to assert and
pursue claims arising from or related to this Agreement. Ameritech
further contends that certain provisions of the Agreement may be void
or unenforceable as a result of the July 18, 1997 and October 14,
1997 decisions of the United States Court of Appeals for the Eighth
Circuit. Should 21st Century attempt to apply such conflicting
provisions, Ameritech reserves its right, notwithstanding anything to
the contrary in this Agreement, to seek appropriate legal and/or
equitable relief. The MCI Agreement that 21st Century adopts here is
considered to be the original agreement between Ameritech and MCI
plus any modifications or amendments to that agreement as of the date
this Agreement is executed by Ameritech and 21st Century. 21st
Century is not bound by any future modifications or amendments to the
MCI Agreement made after April 20, 1998. Notwithstanding the
foregoing, to the extent any provisions in the MCI Agreement are
modified as a result of any order or finding by the FCC, the
Commission or a court of competent jurisdiction (other than an order
subject to Section 29.3), either Party shall have the right to modify
the corresponding provisions of this Agreement, consistent with such
order or finding.
<PAGE>
"Access Toll Connecting Trunks" is as defined in Section 5.1.
"Act" means the Communications Act of 1934 (47 U.S.C. ss. 151 et
seq.), as amended by the Telecommunications Act of 1996, and as from time to
time interpreted in the duly authorized rules, regulations and applicable orders
of the FCC or the Commission having authority to interpret the Act within its
state of jurisdiction.
"ADSL" or "Asymmetrical Digital Subscriber Line" means a transmission
technology which transmits an asymmetrical digital signal using one of a variety
of line codes.
"Advanced Intelligent Network" or "AIN" is a network functionality
that permits specific conditions to be programmed into a switch which, when met,
directs the switch to suspend call processing and to receive special
instructions for further call handling in order to enable carriers to offer
advanced features and services.
"Affiliate" is As Defined in the Act.
"AMA" means the Automated Message Accounting structure inherent in
switch technology that initially records telecommunication message information.
AMA format is contained in the Automated Message Accounting document, published
by Bellcore as GR-1100-CORE which defines the industry standard for message
recording.
"Applicable Laws" is as defined in Section 19.2.
"As Defined in the Act" means as specifically defined by the Act and
as from time to time interpreted in the duly authorized rules and regulations of
the FCC or the Commission.
"As Described in the Act" means as described in or required by the
Act and as from time to time interpreted in the duly authorized rules and
regulations of the FCC or the Commission.
"Automatic Location Identification" or "ALI" means a feature by which
the service address associated with the calling party's listed telephone number
identified by ANI, as defined herein, is forwarded to the PSAP for display.
Additional telephones with the same number as the calling party's, including
secondary locations and off-premise extensions, will be identified with the
service address of the calling party's listed number.
"Automatic Number Identification" or "ANI" means a Feature Group D
signaling parameter which refers to the number transmitted through a network
identifying the billing number of the calling party. With respect to 9-1-1 and
E9-1-1, "ANI" means a feature by which the calling party's telephone number is
automatically forwarded to the E9-1-1 Control Office and to the PSAP display and
transfer office.
Sch. 1.2 - 103
<PAGE>
"Automatic Route Selection" or "ARS" means a service feature
associated with a specific grouping of lines that provides for automatic
selection of the least expensive or most appropriate transmission facility for
each call based on criteria programmed into the system.
"Bellcore" means Bell Communications Research, Inc.
"Bill Date" means the date that a bill is issued by a Party.
"BLV/BLVI Traffic" means an operator service call in which the caller
inquires as to the busy status of or requests an interruption of a call on
another Customer's Telephone Exchange Service line.
"Business Day" means a day on which banking institutions are required
to be open for business in Chicago, Illinois.
"Bona Fide Request" means the process described on Schedule 2.2.
"Calling Party Number" or "CPN" is a Common Channel Interoffice
Signaling ("CCIS") parameter which refers to the number transmitted through a
network identifying the calling party.
"Capacity" is as defined in Section 16.1.2
"Carrier of Record" is as defined in Section 10.11.3.
"CCS" means one hundred (100) call seconds.
"Central Office Switch" means a switch used to provide
Telecommunications Services, including:
(a) "End Office Switches," which are used to terminate
Customer station Loops for the purpose of Interconnection to each
other and to trunks; and
(b) "Tandem Office Switches" or "Tandems," which are used
to connect and switch trunk circuits between and among other Central
Office Switches.
A Central Office Switch may also be employed as a combination End
Office/Tandem Office Switch.
"Centrex" means a Telecommunications Service associated with a
specific grouping of lines that uses Central Office switching equipment for call
routing to handle direct dialing of calls and to provide many private branch
exchange-like features.
Sch. 1.2 - 104
<PAGE>
"CLASS Features" means certain CCIS-based features available to
Customers, including: Automatic Call Back; Caller Identification and related
blocking features; Distinctive Ringing/Call Waiting; Selective Call Forward; and
Selective Call Rejection.
"Commercial Mobile Radio Service" or "CMRS" is As Defined in the Act.
"COBO" is as defined in Section 12.12.2(b).
"Collocation" is As Described in the Act.
"Combination" is as defined in Section 9.3.
"Commission" or "ICC" means the Illinois Commerce Commission.
"Common Channel Interoffice Signaling" or "CCIS" means the signaling
system, developed for use between switching systems with stored-program control,
in which all of the signaling information for one or more groups of trunks is
transmitted over a dedicated high-speed data link rather than on a per-trunk
basis and, unless otherwise agreed by the Parties, the CCIS used by the Parties
shall be SS7.
"Consequential Damages" is as defined in Section 26.5.
"Contract Month" means a calendar month (or portion thereof) during
the term of this Agreement. Contract Month 1 shall commence on the first day of
the first calendar month following the Effective Date and end on the last day of
that calendar month.
"Contract Year" means a twelve (12)-month period during the term of
this Agreement commencing on the Effective Date and each anniversary thereof.
"Control Office" means the Central Office providing Tandem Switching
Capability for E9-1-1 calls. The Control Office controls switching of ANI
information to the PSAP and also provides the Selective Routing, feature,
standard speed calling features, call transfer capability and certain
maintenance functions for each PSAP.
"Cross Connection" means a connection provided pursuant to
Collocation at the Digital Signal Cross Connect, Main Distribution Frame or
other suitable frame or panel between (i) the collocated Party's equipment and
(ii) the equipment of a third-party collocated Telecommunications Carrier or the
equipment or facilities of the other Party which provides such Collocation.
"Customer" means a third-party residence or business that subscribes
to Telecommunications Services provided by either of the Parties.
Sch. 1.2 - 105
<PAGE>
"Customer Listing(s)" means a list containing the names, the
telephone numbers, addresses and zip codes of Customers within a defined
geographical area, except to the extent such Customers have requested not to be
listed in a directory.
"Customer Name and Address Information" or "CNA" means the name,
service address and telephone numbers of a Party's Customers for a particular
Exchange Area. CNA includes nonpublished listings, coin telephone information
and published listings.
"Customer Proprietary Network Information" is As Defined in the Act.
"Customer Usage Data" is as defined in Section 10.16.1.
"Dark Fiber" means fiber facilities that have no electronics (i.e.,
no transmission equipment at either end).
"Data Management System" or "DMS" means a system of manual procedures
and computer processes used to create, store and update the data required to
provide the Selective Routing ("SR") and ALI features.
"Delaying Event" means (a) any failure of a Party to perform any of
its obligations set forth in this Agreement, caused in whole or in part by (i)
the failure of the other Party to perform any of its obligations set forth in
this Agreement (including the Implementation Schedule and the Implementation
Plan), or (ii) any delay, act or failure to act by the other Party or its
Customer, agent or subcontractor or (b) any Force Majeure Event.
"Delivery Date" is as defined in Sections 12.12.2(b) and 12.12.3(c).
"Derivative Information" is as defined in Section 20.1.1(b).
"Dialing Parity" is As Defined in the Act.
"Digital Signal Level" means one of several transmission rates in the
time-division multiplex hierarchy.
"Digital Signal Level 0" or "DS0" means the 64 Kbps zero-level signal
in the time-division multiplex hierarchy.
"Digital Signal Level 1" or "DS1" means the 1.544 Mbps first-level
signal in the time-division multiplex hierarchy. In the time-division
multiplexing hierarchy of the telephone network, DS1 is the initial level of
multiplexing.
"Digital Signal Level 3" or "DS3" means the 44.736 Mbps third-level
in the time-division multiplex hierarchy. In the time-division multiplexing
hierarchy of the telephone network, DS3 is defined as the third level of
multiplexing.
Sch. 1.2 - 106
<PAGE>
"Disclosing Party" is as defined in Section 20.1.1.
"Dispute" is as defined in Section 28.3.1.
"Disputed Amounts" is as defined in Section 28.1.1.
"Documentation of Authorization" is as defined in Schedule 10.11.1.
"Emergency Services" mean police, fire, ambulance, rescue and
medical services.
"E9-1-1" or "Enhanced 9-1-1 (E9-1-1) Service" provides completion of
9-1-1 calls via dedicated trunking facilities and includes Automatic Number
Identification (ANI), Automatic Location Identification (ALI) and/or Selective
Routing (SR).
"equal in quality" is as defined in Section 3.6.
"Exchange Access" is As Defined in the Act.
"Exchange Area" means an area, defined by the Commission, for which a
distinct local rate schedule is in effect.
"Exchange Message Record" or "EMR" means the standard used for
exchange of Telecommunications message information among Telecommunications
providers for billable, non-billable, sample, settlement and study data. EMR
format is contained in Bellcore Practice BR-010-200-010 CRIS Exchange Message
Record.
"FCC" means the Federal Communications Commission.
"Fiber-Meet" means an Interconnection architecture method whereby the
Parties physically Interconnect their networks via an optical fiber interface
(as opposed to an electrical interface) at a mutually agreed-upon location, at
which one Party's responsibility or service begins and the other Party's
responsibility ends.
"Force Majeure Event" is as defined in Section 30.5.
"Forecast Provider" is as defined in Section 19.5.3.
"Grandfathered Services" is as defined in Section 10.3.1.
"21st Century Directory Customer" is as defined in Section 15.1.
"Hazardous Substances" is as defined in Section 19.4.
Sch. 1.2 - 107
<PAGE>
"HDSL" or "High-Bit Rate Digital Subscriber Line" means a
transmission technology which transmits up to a DS1-level signal, using any one
of the following line codes: 2 Binary / 1 Quartenary ("2B1Q"), Carrierless
AM/PM, Discrete Multitone ("DMT"), or 3 Binary / 1 Octel ("3B1O").
"Implementation Plan" is as defined in Section 18.2.
"Implementation Team" is as defined in Section 18.1.
"Incumbent Local Exchange Carrier" or "ILEC" is As Defined in the
Act.
"Information Service Traffic" means Local Traffic or IntraLATA Toll
Traffic which originates on a Telephone Exchange Service line and which is
addressed to an information service provided over a Party's information services
platform (e.g., 976).
"Initial Billing Company" or "IBC" means the Local Exchange Carrier
which provides the Feature Group B or D services in an End Office. For purposes
of this Agreement, 21st Century is the IBC.
"Initial Term" is as defined in Section 21.1.
"Integrated Digital Loop Carrier" means a subscriber loop carrier
system that is twenty-four (24) local Loop transmission paths combined into a
1.544 Mbps digital signal which integrates within the switch at a DS1 level.
"Integrated Services Digital Network" or "ISDN" means a switched
network service that provides end-to-end digital connectivity for the
simultaneous transmission of voice and data. Basic Rate Interface-ISDN
(BRI-ISDN) provides for a digital transmission of two 64 Kbps bearer channels
and one 16 Kbps data channel (2B+D).
"Intellectual Property" means copyrights, patents, trademarks,
trade-secrets, mask works and all other intellectual property rights.
"Interconnection" is As Defined in the Act.
"Interconnection Activation Date" is as defined in Section 2.1.
"Interconnection Point" is as defined in Section 3.2.2.
"Interexchange Carrier" or "IXC" means a carrier that provides
interLATA or intraLATA Telephone Toll Services.
"Interim Telecommunications Number Portability" or "INP" is as
described in the Act.
Sch. 1.2 - 108
<PAGE>
"InterLATA" is As Defined in the Act.
"IntraLATA Toll Traffic" means all intraLATA calls other than Local Traffic
calls.
"Line Information Data Base(s)" or "LIDB" means one or all, as the context
may require, of the Line Information Data Bases owned individually by ILECs and
other entities which provide, among other things, calling card validation
functionality for telephone line number cards issued by Ameritech. A LIDB also
contains validation data for collect and third number-billed calls, which
include billed number screening.
"Listing Update(s)" means information with respect to Customers necessary
for Publisher to publish directories under this Agreement in a form and format
acceptable to Publisher. For Customers whose telephone service has changed
since the last furnished Listing Update because of new installation,
disconnection, change in address, change in name, change in non-listed or non-
published status, or other change which may affect the listing of the Customer
in a directory, Listing Updates shall also include information necessary in
order for Publisher to undertake initial delivery and subsequent delivery of
directories, including mailing addresses, delivery addresses and quantities of
directories requested by a Customer. In the case of Customers who have
transferred service from another LEC to 21/st/ Century without change of
address, Listing Updates shall also include the Customer's former listed
telephone number and former LEC, if available. Similarly, in the case of
Customers who have transferred service from 21/st/ Century to another LEC,
Listing Updates shall also include the Customer's referral telephone number and
new LEC, if available.
"Local Access and Transport Area" or "LATA" is As Defined in the Act.
"Local Exchange Carrier" or "LEC" is As Defined in the Act.
"Local Loop Transmission" or "Loop" means the transmission path which
extends from the Network Interface Device or demarcation point at a Customer's
premises to the Main Distribution Frame or other designated frame or panel in a
Party's Wire Center or Switching Center which serves the Customer. Loops are
defined by the electrical interface rather than the type of facility used.
"Local Number Portability" or "LNP" means the ability of users of
Telecommunications Services to retain, at the same location, existing telephone
numbers without impairment of quality, reliability, or convenience when
switching from one Telecommunications Carrier to another.
"Local Traffic" means a call the distance of which is fifteen (15) miles or
less as calculated by using the V&H coordinates of the originating NXX and the
V&H coordinates of the terminating NXX or as otherwise determined by the FCC or
Commission for purposes of
Sch. 1.2 - 109
<PAGE>
Reciprocal Compensation; provided, that in no event shall a Local Traffic call
--------
be greater than fifteen (15) miles as so calculated.
"Loss" or "Losses" means any and all losses, costs (including court costs),
claims, damages (including fines, penalties, and criminal or civil judgments and
settlements), injuries, liabilities and expenses (including attorneys' fees).
"Main Distribution Frame" means the distribution frame of the Party
providing the Loop used to interconnect cable pairs and line and trunk equipment
terminals on a switching system.
"Make-Ready Work" means all work, including rearrangement or transfer of
existing facilities or other changes required to accommodate 21/st/ Century's
Attachments.
"MECAB" refers to the Multiple Exchange Carrier Access Billing (MECAB)
document prepared by the Billing Committee of the Ordering and Billing Forum
(OBF), which functions under the auspices of the Carrier Liaison Committee (CLC)
of the Alliance for Telecommunications Industry Solutions (ATIS). The MECAB
document published by Bellcore as Special Report SR-BDS-000983 contains the
recommended guidelines for the billing of an access service provided by two or
more LECs, or by one LEC in two or more states within a single LATA.
"Meet-Point Billing" means the process whereby each Party bills the
appropriate tariffed rate for its portion of a jointly provided Switched
Exchange Access Service.
"Multiple Bill/Single Tariff" means that each Party will prepare and render
its own meet point bill in accordance with its own tariff for its portion of the
switched access service.
"Network Element" is As Defined in the Act.
"North American Numbering Plan" or "NANP" means the numbering plan used in
the United States that also serves Canada, Bermuda, Puerto Rico and certain
Caribbean Islands. The NANP format is a 10-digit number that consists of a 3-
digit NPA code (commonly referred to as the area code), followed by a 3-digit
NXX code and 4-digit line number.
"Number Portability" is As Defined in the Act.
"NXX" means the three-digit code which appears as the first three digits of
a seven-digit telephone number.
"OBF" means the Ordering and Billing Forum (OBF), which functions under the
auspices of the Carrier Liaison Committee (CLC) of the Alliance for
Telecommunications Industry Solutions (ATIS).
Sch. 1.2 - 110
<PAGE>
"Occupancy Date" is as defined in Section 12.12.2(f).
------------------
"Optical Line Terminating Multiplexor" or "OLTM" is as defined in Section
-------
3.3.
- ---
"Party" means either Ameritech or 21/st/ Century, and "Parties" means
Ameritech and 21/st/ Century.
"Physical Collocation" is As Defined in the Act.
"PIC" means primary Interexchange Carrier.
"Premises" is As Defined in the Act.
"Primary Listing" means the single directory listing provided to Customers
by Publisher under the terms of this Agreement. Each telephone configuration
that allows a terminating call to hunt for an available time among a series of
lines shall be considered a single Customer entitled to a single primary
listing.
"Proprietary Information" is as defined in Section 20.1.1.
--------------
"Public Safety Answering Point" or "PSAP" means an answering location for
9-1-1 calls originating in a given area. A PSAP may be designated as Primary or
Secondary, which refers to the order in which calls are directed for answering.
Primary PSAPs respond first; Secondary PSAPs receive calls on a transfer basis
only, and generally serve as a centralized answering location for a particular
type of emergency call. PSAPs are staffed by employees of Service Agencies such
as police, fire or emergency medical agencies or by employees of a common bureau
serving a group of such entities.
"Publisher" means Ameritech's White Pages Directories publisher.
"Rate Center" means the specific geographic point which has been designated
by a given LEC as being associated with a particular NPA-NXX code which has been
assigned to the LEC for its provision of Telephone Exchange Service. The Rate
Center is the finite geographic point identified by a specific V&H coordinate,
which is used by that LEC to measure, for billing purposes, distance sensitive
transmission services associated with the specific Rate Center; provided that a
--------
Rate Center cannot exceed the boundaries of an Exchange Area as defined by the
Commission.
"Receiving Party" is as defined in Section 20.1.1.
--------------
"Reciprocal Compensation" is As Described in the Act.
"Referral Announcement" is as defined in Article XVII.
------------
Sch. 1.2 - 111
<PAGE>
"Renewal Term" is as defined in Section 21.1.
------------
"Resale Listing(s)" means a list containing the names, the telephone
numbers, addresses and zip codes of Customers of 21/st/ Century within the
defined geographic area, except to the extent such Customers of 21/st/ Century
have requested not to be listed in a directory.
"Resale Services" is as defined in Section 10.3.
------------
"Resale Tariff" is as defined in Section 10.11.2.
---------------
"Routing Point" means a location which an LEC has designated on its own
network as the homing (routing) point for inbound traffic to one or more of its
NPA-NXX codes. The Routing Point is also used to calculate mileage measurements
for the distance-sensitive transport element charges of Switched Exchange Access
Services. Pursuant to Bellcore Practice BR 795-100-100 (the "RP Practice"), the
Routing Point (referred to as the "Rating Point" in such RP Practice) may be an
End Office Switch location, or a "LEC Consortium Point of Interconnection."
Pursuant to such RP Practice, each "LEC Consortium Point of Interconnection"
shall be designated by a common language location identifier (CLLI) code with
(x)KD in positions 9, 10 and 11, where (x) may be any alphanumeric A-Z or 0-9.
The Routing Point must be located within the LATA in which the corresponding
NPA-NXX is located. However, Routing Points associated with each NPA-NXX need
not be the same as the corresponding Rate Center, nor must there be a unique and
separate Routing Point corresponding to each unique and separate Rate Center;
provided only that the Routing Point associated with a given NPA-NXX must be
- --------
located in the same LATA as the Rate Center associated with the NPA-NXX.
"Selective Routing" or "SR" means an E9-1-1 feature that routes an E9-1-1
call from a Control Office to the designated Primary PSAP based upon the
identified number of the calling party.
"Service Agency" means the public agency, the State or any local government
unit or special purpose district which has the authority to provide police, fire
fighting, medical or other emergency services, which has requested the local
telephone company to provide an E9-1-1 Telecommunications Service for the
purpose of voice-reporting emergencies by the public.
"Service Control Point" or "SCP" is As Defined in the Act.
"Service Line" means a telecommunications link from the Central Office
terminating at the PSAP.
"Shared Tenant Service Agreement" means the provision of centralized
Telecommunications Services to tenants within the same building or a complex of
buildings.
Sch. 1.2 - 112
<PAGE>
"Signaling End Point" or "SEP" means a signaling point, other than an STP,
which serves as a source or a repository for CCIS messages.
"Signal Transfer Point" or "STP" is As Defined in the Act.
"Subsequent Billing Company" or "SBC" means the Local Exchange Carrier
which provides a segment of transport or switching services in connection with
Feature Group B or D switched access service. For purposes of this Agreement,
Ameritech is initially the SBC.
"Sunsetted Services" is as defined in Section 10.3.2.
--------------
"Switched Access Detail Usage Data" means a category 1101XX record as
defined in the EMR Bellcore Practice BR 010-200-010.
"Switched Access Summary Usage Data" means a category 1150XX record as
defined in the EMR Bellcore Practice BR 010-200-010.
"Switched Exchange Access Service" means the offering of transmission or
switching services to Telecommunications Carriers for the purpose of the
origination or termination of Telephone Toll Service. Switched Exchange Access
Services include: Feature Group A, Feature Group B, Feature Group D, 800/888
access, and 900 access and their successors or similar Switched Exchange Access
Services.
"Switching Center" serves as a Routing Point for Switched Exchange Access
and Interconnection Access Service.
"Synchronous Optical Network" or "SONET" means an optical interface
standard that allows inter-networking of transmission products from multiple
vendors. The base rate is 51.84 Mbps (OC-1/STS-1) and higher rates are direct
multiples of the base rate, up to 13.22 Gpbs.
"Technical Reference Schedule" is the list of technical references set
forth in Schedule 2.3.
------------
"Technically Feasible Point" is As Described in the Act.
"Telecommunications" is As Defined in the Act.
"Telecommunications Act" means the Telecommunications Act of 1996 and any
rules and regulations promulgated thereunder.
"Telecommunications Assistance Program" means any means-tested or
subsidized Telecommunications Service offering, including Lifeline, that is
offered only to a specific category of subscribers.
Sch. 1.2 - 113
<PAGE>
"Telecommunications Carrier" is As Defined in the Act.
"Telecommunications Service" is As Defined in the Act.
"Telephone Exchange Service" is As Defined in the Act.
"Telephone Relay Service" means a service provided to speech-and hearing-
impaired callers that enables such callers to type a message into a telephone
set equipped with a keypad and message screen and to have a live operator read
the message to a recipient and then type the message recipient's response to the
speech-or hearing-impaired caller.
"Telephone Toll Service" is As Defined in the Act.
"Unauthorized Switching" is as defined in Section 10.11.2.
---------------
"Virtual Collocation" is As Defined in the Act.
"White Pages Directories" means directories or the portion of co-bound
directories which include a list in alphabetical order by name of the telephone
numbers and addresses of telecommunication company customers.
"Wholesale Resale Services" is as defined in Section 10.1.
------------
"Wire Center" means the Premises of a Party at which all Customer Loops
within a defined geographic area are converged. Such Loops may be served by one
(1) or more Central Office Switches within such Premises. The Wire Center
serves as a Routing Point for Switched Exchange Access Service.
Sch. 1.2 - 114
<PAGE>
SCHEDULE 2.1
IMPLEMENTATION SCHEDULE
ILLINOIS
1. Interconnection
<TABLE>
<S> <C> <C> <C>
LATA Ameritech 21/st/ Century Interconnection
Interconnection Interconnection Activation Date
Point Point
358 CHCCGILWB12T CHCGILAC00T To be determined for
CHCGILACDSO all LATAs in
accordance with the
procedures set forth in
Section 3.4.4
-------------
</TABLE>
SCHEDULE 2.2
BONA FIDE REQUEST
1. Ameritech shall promptly consider and analyze the submission of a Bona
Fide Request that Ameritech provide: (a) Interconnection, access to an
unbundled Network Element (including Combinations thereof) not otherwise
provided hereunder at the time of such request; (b) an Interconnection or
connection to a Network Element that is different in quality to that which
Ameritech provides itself at the time of such request; or (c) a customized
service for features, capabilities, functionalities or unbundled Network
Elements not otherwise provided hereunder at the time of such request.
2. A Bona Fide Request shall be submitted in writing and shall include a
technical description of each requested Interconnection, Network Element,
Combination and/or customized feature, capability or functionality.
3. Ameritech shall provide 21/st/ Century a good faith estimate of costs to
process 21/st/ Century's Bona Fide Request quote within five (5) business days
of receipt of 21/st/ Century's request. 21/st/ Century may cancel a Bona Fide
Request at any time, but shall pay Ameritech's reasonable and demonstrable costs
of processing and/or implementing the Bona Fide Request up to the date of
cancellation, except if (i) any processing charges are of the type which are not
generally passed on by Ameritech to its retail or resale Customers and (ii) such
costs or cost categories representing such charges are not included in the
prices, 21/st/ Century pays for the services provided by Ameritech under this
Agreement.
Sch. 2.1 - 1
<PAGE>
4. Within five (5) Business Days of its receipt, Ameritech shall acknowledge
receipt of the Bona Fide Request.
5. Within thirty (30) days of its receipt of a Bona Fide Request, Ameritech
shall provide to 21/st/ Century a preliminary analysis of such Interconnection,
Network Element, or requested level of quality thereof that is the subject of
the Bona Fide Request or customized feature, capability or functionality. The
preliminary analysis shall confirm that Ameritech will either offer access to
the Interconnection, Network Element, or requested level of quality or will
provide a detailed explanation that access to such Interconnection, Network
Element, or requested level of quality is not technically feasible and/or that
the request does not qualify as an Interconnection, Network Element, or
requested level of quality that is required to be provided under the Act. If
the receiving Party determines that the Interconnection, Network Element, or
requested level of quality that is the subject of the Bona Fide Request is
technically feasible and is otherwise required to be provided under the Act,
Ameritech shall provide 21/st/ Century a firm price proposed and availability
date for such development ("Bona Fide Request Quote"). For Bona Fide Requests
that involve either: (i) combinations of standard offerings or (ii) individual
customer arrangements that do not require alterations not otherwise performed
for individual customer arrangements, for Ameritech retail Customers, Ameritech
shall provide a Bona Fide Request Quote within such thirty (30)-day period. For
all other Bona Fide Requests, Ameritech shall provide a Bona Fide Request Quote
as soon as feasible, but in any event not more than one hundred twenty (120)
days from the date Ameritech received such Bona Fide Request. The Bona Fide
Request Quote provided by Ameritech to 21/st/ Century shall include, at 21/st/
Century's option, either (a) the applicable rates (recurring and nonrecurring)
of the requested Interconnection, Network Element, Combination or Customized
feature, capability or functionality, which rates shall include the reasonable
amortized costs of development of such Interconnection, Network Element,
Combination or customized feature, capability or functionality or (b) the
reasonable costs of development of the Interconnection, Network Element,
Combination or customized feature, capability or functionality listed as a
separate charge and the applicable rates (recurring or nonrecurring for such
Interconnection, Combination or customized feature, capability or functionality.
6. Within thirty (30) days of its receipt of the Bona Fide Request Quote,
the requesting Party must either confirm its order for such Interconnection or
Network Element pursuant to the Bona Fide Request Quote or, if it believes such
quote is inconsistent with the requirements of the Act, exercise its rights
under Section 28.3.
------------
7. Unless 21/st/ Century agrees otherwise, all prices shall be consistent
with the pricing principles of the Act, FCC and/or the Commission.
8. If a Party to a Bona Fide Request believes that the other Party is not
requesting, negotiating, or processing the Bona Fide Request in good faith, or
disputes a determination, or price or cost quote, such Party may exercise its
rights under Section 28.3.
------------
Sch. 2.2 - 2
<PAGE>
SCHEDULE 2.3
TECHNICAL REFERENCE SCHEDULE
Unbundled Network Elements
- --------------------------
Unbundled Loop Transmission
---------------------------
ANSI T1.413-1995 Specifications
ANSI T1.403-1989, Carrier to Customer Installation, DS1 Metallic Interface
Specification
AM TR-TMO-000122
AM TR-TMO-000123
Bellcore TR-NWT-000393, Generic Requirements for ISDN Basic Access Digital
Subscriber Lines
ANSI T1.102-1993, American National Standard for Telecommunication -
Digital Hierarchy - Electrical Interfaces
ANSI T1E1 Committee Technical report Number 28
Bellcore Technical Requirement TR-NWT-000499, Issue 5, December 1993,
section 7
Bellcore TR-TSY-000008 Digital Interface Between the SLC Digital Loop
Carrier System and Local Digital Switch, Issue 2, August 1987
Bellcore TR-TSY-000673, Operation System Interface for an IDLC System
(LSSGR) FSD 20-02-2100, Issue 1, September 1989
Bellcore Integrated Digital Loop Carrier System General Requirements,
Objectives and Interface, GR 303-CORE, Issue 1, September 1995
Local Switching
---------------
Bellcore FR-NWT-000064 (Local Switching Systems General Requirements)
Bellcore GR-1432-CORE (TCAP)
Bellcore GR-905-CORE (ISUP)
Bellcore GR-1429-CORE (Call Management)
Bellcore GR-1357-CORE (Switched Fractional DS1)
Bellcore GR-1428-CORE (Toll Free Service)
Bellcore GR-1597-CORE (Calling Name)
Bellcore GR-954-CORE (Line Information Database)
Bellcore GR-2863-CORE (Advanced Intelligent Network)
GR-1298-CORE, AIN Switching System Generic Requirements
Sch. 2.3 - 3
<PAGE>
GR-1299-CORE, AIN Switch-Service Control Point (SCP)/Adjunct Interface
Generic Requirements
TR-NWT-001284, AIN 0.1 Switching System Generic Requirements
SR-NWT-002247, AIN Release 1 Update
ANSI standards Q.931, Q.932
Bellcore TR-NWT-08
Bellcore TR-NWT-303
TR-NWT-000393, January 1991, Generic Requirements for ISDN Basic Access
Digital Subscriber Lines
Dedicated and Shared Transport
------------------------------
AM TR-NIS-000111
AM TR-NIS-000133
ANSI T1.101-1994, American National Standard for Telecommunications
-Synchronization Interface Standard Performance and Availability
ANSI T1.102-1993, American National Standard for Telecommunications -
Digital Hierarchy - Electrical Interfaces
ANSI T1.105-1995, American National Standard for Telecommunications -
Synchronous Optical Network (SONET) - Basic Description including
Multiplex Structure, Rates and Formats
ANSI T1.105.01-1995, American National Standard for Telecommunications -
Synchronous Optical Network (SONET) - Automatic Protection Switching
ANSI T1.105.02-1995, American National Standard for Telecommunications
-Synchronous Optical Network (SONET) - Payload Mappings
ANSI T1.105.03-1994, American National Standard for Telecommunications -
Synchronous Optical Network (SONET) - Jitter at Network Interfaces
ANSI T1.105.03a-1995, American National Standard for Telecommunications
-Synchronous Optical Network (SONET): Jitter at Network
Interfaces - DS1 Supplement
ANSI T1.105.04-1995, American National Standard for Telecommunications
-Synchronous Optical Network (SONET) - Data Communication Channel
Protocols and Architectures
ANSI T1.105.05-1994, American National Standard for Telecommunications -
Synchronous Optical Network (SONET) - Tandem Connection
ANSI T1.105.06-199x, American National Standard for Telecommunications -
Synchronous Optical Network (SONET) - Physical Layer Specifications
ANSI T1.106-1988, American National Standard for Telecommunications -
Digital Hierarchy - Optical Interface Specifications (Single Mode)
ANSI T1.107-1988, American National Standard for Telecommunications -
Digital Hierarchy - Formats Specifications
ANSI T1.107a-1990, American National Standard for Telecommunications -
Digital Hierarchy - Supplement to Formats Specifications (DS3 Format
Applications)
Sch. 2.3 - 4
<PAGE>
ANSI T1.107b-1991, American National Standard for Telecommunications -
Digital Hierarchy - Supplement to Formats Specifications
ANSI T1.117-1991, American National Standard for Telecommunications - Digital
Hierarchy - Optical Interface Specifications (SONET) (Single Mode - Short
Reach)
ANSI T1.119-1994, American National Standard for Telecommunications -
Synchronous Optical Network (SONET) - Operations, Administration,
Maintenance, and Provisioning (OAM&P) Communications
ANSI T1.119.01-1995, American National Standard for Telecommunications -
Synchronous Optical Network (SONET) - Operations, Administration,
Maintenance, and Provisioning (OAM&P) Communications Protection Switching
Fragment
ANSI T1.119.02-199x, American National Standard for Telecommunications -
Synchronous Optical Network (SONET) - Operations, Administration,
Maintenance, and Provisioning (OAM&P) Communications Performance Monitoring
Fragment
ANSI T1.231-1993, American National Standard for Telecommunications - Digital
Hierarchy - Layer 1 In-Service Digital Transmission performance monitoring
ANSI T1.404-1994, Network-to-Customer Installation - DS3 Metallic Interface
Specification
Bellcore FR-440 and TR-NWT-000499, Transport Systems Generic Requirements
(TSGR): Common Requirements
Bellcore GR-820-CORE, Generic Transmission Surveillance: DS1 & DS3 Performance
Bellcore GR-253-CORE, Synchronous Optical Network Systems (SONET); Common
Generic Criteria
Bellcore TR-NWT 000507, Transmission, Section 7, Issue 5 (Bellcore, December
1993). (A module of LSSGR, FR-NWT-000064.)
Bellcore TR-NWT-000776, Network Interface Description for ISDN Customer Access
Bellcore TR-INS-000342, High-Capacity Digital Special Access Service-
Transmission Parameter Limits and lnterface Combinations, Issue 1,
February 1991
Signaling Transfer Points (STPs)
- --------------------------------
ANSI T1.111.2
ANSI T1.111.3
ANSI T1.111.4
ANSI T1.112
ANSI T1.112.4
ANSI T1.118
ANSI T1.111.6
ANSI T1.112.5
GR-2863-CORE, CCS Network Interface Specification Supporting Advanced
Intelligent Network (AIN)
GR-2902-CORE, CCS Network Interface Specification (CCSNIS) Supporting Toll-Free
Service Using Advanced Intelligent Network (AIN)
Sch. 2.3 - 5
<PAGE>
Bellcore GR-905-CORE, Common Channel Signaling Network Interface Specification
(CCSNIS) Supporting Network Interconnection, Message Transfer Part (MTP),
and Integrated Services Digital Network User Part (ISDNUP)
Bellcore GR-1432-CORE, CCS Network Interface Specification (CCSNIS) Supporting
Signaling Connection Control Part (SCCP) and Transaction Capabilities
Application Part (TCAP)
ANSI T1.111-1992, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Message Transfer Part (MTP)
ANSI T1.111A-1994, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Message Transfer Part (MTP) Supplement
ANSI T1.112-1992, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Signaling Connection Control Part (SCCP)
ANSI T1.115-1990, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Monitoring and Measurements for Networks
ANSI T1.116-1990, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Operations, Maintenance and Administration Part
(OMAP)
ANSI T1.118-1992, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Intermediate Signaling Network Identification
(ISNI)
Bellcore GR-905-CORE, Common Channel Signaling Network Interface Specification
(CCSNIS) Supporting Network Interconnection, Message Transfer Part (MTP),
and Integrated Services Digital Network User Part (ISDNUP)
Bellcore GR-1432-CORE, CCS Network Interface Specification (CCSNIS) Supporting
Signaling Connection Control Part (SCCP) and Transaction Capabilities
Application Part (TCAP)
Service Control Points (SCPs)/Call-Related Databases
- ----------------------------------------------------
SR-TSV-002275 (BOC Notes on the Ameritech Networks, SR-TSV-002275, Issue 2
(Bellcore, April 1994))
GR-246-CORE, Bell Communications Research Specification of Signaling System
Number 7, ISSUE 1 (Bellcore, December 1995)
GR-1432-CORE, CCS Network Interface Specification (CCSNIS) Supporting Signaling
Connection Control Part (SCCP) and Transaction Capabilities Application
Part (TCAP). (Bellcore, March 1994)
GR-954-CORE, CCS Network Interface Specification (CCSNIS) Supporting Line
Information Database (LIDB) Service 6, Issue 1, Rev. 1 (Bellcore, October
1995)
GR-1149-CORE, OSSGR Section 10: System Interfaces, Issue 1 (Bellcore, October
1995) (Replaces TR-NWT-001149)
GR-1158-CORE, OSSGR Section 22.3: Line Information Database 6, Issue (Bellcore,
October 1995)
GR-1428-CORE, CCS Network Interface Specification (CCSNIS) Supporting Toll Free
Service (Bellcore, May 1995)
BOC Notes on Ameritech Networks, SR-TSV-002275, ISSUE 2 (Bellcore, April 1994)
GR-1280-CORE, AIN Service Control Point (SCP) Generic Requirements
Tandem Switching
- ----------------
Bellcore TR-TSY-000540, Issue 2R2, Tandem Supplement, 6/1/90
GR-905-CORE
GR-1429-CORE
GR-2863-CORE
GR-2902-CORE
Sch. 2.3 - 6
<PAGE>
Performance Standards
- ---------------------
Bellcore FR-64, LATA Switching Systems Generic Requirements (LSSGR)
Bellcore TR-NWT-000499, Issue 5, Rev 1, April 1992, Transport Systems Generic
Requirements (TSGR): Common Requirements
Bellcore TR-NWT-000418, Issue 2, December 1992, Generic Reliability Assurance
Requirements For Fiber Optic Transport Systems
Bellcore TR-NWT-000057, Issue 2, January 1993, Functional Criteria for Digital
Loop Carriers Systems
Bellcore TR-NWT-000507, Issue 5, December 1993, LSSGR - Transmission, Section 7
Bellcore TR-TSY-000511, Issue 2, July 1987, Service Standards, a Module (Section
11) of LATA Switching Systems Generic Requirements (LSSGR, FR-NWT-000064)
Bellcore TR-NWT-000393, January 1991, Generic Requirements for ISDN Basic Access
Digital Subscriber Lines
Bellcore TR-NWT-000909, December 1991, Generic Requirements and Objectives for
Fiber In The Loop Systems
GR-303-CORE, Issue 1, September 1995, Integrated Digital Loop Carrier System
Generic Requirements, Objectives and Interface
Bellcore TR-NWT-000505, Issue 3, May 1991, LSSGR Section 5, Call Processing
Bellcore LSSGR TR-TSY-000511
Bellcore TR-NWT-001244, Clocks for the Synchronized Network: Common Generic
Criteria
ANSI T1.105-1995
ANSI T1.512-1994 Network Performance - Point-to-Point Voice-Grade Special Access
Network Voiceband Data Transmission Objectives
Network Interface Device
- ------------------------
Bellcore Technical Advisory TA-TSY-000120, "Customer Premises or Network Ground
Wire"
Bellcore Generic Requirement GR-49-CORE, "Generic Requirements for Outdoor
Telephone Network Interface Devices"
Bellcore Technical Requirement TR-NWT-00239, "Indoor Telephone Network
Interfaces"
Bellcore Technical Requirement TR-NWT-000937, "Generic Requirements for Outdoor
and Indoor Building Entrance"
Interconnection
- ---------------
Trunking Interconnection
- ------------------------
GR-317-CORE, Switching System generic requirements for Call Control Using the
Integrated Services Digital Network User Part (ISDNUP), Bellcore, February,
1994
GR-394-CORE, Switching System generic requirements for Interexchange Carrier
Interconnection Using the Integrated Services Digital Network User Part
(ISDNUP), Bellcore, February, 1994
FR-NWT-000064, LATA Switching Systems Generic Requirements (LSSGR), Bellcore,
1994 Edition
ANSI T1.111
ANSI T1.112
ANSI T1.113
Sch. 2.3 - 7
<PAGE>
Bellcore GR-905-CORE, Common Channel Signaling Network Interface Specification
(CCSNIS) Supporting Network Interconnection, Message Transfer Part (MTP),
and Integrated Services Digital Network User Part (ISDNUP)
Bellcore GR-1428-CORE, CCS Network Interface Specification (CCSNIS) Supporting
Toll-Free Service
Bellcore GR-1429-CORE, CCS Network Interface Specification (CCSNIS) Supporting
Call Management Services
Bellcore GR-1432-CORE, CCS Network Interface Specification (CCSNIS) Supporting
Signaling Connection Control Part (SCCP) and Transaction Capabilities
Application Part (TCAP)
ANSI T1.110-1992, American National Standard Telecommunications - Signaling
System Number 7 (SS7) - General Information;
ANSI T1.111-1992, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Message Transfer Part (MTP)
ANSI T1.111A-1994, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Message Transfer Part (MTP) Supplement
ANSI T1.112-1992, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Signaling Connection Control Part (SCCP)
ANSI T1.113-1995, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Integrated Services Digital Network (ISDN) User
Part
ANSI T1.114-1992, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Transaction Capabilities Application Part (TCAP)
ANSI T1.115-1990, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Monitoring and Measurements for Networks
ANSI T1.116-1990, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Operations, Maintenance and Administration Part
(OMAP)
ANSI T1.118-1992, American National Standard for Telecommunications - Signaling
System Number 7 (SS7) - Intermediate Signaling Network Identification
(ISNI)
Bellcore GR-905-CORE, Common Channel Signaling Network Interface Specification
(CCSNIS) Supporting Network Interconnection, Message Transfer Part (MTP),
and Integrated Services Digital Network User Part (ISDNUP)
Bellcore GR-954-CORE, CCS Network Interface Specification (CCSNIS) Supporting
Line Information Database (LIDB) Service
Bellcore Special Report SR-TSV-002275, BOC Notes on the LEC Networks-Signaling
Ameritech Supplement AM-TR-OAT-000069, Common Channel Signaling Network
Interface Specifications
Bellcore Standard FR-NWT-000476
ANSI Standard T1.206
Electrical/Optical Interfaces
- -----------------------------
Bellcore Technical Publication TR-INS-000342, High Capacity Digital Special
Access Service, Transmission Parameter Limits and Interface Combinations;
Ameritech Technical Publication TR-NIS-000111, Ameritech 0C3, 0C12 and 0C48
Service Interface Specifications; and Ameritech Technical Publication
AM-TR-NIS-000133, Ameritech 0C3, 0C12 and 0C48 Dedicated Ring Service
Interface Specifications.
Collocation
- -----------
Bellcore Network Equipment Building Systems (NEBS) standards TR-EOP-000063
National Electrical Code (NEC) use latest issue
TA-NPL-000286, NEBS Generic Engineering Requirements for System Assembly
and Cable Distribution, Issue 2 (Bellcore, January 1989)
Sch. 2.3 - 8
<PAGE>
TR-EOP-000063, Network Equipment-Building System (NEBS) Generic Equipment
Requirements, Issue 3, March 1988
TR-NWT-000840, Supplier Support Generic Requirements (SSGR), (A Module of
LSSGR, FR-NWT-000064), Issue 1 (Bellcore, December 1991)
TR-NWT-001275 Central Office Environment Installations/Removal Generic
Requirements, Issue 1, January 1993
Institute of Electrical and Electronics Engineers (IEEE) Standard 383, IEEE
Standard for Type Test of Class 1 E Electrical Cables, Field Splices, and
Connections for Nuclear Power Generating Stations
National Electrical Code (NEC) use latest issue
TA-NPL-000286, NEBS Generic Engineering Requirements for System Assembly and
Cable Distribution, Issue 2 (Bellcore, January 1989)
TR-EOP-000063, Network Equipment-Building System (NEBS) Generic Equipment
Requirements, Issue 3, March 1988
TR-EOP-000151, Generic Requirements for 24-, 48-, 130- and 140- Volt Central
Office Power Plant Rectifiers, Issue 1 (Bellcore, May 1985)
TR-EOP-000232, General Requirements for Lead-Acid Storage Batteries, Issue 1
(Bellcore, June 1985)
TR-NWT-000154, General Requirements for 24-, 48-, 130-, and 140- Volt Central
Office Power Plant Control and Distribution Equipment, Issue 2 (Bellcore,
January 1992)
TR-NWT-000295, Isolated Ground Planes: Definition and Application to Telephone
Central Offices, Issue 2 (Bellcore, July 1992)
TR-NWT-000840, Supplier Support Generic Requirements (SSGR), (A Module of LSSGR,
FR-NWT-000064), Issue 1 (Bellcore, December 1991)
TR-NWT-001275, Central Office Environment Installations/Removal Generic
Requirements, Issue 1, January 1993
Underwriters' Laboratories Standard, UL 94
Sch. 2.3 - 9
<PAGE>
SCHEDULE 3.8
AMERITECH INTERCONNECTION PERFORMANCE BENCHMARKS
1.0 Trunk Provisioning Intervals
1.1 Number of End Office
Trunks Per Order Interval
---------------- --------
1-48 14 Business Days
49-96 15 Business Days
97 + Negotiated
1.2 New Trunk Groups to Tandem(s) Negotiated
-----------------------------
2.0 Trunking Grade of Service
Blocking Standards
Traffic Type Measurement /1/
------------ ----------- ---
Exchange Access Final Trunk Group Traffic
via Tandems 1/2 of 1% (0.005)
All Other Final Trunk Group Traffic 1% (0.01)
3.0 Trunk Restoral
Type of Outage Interval
- -------------- --------
Service Affecting within 1 hour
Non-Service Affecting within 24 hours
SCHEDULE 6.0
MEET-POINT BILLING RATE STRUCTURE
A. Interstate access - Terminating to or originating from 21/st/ Century
Customers served from an 21/st/ Century Switching Center.
--------------------
/1/ Measurement of Blocking Standards shall be on a monthly basis.
- ----
Sch. 3.8 - 1
<PAGE>
Rate Element Billing Company
CCL 21/st/ Century
Local Switching 21/st/ Century
Interconnection Charge 21/st/ Century
Local Transport (Tandem) 50% Ameritech
Termination 50% 21/st/ Century
Local Transport (Tandem) This will be calculated based
Facility on NECA tariff No. 4 filings
for each Party
Tandem Switching Ameritech
Entrance Facility Ameritech
B. Intrastate access - Terminating to or originating from 21/st/ Century
Customers served from an 21/st/ Century Switching Center.
Rate Element Billing Company
CCL 21/st/ Century
Local Switching 21/st/ Century
Interconnection Charge 21/st/ Century
Local Transport (Tandem) 50% Ameritech
Termination 50% 21/st/ Century
Local Transport (Tandem) This will be calculated based
Facility on NECA tariff No. 4 filings
for each Party
Tandem Switching Ameritech
Entrance Facility Ameritech
SCHEDULE 9.2.1
LOCAL LOOPS
Subject to Section 1.1 of Schedule 9.5, Ameritech shall allow 21/st/
----------- ------------
Century to access the following Loop types (in addition to those Loops available
under applicable tariffs) unbundled from local switching and local transport:
Sch. 9.2.1 - 2
<PAGE>
"2-Wire Analog Voice Grade Loop" or "Analog 2W," which supports analog
transmission of 300-3000 Hz, repeat loop start, loop reverse battery, or ground
start seizure and disconnect in one direction (toward the End Office Switch),
and repeat ringing in the other direction (toward the Customer) and terminates
in a 2-Wire interface at both the central office MDF and the customer premises.
Analog 2W includes Loops sufficient for the provision of PBX trunks, pay
telephone lines and electronic key system lines. Analog 2W will be provided in
accordance with the specifications, interfaces, and parameters described in
Technical Reference AM-TR-TMO-000122, Ameritech Unbundled Analog Loops.
"4-Wire Analog Voice Grade Loop" or "Analog 4W," which supports
transmission of voice grade signals using separate transmit and receive paths
and terminates in a 4-wire electrical interface at both ends. Analog 4W will be
provided in accordance with the specifications, interfaces, and parameters
described in Technical Reference AM-TR-TMO-000122, Ameritech Unbundled Analog
Loops.
"2-Wire ISDN 160 Kbps Digital Loop" or "BRI-ISDN," which supports digital
transmission of two 64-kbps bearer channels and one 16-kbps data channel (2B+D).
BRI-ISDN is a 2B+D Basic Rate Interface-Integrated Services Digital Network
(BRI-ISDN) Loop which will meet national ISDN standards and conform to Technical
Reference AM-TR-TMO-000123, Ameritech Unbundled Digital Loops (including ISDN).
"2-Wire ADSL-Compatible Loop" or "ADSL 2W" is a transmission path which
facilitates the transmission of up to a 6-Mbps digital signal downstream (toward
the Customer) and up to a 640-kpbs digital signal upstream (away from the
Customer) while simultaneously carrying an analog voice signal. An ADSL-2W is
provided over a 2-Wire, non-loaded twisted copper pair provisioned using revised
resistance design guidelines and meeting ANSI Standard T1.413-1995 and AM-TR-
TMO-000123. An ADSL-2W terminates in a 2-wire electrical interface at the
Customer premises and at the Ameritech Central Office frame. ADSL technology
can only be deployed over Loops which extend less than 18 Kft from Ameritech's
Central Office. ADSL compatible Loops are available only where existing copper
facilities can meet the ANSI T1.413-1995 specifications.
"2-Wire HDSL-Compatible Loop" or "HDSL 2W" is a transmission path which
facilitates the transmission of a 768-kbps digital signal over a 2-Wire, non-
loaded twisted copper pair meeting the specifications in ANSI T1E1 Committee
Technical Report Number 28. HDSL compatible Loops are available only where
existing copper facilities can meet the T1E1 Technical Report Number 28 and AM
TR-TMO-000123 specifications.
"4-Wire HDSL-Compatible Loop" or "HDSL 4W" is a transmission path which
facilitates the transmission of a 1.544 Mbps digital signal over two 2-Wire,
non-loaded twisted copper pairs meeting the specifications in ANSI T1E1
Committee Technical Report Number 28 and AM-TR-TMO-000123. HDSL compatible
Loops are available only where existing copper facilities can meet the T1E1
Technical Report Number 28 specifications.
Sch. 9.2.1 - 1
<PAGE>
"4-Wire 64-Kbps Digital Loop" or "4-Wire 64 Digital" is a transmission path
which supports transmission of digital signals of up to a maximum binary
information rate of 64 Kbps and terminates in a 4-Wire electrical interface at
both the Customer premises and on the MDF in Ameritech's Central Office. 4-Wire
64 Digital will be provided in accordance with the specifications, interfaces
and parameters described in AM-TR-TMO-000123.
"4-Wire 1.544-Mbps Digital Loop" or "1.544-Mbps Digital" is a transmission
path which supports transmission of digital signals of up to a maximum binary
information rate of 1.544 Mbps and terminates in a 4-Wire electrical interface
at the Customer premises and on the DSX frame in Ameritech's Central Office.
1.544-Mbps Digital will be provided in accordance with the specifications,
interfaces and parameters described in AM-TR-TMO- 00023.
Sch. 9.2.1 - 1
<PAGE>
SCHEDULE 9.2.2
UNBUNDLED ACCESS TO NETWORK INTERFACE DEVICES
Ameritech's Network Interface Device ("NID") is a Network Element that utilizes
a cross-connect device to connect loop facilities to inside wiring.
Ameritech will permit 21/st/ Century to connect 21/st/ Century's loop to the
inside wiring of the Customer's premises through Ameritech's NID, where
necessary. 21/st/ Century must establish the connection to Ameritech's NID
through an adjoining NID, which serves as the network interface or demarcation
for 21/st/ Century's loop.
Maintenance and control of premises (inside wiring) is under the control of the
Customer. Any conflicts between service providers for access to the Customer's
inside wire must be resolved by the Customer.
SCHEDULE 9.2.3
SWITCHING CAPABILITY
1.0 Local Switching. The local switching capability of a Network Element is
defined as:
(1) line-side facilities, which include the connection between a Loop
termination at the Main Distribution Frame and a switch line card;
(2) trunk-side facilities, which include the connection between trunk
termination at a trunk-side cross-connect panel and a switch trunk card; and
(3) all features, functions, and capabilities of the switch available from
the specific port type (line-side or trunk-side port), which include:
(a) the basic switching function of connecting lines to lines, lines
to trunks, trunks to lines, and trunks to trunks, as well as the same
basic capabilities made available to Ameritech's Customers, such as a
telephone number, white page listing, dial tone and signalling;
(b) access to operator services, directory assistance and 9-1-1; and
(c) all other features that the switch provides, including custom
calling, CLASS features and Centrex, as well as any technically
feasible customized routing functions available from such switch.
2.0 Tandem Switching.
Sch. 9.2.2 - 1
<PAGE>
2.1 The Tandem Switching Capability Network Element is defined as:
(a) an unbundled Network Element in Ameritech's Class 4 non-TOPS
digital Tandem Switches, which includes Interconnection with the trunk
at the Tandem Distribution Frame ("TDF") and the Tandem Switch trunk
ports;
(b) the basic switching function of creating a temporary transmission
path that connects 21/st/ Century's trunks to the trunks of Ameritech,
IXCs, ICOs, CMRS, and other LECs interconnected to the Tandem Switch.
2.2 Interconnecting trunk types which can be switched include FGB, FGC,
FGD and Type II. Signaling support includes Rotary, MF, and SS7 and any
signaling conversions between these signaling formats.
2.3 Variations in Tandem Switching equipment used to provide service in
specific locations may cause differences in the operation of certain features.
2.4 The unbundled Tandem Switching Network Element will provide to 21/st/
Century all available basic Tandem Switching functions and basic capabilities
that are centralized in the Tandem Switch (and not in End Office Switches),
including the following functions Ameritech makes available to its Customers:
2.4.1 Routing of calls from an inbound trunk to an outbound trunk
based on destination digits.
2.4.2 Routing of Equal Access or Operator Service calls from an
inbound trunk to an outbound trunk based on the CIC forwarded by the
inbound trunk.
2.5 Translations, screening, blocking, and route indexing are provided if
technically feasible under the standard switching translations and screening in
use in that switch. A request for translations, screening, blocking, route
indexing other than what is in use in that switch will be provided where
technically feasible as a Bona Fide Request. Ameritech will provide these
features if technically feasible and, upon agreement by 21/st/ Century to pay
the applicable recurring and non-recurring costs of developing, installing,
providing and maintaining the capability. Variations in the Tandem Switching
equipment or translation and screening used to provide service in specific
locations may cause differences in the operation of the element.
SCHEDULE 9.2.4
INTEROFFICE TRANSMISSION FACILITIES
Interoffice Transmission Facilities are Ameritech transmission facilities
dedicated to a particular Customer or carrier, or shared by more than one
Customer or carrier, that provide
Sch. 9.2.3 - 2
<PAGE>
Telecommunications Services between Wire Centers/Switching Centers owned by
Ameritech or 21/st/ Century, or between Switches owned by Ameritech or 21/st/
Century.
1.0 Ameritech provides several varieties of unbundled Interoffice Transmission
Facilities:
1.1. Unbundled dedicated interoffice transport facility ("Dedicated
Transport") is a dedicated facility connecting two Ameritech Central Office
buildings via Ameritech transmission equipment. In each Central Office
building, 21/st/ Century will Cross-Connect this facility to its own
transmission equipment (physically or virtually) Collocated in each Wire
Center, or to other unbundled Network Elements provided by Ameritech, to
the extent the requested combination is technically feasible and is
consistent with other standards established by the FCC for the combination
of unbundled Network Elements. All applicable digital Cross-Connect,
multiplexing, and Collocation space charges apply at an additional cost.
1.2. "Unbundled dedicated entrance facility" is a dedicated facility
connecting Ameritech's transmission equipment in an Ameritech Central
Office with 21/st/ Century's transmission equipment in 21/st/ Century's
Switching Center for the purposes of providing Telecommunications Services.
1.3. Shared transport transmission facilities ("Shared Transport") are a
billing arrangement where two (2) or more carriers share the features,
functions and capabilities of transmission facilities between the same
types of locations, as described for dedicated transport in Sections 1.1
------------
and 1.2 preceding, and share the costs.
---
2.0 Ameritech shall offer Interoffice Transmission Facilities in each of the
following ways:
2.1. As a dedicated transmission path (e.g., DS1, DS3, OC3, OC12 and
----
OC48).
2.2. As a shared transmission path as described in Section 1.3 above.
-----------
2.3 Dark Fiber. 21/st/ Century may only access Ameritech's Dark Fiber
that exists at the time of 21/st/ Century's request.
2.4 Common Transport, as may be provided by Ameritech pursuant to 21/st/
Century's Bona Fide Request.
3.0 Where Dedicated Transport or Shared Transport is provided, it shall
include (as appropriate):
3.1. The transmission path at the requested speed or bit rate.
3.2. The following optional features are available, if requested by 21/st/
Century, at additional cost:
3.2.1. Clear Channel Capability per 1.544-Mbps (DS1) bit stream;
Sch. 9.2.4 - 3
<PAGE>
3.2.2. Ameritech-provided Central Office multiplexing.
(a) DS3 to DS1 multiplexing; and
(b) DS1 to Voice/Base Rate/128-, 256-, 384-Kpbs Transport;
multiplexing
3.3. If requested by 21/st/ Century, the following are available at an
additional cost:
3.3.1. 1 + 1 Protection for OC3, OC12 and OC48;
3.3.2. 1 + 1 Protection with Cable Survivability for OC3, OC12 and
OC48;
3.3.3. 1 + 1 Protection with Route Survivability for OC3, OC12 and
OC48.
4.0 Technical Requirements. This Section sets forth technical requirements
----------------------
for all Interoffice Transmission Facilities.
4.1. When Ameritech provides Interoffice Transmission Facilities as a
circuit, the entire designated transmission facility (e.g., DS1, DS3, and
----
OC3) shall be dedicated to 21/st/ Century-designated traffic.
4.2. Ameritech shall offer Interoffice Transmission Facilities in all
then-currently available technologies, including DS1 and DS3 transport
systems, SONET Bi-directional Line Switched Rings, SONET Unidirectional
Path Switched Rings, and SONET point-to-point transport systems (including
linear add-drop systems), at all available transmission bit rates, except
subrate services, where available.
4.3. For DS1 facilities, Interoffice Transmission Facilities shall, at a
minimum, meet the performance, availability, jitter, and delay requirements
specified for Customer Interface to Central Office "CI to CO" connections
in the applicable technical references set forth under Dedicated and Shared
Transport in the Technical Reference Schedule.
4.4. For DS3 facilities, and higher rate facilities, Interoffice
Transmission Facilities shall, at a minimum, meet the performance,
availability, jitter, and delay requirements specified for Customer
Interface to Central Office "CI to CO" connections in the applicable
technical references set forth under Dedicated and Shared Transport in the
Technical Reference Schedule.
4.5. When requested by 21/st/ Century, Interoffice Transmission Facilities
shall provide physical diversity. Physical diversity means that two
circuits are provisioned in such a way that no single failure of facilities
or equipment will cause a failure on both circuits.
Sch. 9.2.4 - 4
<PAGE>
4.6. When physical diversity is requested by 21/st/ Century, Ameritech
shall provide the maximum feasible physical separation between intra-office
and inter-office transmission paths (unless otherwise agreed by 21/st/
Century).
4.7. Any request by 21/st/ Century for diversity shall be subject to
additional charges pursuant to this Agreement and applicable tariffs.
4.8. Ameritech shall offer the following interface transmission rates for
Interoffice Transmission Facilities:
4.8.1. DS1 (Extended SuperFrame - ESF and D4);
4.8.2. DS3 (C-bit Parity and M13 shall be provided);
4.8.3. SONET standard interface rates in accordance with the
applicable ANSI technical references set forth under Dedicated and
Shared Transport in the Technical Reference Schedule.
4.9. Ameritech shall permit, to the extent technically feasible and at
applicable rates, 21/st/ Century to obtain the functionality provided by
DCS together with and separate from dedicated transport in the same manner
that Ameritech offers such capabilities to IXCs that purchase transport
services. If 21/st/ Century requests additional functionality, such
request shall be made through the Bona Fide Request process.
4.10. Upon 21/st/ Century's request, Ameritech shall provide 21/st/
Century with electronic provisioning control of an 21/st/ Century specified
Dedicated Transport through Ameritech Network Reconfiguration Service
(ANRS) on the rates, terms and conditions in F.C.C. Tariff No. 2.
SCHEDULE 9.2.5
SIGNALING NETWORKS AND CALL-RELATED DATABASES
1.0 Signaling Transfer Points. A Signaling Transfer Point (STP) is a signaling
-------------------------
network function that includes all of the capabilities provided by the signaling
transfer point switches (STPSs) and their associated signaling links which
enable the exchange of SS7 messages among and between switching elements,
database elements and signaling transfer point switches.
1.1. Technical Requirements.
1.1.1. STPs shall provide access to all other Network Elements
connected to Ameritech SS7 network. These include:
1.1.1.1. Ameritech Local Switching or Tandem Switching;
Sch. 9.2.4 - 5
<PAGE>
1.1.1.2. Ameritech Service Control Points/Databases;
1.1.1.3. Third-party local or tandem switching systems; and
1.1.1.4. Third-party-provided STPSs.
1.1.2. The connectivity provided by STPs shall fully support the
functions of all other Network Elements connected to the Ameritech SS7
network. This explicitly includes the use of the Ameritech SS7 network
to convey messages which neither originate nor terminate at a Signaling
End Point directly connected to the Ameritech SS7 network (i.e.,
----
transient messages). When the Ameritech SS7 network is used to convey
transient messages, there shall be no alteration of the Integrated
Services Digital Network User Part (ISDNUP) or Transaction Capabilities
Application Part (TCAP) user data that constitutes the content of the
message.
1.1.3. If an Ameritech Tandem Switch routes calling traffic, based on
dialed or translated digits, on SS7 trunks between an 21/st/ Century
local switch and third-party local switch, the Ameritech SS7 network
shall convey the TCAP messages that are necessary to provide Call
Management features (Automatic Callback, Automatic Recall, and
Screening List Editing) between the 21/st/ Century local STPSs and the
STPSs that provide connectivity with the third-party local switch, even
if the third-party local switch is not directly connected to the
Ameritech STPSs, based on the routing instruction provided in each
message.
1.1.4. STPs shall provide all functions of the MTP as specified in
ANSI T1.111. This includes:
1.1.4.1. Signaling Data Link functions, as specified in ANSI
T1.111.2:
1.1.4.2. Signaling Link functions, as specified in ANSI T1.111.3;
and
1.1.4.3. Signaling Network Management functions, as specified in
ANSI T1.111.4.
1.1.5. STPs shall provide all functions of the SCCP necessary for
Class 0 (basic connectionless) service, as specified in ANSI T1.112.
In particular, this includes Global Title Translation (GTT) and SCCP
Management procedures, as specified in T1.112.4. In cases where the
destination signaling point is an Ameritech local or tandem switching
system or database, or is an 21/st/ Century or third-party local or
tandem switching system directly connected to the Ameritech SS7
network, STPs shall perform final GTT of messages to the destination
and SCCP Subsystem Management of the destination. In all other cases,
STPs shall perform intermediate GTT of messages to a gateway pair of
STPSs in an SS7 network connected with the
Sch. 9.2.5 - 6
<PAGE>
Ameritech SS7 network, and shall not perform SCCP Subsystem Management
of the destination.
1.1.6. STPs shall also provide the capability to route SCCP messages
based on ISNI, as specified in ANSI T1.118, when this capability
becomes available on Ameritech STPSs.
1.1.7. STPs shall provide all functions of the OMAP commonly provided
by STPSs. This includes:
1.1.7.1. MTP Routing Verification Test (MRVT); and
1.1.7.2. SCCP Routing Verification Test (SRVT).
1.1.8. In cases where the destination signaling point is an Ameritech
local or tandem switching system or database, or is an 21/st/ Century
or third-party local or tandem switching system directly connected to
the Ameritech SS7 network, STPs shall perform MRVT and SRVT to the
destination signaling point. In all other cases, STPs shall perform
MRVT and SRVT to a gateway pair of STPSs in an SS7 network connected
with the Ameritech SS7 network. This requirement shall be superseded
by the specifications for Internetwork MRVT and SRVT if and when these
become approved ANSI standards and available capabilities of Ameritech
STPSs.
1.1.9. STPs shall be equal to or better than the following performance
requirements:
1.1.9.1. MTP Performance, as specified in ANSI T1.111.6; and
1.1.9.2. SCCP Performance, as specified in ANSI T1.112.5.
1.2. Signaling Link Transport.
1.2.1. Definition. Signaling Link Transport is a set of two (2) or
----------
four (4) dedicated 56-Kbps transmission paths between 21/st/ Century-
designated Signaling Points of Interconnection (SPOI) that provides
appropriate physical diversity.
Technical Requirements.
1.2.2. Signaling Link Transport shall consist of full duplex mode 56-
Kbps transmission paths.
1.2.3. Of the various options available, Signaling Link Transport
shall perform in the following two (2) ways:
Sch. 9.2.5 - 7
<PAGE>
a) As an "A-link," which is a connection between a switch or SCP
and a Signaling Transfer Point Switch (STPS) pair; and
b) As a "D-link," which is a connection between two (2) STP mated
pairs in different company networks (e.g., between two (2) STPS
---
pairs for two Competitive Local Exchange Carriers (CLECs)).
1.2.4. Signaling Link Transport shall consist of two (2) or more
signaling link layers as follows:
a) An A-link layer shall consist of two (2) links;
b) A D-link layer shall consist of four (4) links.
1.2.5. A signaling link layer shall satisfy a performance objective
such that:
a) There shall be no more than two (2) minutes down time per year
for an A-link layer; and
b) There shall be negligible (less than two (2) seconds) down time
per year for a D-link layer.
1.2.6. A signaling link layer shall satisfy interoffice and
intraoffice diversity of facilities and equipment, such that:
a) No single failure of facilities or equipment causes the failure
of both links in an A-link layer (i.e., the links should be
----
provided on a minimum of two (2) separate physical paths end-to-
end); and
b) No two (2) concurrent failures of facilities or equipment shall
cause the failure of all four (4) links in a D-link layer (i.e.,
----
the links should be provided on a minimum of three (3) separate
physical paths end-to-end).
1.2.7. Interface Requirements. There shall be a DS1 (1.544 Mbps)
interface at the 21/st/ Century-designated SPOI. Each 56 Kbps
transmission path shall appear as a DS0 channel within the DS1
interface.
2.1. Toll-Free Database Services.
2.1.1. Call Routing Service. The Call Routing Service provides for
--------------------
the identification of the carrier to whom a call is to be routed when a
toll-free (1+800-NXX-XXXX or 1+888-NXX-XXXX) call is originated by
Customer. This function uses the dialed digits to identify the
appropriate carrier and is done by screening the full ten digits of the
dialed number. The Call Routing Service may be provided in conjunction
with a Customer's InterLATA or IntraLATA Switched Exchange Access
Service.
Sch. 9.2.5 - 8
<PAGE>
When 800 Call-Routing service is provided, an originating call is
suspended at the first switching office equipped with a Service
Switching Point (SSP) component of the SSC/SS7 Network. The SSP
launches a query over signaling links (A-links) to the Signal Transfer
Point (STP), and from there to the SCP. The SCP returns a message
containing the identification of the carrier to whom the call should be
routed and the call is processed.
21/st/ Century's SS7 network is used to transport the query from its
End Office to the Ameritech SCP. Once 21/st/ Century's identification
is provided, 21/st/ Century may use the information to route the toll-
free traffic over its network. In these cases, Ameritech Switched
Access services are not used to deliver a call to 21/st/ Century. The
toll-free carrier ID date may not be stored for 21/st/ Century's future
use.
2.1.2. Routing Options. In addition to the toll-free service
---------------
offerings, new routing options are offered. These options are
purchased by toll-free service providers to allow their clients to
define complex routing requirements on their toll-free service. Toll-
free routing options allow the service provider's Customer to route its
toll-free calls to alternate carriers and/or destinations based on time
of day, day of week, specific dates or other criteria. These routing
options are in addition to the basic toll-free call routing
requirements which would include the toll-free number, the intraLATA
carrier, the interLATA carrier and the Area of Service (AOS).
2.1.3. Carrier Identification. 21/st/ Century may choose the 800
----------------------
Carrier Identification service to obtain toll-free number screening.
With this service, 21/st/ Century will launch a query to the Ameritech
database using its own Service Switching Points (SSPs) network. In
contrast to the Call Routing Service described in Section 2.1.1 above,
-------------
with the 800 Carrier Identification service, no routing is performed.
2.1.4. Number Administration. 21/st/ Century, at its option, may
---------------------
elect to use Ameritech's toll-free Service, which includes toll-free
Number Administration Service (NAS). With this service, Ameritech will
perform the Responsible Organization service, which involves
interacting with the national Service Management System (SMS/800), on
behalf of the Customer. Responsible Organization services include
activating, deactivating and maintaining 800/888 number records, as
well as trouble referral and clearance. If 21/st/ Century does not
select NAS, 21/st/ Century will perform the Responsible Organization
service.
2.2. LIDB Database Service.
2.2.1. The Line Information Database (LIDB) Query Response Service is
a validation database system. It enables 21/st/ Century to offer
alternately billed services to its Customers. The database provides an
efficient way to validate calling cards and toll billing exception
(TBE) (i.e., restricts a collect or third-party-
----
Sch. 9.2.5 - 9
<PAGE>
billed call). Toll fraud protection and reduced call set-up expenses
are among the benefits of the service.
2.2.2. Billing information records include the Customer name, phone
number security personal identification numbers and third-party
acceptance indications. Prior to call completion, a query is launched
to the LIDB to determine the validity of the requested billing method.
The call is then completed or denied, based on the LIDB's response.
2.3. Local Number Portability.
2.3.1. Ameritech's provision of LNP will utilize LRN switch software
based on requirements developed by the workshop participants and
concurred in by the Commission. These requirements are fully compliant
with the principles adopted by the FCC in its First Report and Order,
CC Docket No. 95-116 (the "Number Portability Order"). The detailed
description and technical specifications for the planned LRN
implementation can be found in various documents produced by the FCC
Local Number Portability workshop.
2.3.2. Ameritech is fully prepared to provide LNP database access to
21/st/ Century. However, in adopting its Number Portability Order, the
FCC referred certain technical issues to the North American Numbering
Council (NANC) and issued a further notice addressing the recovery of
costs associated with LNP implementation. Until these activities are
concluded, Ameritech cannot finalize product descriptions and rates for
access to its LNP database. Nonetheless, Ameritech is willing to begin
discussions through the Implementation Team with 21/st/ Century to
discuss 21/st/ Century's access to Ameritech's LNP databases in lieu of
constructing 21/st/ Century's own.
2.4. Unbundled AIN Application Process.
2.4.1. The AIN architecture establishes a network infrastructure in
which subscriber services can be defined and implemented independent
from End-Office Switches. This is accomplished by a combination of SS7
signaling, interfaces between Network Elements and call-state models
through which AIN Network Elements interact.
2.4.2. Ameritech's Unbundled AIN (Advanced Intelligent Network)
Applications Access service will enable 21/st/ Century (whether it
purchases unbundled switching capabilities from Ameritech or owns its
own SSP (Service Switching Point)) to offer its Customers AIN services
without first having to deploy a full AIN infrastructure within its own
networks. Ameritech will make available existing AIN retail
applications, as well as newly created services that 21/st/ Century
creates via the Ameritech AIN Service Creation Environment (SCE) Access
service. Unbundled AIN Applications Access provides for the AIN
functionality necessary for the day-to-day ongoing call processing
associated with a specific AIN
Sch. 9.2.5 - 10
<PAGE>
applications execution. This includes the SS7 transport and SCP
processing of the query associated with the specific service.
2.4.3. Associated with the AIN SCP is a Service Creation Environment
(SCE) and a Service Management System (SMS). Ameritech offers access
to the Ameritech SMS and SCE capabilities via two (2) AIN offerings:
AIN Service Creation Environment Access Service and AIN Service
Management System Access Service.
2.4.4. Carriers will share the common AIN infrastructure components
provided by Ameritech, such as a Service Control Point (SCP), a
Signaling Transfer Point (STP), Service Management System (SMS), and,
if 21/st/ Century purchases Unbundled Switching from Ameritech, the AIN
Service Switching Point (SSP). 21/st/ Century shall be responsible for
assuring the compatibility of its AIN SSP software generics with the
Ameritech AIN Applications and SCP software releases. Interconnection
of the 21/st/ Century SSP with the Ameritech SS7 network is required,
and can be accomplished in a number of ways.
2.4.5. Activation of the desired application at the Ameritech SCP
requires subscription by both the ordering carrier 21/st/ Century and
the end-user. In general, AIN operations require close cooperation
between Ameritech and the requesting carrier.
2.4.6. The SSP and SCP vendors provide logical capabilities which
Ameritech uses to create each AIN service. The SSP and SCP vendors
have no knowledge of the specific AIN Applications that Ameritech has
created. Ameritech's AIN deployment is based on AIN 0.1.
3.1. AIN Service Creation Environment Access Service.
Access to Ameritech's AIN service creation functionality will be provided
in a nondiscriminatory manner to 21/st/ Century to enable it to create new
AIN services on Ameritech's network. If 21/st/ Century has a new AIN
service concept, it can utilize all or some of the features below to obtain
a fully functional AIN service. Subsections 3.1.1 through 3.1.10 list the
logical steps of the AIN Service Creation Environment Access Service. When
this service is ordered by 21/st/ Century, 21/st/ Century shall be
responsible for the steps described in Subsections 3.1.1, if applicable,
and Ameritech shall, subject to 21/st/ Century's payment of applicable
charges, be responsible for the steps described in subsections 3.1.5
through 3.1.10.
3.1.1. Service Concept Description. The description of service idea
---------------------------
should detail requirements such as dialing patterns, information
exchange, announcements, voice prompts, expected service management
screens and reports, and CPE requirements.
3.1.2. Creation of Technical Specification. Translation of a new
-----------------------------------
service description into a technical specification including
engineering requirements for
Sch. 9.2.5 - 11
<PAGE>
Ameritech's network. The technical specification must detail how the
service interacts in the network, translated in network terms, should
include any expected/anticipated feature interaction discrepancies, and
will include the process flows on how the service traverses the
network.
3.1.3. Service Logic Design. The development of service design from
--------------------
SCP perspective to include Algorithms, Data Structures and Flow
Diagrams.
3.1.4. Service Logic Coding. Development of machine logic in the SCE
--------------------
to include tables, SIBBs, and other elements as necessary.
3.1.5. Service Logic Testing. Service logic testing isolated within
---------------------
the SCE ensure accuracy of compilation and code development, and
compliance with Ameritech's AIN environment.
3.1.6. SMS Interface Requirements. Development of 21/st/ Century SMS
--------------------------
interface access including screens, flow-through interface and reports.
This is required to allow 21/st/ Century to activate, update, modify,
and administer Customer data associated with the new service.
3.1.7. Platform Access Logic Configuration. Service specific updates
-----------------------------------
to global infrastructure required to enable new service. Includes
modification of the access logic to enable a new service.
3.1.8. Service Integration Testing (SIL). Intensive laboratory
---------------------------------
testing of service in conjunction with all Ameritech Switch types and
or provider switch types and generics (as necessary) to minimize
potential feature interaction conflicts and negative network reactions.
3.1.9. Network Implementation. Conditioning of the SMS, SCP, SSP, or
----------------------
STP to accept service including network translations, signaling
connectivity, dialing plans, and coordination of provisioning process.
3.1.10. Field Testing. Comprehensive controlled testing in live
-------------
switch environment, possibly at 21/st/ Century's SSP location.
3.2. AIN Service Management System Access Service.
3.2.1. Access to Ameritech's AIN service management system
functionality will be provided in a non-discriminatory manner to 21/st/
Century to enable it to manage AIN services located wholly within
Ameritech's network (SCP & SSP) or to manage AIN services where the
service logic is located within Ameritech's SCP and the Customer is
served from 21/st/ Century's AIN compatible SSP. Upon request of
21/st/ Century, Ameritech shall provide 21/st/ Century the unbundled
AIN Applications Access service product description and a list of
existing Ameritech AIN applications.
Sch. 9.2.5 - 12
<PAGE>
3.2.2. The Service Management System (SMS) is the administration
system for the service logic and data in the Advanced Intelligent
Network (AIN) Service Control Point (SCP). The SMS contains the master
copy of service-level, subscriber-level and subscription-level data.
The SMS also contains a copy of the service logic.
Logical access to the SMS will be managed by a set of programs designed
by Ameritech. These programs provide security for the data that
resides on the AIN platforms by allowing user access to only specific
data that is appropriate to the customer or carrier. Whether
explicitly stated in this document or not, all access to the SMS is
managed through these programs. The only exceptions to managed access
to SMS functionality are for the Ameritech Network Services
organizations that administer the AIN platforms. They require direct
access in order to appropriately administer the platforms.
Access to SMS functionality will be provided through interface programs
that will be developed for specific services. 21/st/ Century will have
access to all of the data that the service requires in order to
administer that service for its Customers. This includes service
level, subscriber level, and subscription level data, as well as any
reports and measurement data that are mutually agreed upon by Ameritech
and 21/st/ Century.
3.2.3. Service Logic. The SMS receives a copy of the service logic
-------------
and service management logic from the Service Creation Environment
(SCE) system. After population of specific network level and service
level data, the SMS downloads a view of the service logic to the
designated SCPs. The service management logic remains in the SMS to
complement SMS utilities in the monitoring and administration of a
specific service.
It is required that all of the service creation unit testing, System
Integration Lab (SIL) testing and Network Deployment Testing has been
completed.
Depending on the service, it may be necessary for 21/st/ Century to
negotiate timing and supply service specific data before that service
can be deployed in the appropriate SCPs. Ameritech, however, is
totally responsible for service logic deployment and initial SCP memory
load in its network.
3.2.4. Service Administration. Service administration involves the
----------------------
management of service-level data which the service logic requires for
its execution. SMS supports the management of service-specific common
data. Generally, any changes to the data representation of the
Ameritech network which impact one or more carrier services will be
administered by Ameritech. Other 21/st/ Century-specific or service-
specific data changes will be identified and administered by 21/st/
Century.
Sch. 9.2.5 - 13
<PAGE>
SCHEDULE 9.2.6
OPERATIONS SUPPORT SYSTEMS FUNCTIONS
1.0 Pre-Ordering, Ordering and Provisioning. Ameritech will use the interface
described in Section 10.13.2(a) (including the separate interface used for
------------------
ordering prior to the first quarter of 1997) for the transfer and receipt of
data necessary to perform the pre-ordering, ordering, and provisioning functions
(e.g., order entry, telephone number and due date selection). However, the
----
Access Services Request (ASR) interface will be used for the transfer of
information concerning the Network Elements and Combinations which 21/st/
Century intends to order in a specific Wire Center/Switching Center ("Footprint"
or "Trunk Side Information").
2.0 Maintenance and Repair. Ameritech will use the interface described in
Section 10.13.3(a) for the transfer and receipt of data necessary to perform the
- ------------------
maintenance and repair functions (e.g., trouble receipt and trouble status).
----
3.0 Billing. Ameritech will provide appropriate usage data to 21/st/ Century
to facilitate Customer billing with attendant acknowledgments and status reports
and exchange information to process claims and adjustments.
SCHEDULE 9.2.7
OPERATOR SERVICES AND DIRECTORY SERVICES
1.0 Ameritech shall provide 21/st/ Century Operator Services including the
following services at parity with itself, Affiliates and subsidiaries.
1.1 Manual Call Assistance - manual call processing with operator
involvement for the following:
(a) Calling card - the Customer dials 0+ or 0- and provides operator
with calling card number for billing purposes.
(b) Collect - the Customer dials 0+ or 0- and asks the operator to
bill the call to the called number; provided such billing is accepted
--------
by the called number.
(c) Third number billed - the Customer dials 0+ or 0- and asks the
operator to bill the call to a different number than the calling or
called number.
(d) Operator assistance - providing local and intraLATA operator
assistance for the purposes of:
(1) assisting Customers requesting help in completing calls or
requesting information on how to place calls;
Sch. 9.2.6 - 1
<PAGE>
(2) handling emergency calls;
(3) handling credits and coin telephone local refund requests; and
(4) handling person-to-person calls.
(e) Operator Transfer Service ("OTS") - calls in which the Customer
dials "0", is connected to an Ameritech operator and then requests
call routing to an IXC subscribing to OTS. The operator will key the
IXC's digit carrier identification code to route the Customer to the
requested IXC's point of termination.
(f) BLV - Service in which operator verifies a busy condition on a
line.
(g) BLVI - service in which operator, after verifying a busy line,
interrupts the call in progress.
1.2 Automated Call Assistance - mechanized call processing without
operator involvement for the following:
(a) Automated calling card service ("ACCS") - the Customer dials 0 and
a telephone number, and responds to prompts to complete the billing
information. ACCS calculates charges, relates the charge to the
Customer, and monitors coins deposited before connecting the 1 +
intraLATA or interLATA call.
(b) Automated Alternate Billing Service ("AABS") - the Customer dials
0 and a telephone number and responds to prompts to process the call
and complete the billing information (Customer branding not currently
available).
1.3 Line Information Database ("LIDB") Validation - mechanized queries to
a LIDB for billing validation.
1.4 Database Access - To the extent technically feasible, Ameritech will
provide access to databases (e.g., Operator Reference Information) used in
----
the provisioning of Operator Services via 21/st/ Century's Bona Fide
Request.
2.0 Directory Assistance. Directory Assistance ("DA") service shall consist of
the following services.
2.1 Directory Assistance - those calls in which the Customer dials digits
designated by 21/st/ Century to obtain Directory Assistance for local
numbers located within his/her local calling area.
2.2 Branding - the ability to put messages on the front end of a DA call
that is directly trunked into Ameritech's DA switch, or to choose not to
provide such a message.
Sch. 9.2.7 - 2
<PAGE>
2.3 Information Call Completion - provides a Customer who has accessed the
DA service and has received a number from the Audio Response Unit ("ARU")
the option of having an intraLATA call completed by pressing a specific
digit on a touch tone telephone. Information Call Completion is currently
available to 21/st/ Century if it direct trunks its DA calls to Ameritech.
Upon request and to the extent technically feasible, call completion to the
requested number for local and intraLATA toll calls shall be sent to the
network specified by 21/st/ Century without the need to route through
direct trunks. 21/st/ Century shall rate and bill its Customers for
Information Call Completion calls.
2.4 Upon request, and through a technically feasible arrangement,
Ameritech will provide access to databases used in the provisioning of DA
via 21/st/ Century's Bona Fide Request at rates that recover Ameritech's
costs of developing, providing and maintaining the service. Such unbundled
access to the DA database shall be for the purpose of having 21/st/
Century's Telephone Exchange Service DA listing in the area placed into
Ameritech's DA database, or to enable 21/st/ Century to read DA listing in
the database that 21/st/ Century can provide a Telecommunications Service
consistent with Section 251(c)(3) of the Act.
3.0 Rate Application. Ameritech shall bill 21/st/ Century the applicable rates
on a monthly basis, in accordance with the following methodology:
3.1 Manual Call Assistance - operator call occurrences multiplied by the
per-call rate. Total call occurrences shall include all processed calls
whether or not they are completed.
3.2 Automated Call Assistance (ACCS and AABS) - call occurrences
multiplied by the per-call occurrence rate. Total call occurrences shall
include all processed calls, whether or not they are completed.
3.3 LIDB Validation - validation occurrences multiplied by the LIDB
validation per-occurrence rate. Total validation occurrences shall include
all validations, whether or not the call is completed. Ameritech will
accumulate operator occurrences, automated occurrences, and LIDB validation
occurrences via its Operator Services Call Analysis System ("OSCAS"). OSCAS
utilizes TOPS AMA recordings to produce monthly summaries of mechanized and
manual call occurrences.
3.4 BLV - operator call occurrences multiplied by the per-call rate. Total
call occurrences shall include all processed calls, whether or not they are
completed.
3.5 BLVI - operator call occurrences multiplied by the per-call rate.
Total call occurrences shall include all processed calls, whether or not
they are completed.
3.6 Lost Records. If Ameritech is responsible for lost, destroyed, or
mutilated TOPS AMA recordings, Ameritech will not bill 21/st/ Century for
those calls for which there are no records. Likewise, Ameritech shall not
be held responsible by 21/st/ Century for lost revenue. However, if within
ninety (90) days, actual data should become available, Ameritech will bill
21/st/ Century for those calls using actual data.
Sch. 9.2.7 - 3
<PAGE>
SCHEDULE 9.3.4
COMBINATIONS
1. Unbundled Element Platform with Operator Services and Directory Assistance.
--------------------------------------------------------------------------
Unbundled Loop
Local Switching
Operator Services and Directory Assistance
Shared Transport
Dedicated Transport
STPs
Signaling Link Transport
Service Control Points (SCPs)/Databases
Tandem Switching
2. Loop Combination
----------------
Unbundled Loop
Network Interface Device
3. Switching Combination #1
------------------------
Shared Transport
Dedicated Transport
STPs
Signaling Link Transport
Service Control Points (SCPs)/Databases
Tandem Switching
Sch. 9.3.4 - 1
<PAGE>
SCHEDULE 9.3.5
COMBINATIONS AVAILABLE THROUGH BONA FIDE REQUEST
1. Loop/Network Combination
------------------------
Unbundled Loop
Shared Transport
Dedicated Transport
STPs
Signaling Link Transport
Service Control Points (SCPs)/Databases
Tandem Switching
2. Switching Combination #2
------------------------
Network Interface Device
Local Switching
Shared Transport
Dedicated Transport
SS7 Message Transfer & Connection Control
Signaling Link Transport
Service Control Points (SCPs)/Databases
Tandem Switching
3. Switching Combination #3
------------------------
Network Interface Device
Local Switching
Operator Systems
Shared Transport
Dedicated Transport
SS7 Message Transfer & Connection Control
Signaling Link Transport
Service Control Points (SCPs)/Databases
Tandem Switching
4. Switched Data Services
----------------------
Network Interface Device
Local Switching
Shared Transport
Dedicated Transport
Sch. 9.3.5 - 2
<PAGE>
Tandem Switching
5. Unbundled Element Platform Without Operator Services and Directory
------------------------------------------------------------------
Assistance
----------
Unbundled Loop
Local Switching
Shared Transport
Dedicated Transport
STPs
Signaling Link Transport
Service Control Points (SCPs)/Databases
Tandem Switching
SCHEDULE 9.5
PROVISIONING OF NETWORK ELEMENTS
1.0 General Provisioning Requirements.
----------------------------------
1.1 Subject to the terms of Article IX, 21/st/ Century may order and/or
----------
request Elements either individually or as Combinations.
The Combinations set forth on Schedule 9.3.4 and any additional Combination
--------------
provided previously hereunder by Ameritech pursuant to the Bona Fide
Request process may thereafter be identified and described by 21/st/
Century so that it can be ordered and provisioned as a Combination and
shall not require the enumeration of each Network Element within that
Combination on each provisioning order; provided that in each case 21/st/
--------
Century shall specify on each order the type of service to be provided as
well as any necessary engineering and routing characteristics (e.g.,
----
redundancy requirements and data transfer rates) 21/st/ Century requests
for such Combination.
21/st/ Century may order from Ameritech multiple individual Network
Elements on a single order without the need to have 21/st/ Century send an
order for each such Network Element if such Network Elements are (i) for a
single type of service, (ii) for a single location and (iii) for the same
account.
1.2 Ameritech shall provide provisioning services to 21/st/ Century Monday
through Friday from 8:00 a.m. to 5:00 p.m. CST. 21/st/ Century may request
Ameritech to provide Saturday, Sunday, holiday, and/or off-hour
provisioning services. If 21/st/ Century requests that Ameritech perform
provisioning services at times or on days other than as required in the
preceding sentence, Ameritech shall quote, within three (3) Business Days
of the request, a cost-based rate for such services. If 21/st/ Century
accepts Ameritech's quote, Ameritech shall perform such provisioning
services.
Sch. 9.3.5 - 3
<PAGE>
1.3 Ameritech shall provide a Single Point of Contact (each, a "SPOC") for
ordering and provisioning contacts and order flow involved in the purchase
and provisioning of Ameritech's unbundled Network Elements or Combinations.
The SPOCs shall provide an electronic interface twenty-four (24) hours a
day, seven (7) days a week for all ordering and provisioning order flows.
Each SPOC shall also provide to 21/st/ Century a toll-free nationwide
telephone number (operational from 8:00 a.m. to 5 p.m., Monday through
Friday), which will be answered by capable staff trained to answer
questions and resolve problems in connection with the provisioning of
Network Elements or Combinations.
1.4 Ameritech shall provide to 21/st/ Century a single point of contact
(the "Unbundling Ordering Center") for ordering unbundled Network Elements.
A national toll-free number will be provided from 7:00 a.m. to 5:00 p.m.
CST, Monday through Friday. This Unbundling Ordering Center is responsible
for order acceptance, order issuance, and return of the Firm Order
Commitment ("FOC") to 21/st/ Century as specified in this Schedule 9.5.
------------
In addition, Ameritech shall provide to 21/st/ Century a single point of
contact (the "Unbundling Service Center") for all provisioning,
maintenance, repair, and cutover coordination. A national toll-free number
will be provided from 6:30 a.m. to 12:00 midnight CST Monday through
Friday. Out-of-hours maintenance questions are handled by a "Fold Down
Center."
1.5 Ameritech will recognize 21/st/ Century as the Customer of Record of
all Network Elements and agreed-to Combinations ordered by 21/st/ Century
and will send all notices, invoices and pertinent Customer information
directly to 21/st/ Century.
1.6 When requested by 21/st/ Century, Ameritech will schedule installation
appointments with Ameritech's representative on the line with 21/st/
Century's representative until 21/st/ Century has access to Ameritech's
scheduling system.
1.7 Ameritech will provide 21/st/ Century with a ("FOC") for each order
within forty-eight (48) hours of Ameritech's receipt of that order, or
within a different time interval agreed upon by the Implementation Team.
The FOC must contain an enumeration of 21/st/ Century's ordered Network
Elements or Combination features, options, physical Interconnection,
quantity, and Ameritech commitment date for order completion ("Committed
Due Date"), which commitment date shall be established on a non-
discriminatory basis with respect to installation dates for comparable
orders at such time.
1.8 Upon work completion, Ameritech will electronically provide 21/st/
Century (unless otherwise notified by 21/st/ Century) with an order
completion per order that states when that order was completed. Ameritech
shall respond with specific order detail as enumerated on the FOC and shall
state any additional charges (e.g., time and materials charges) up to a
previously agreed upon limit associated with that order.
Sch. 9.5 - 4
<PAGE>
1.9 As soon as identified, Ameritech shall electronically provide
notification of 21/st/ Century orders that are incomplete or incorrect and
therefore cannot be processed.
1.9.1 Ameritech will perform pre-testing of Network Elements and
Combinations in accordance with Ameritech's standards. At 21/st/
Century's request, Ameritech will make available to 21/st/ Century on
a weekly batch basis any available test and turn-up results in support
of the Network Elements or Combinations ordered by 21/st/ Century.
21/st/ Century shall be responsible for any costs, as determined in
accordance with the Act, incurred by Ameritech to provide copies of
any available results. If 21/st/ Century requests Ameritech to
provide 21/st/ Century with any test or turn-up results which
Ameritech does not then generate, 21/st/ Century shall request such
results through the Bona Fide Request process.
1.10 As soon as identified, Ameritech shall provide notification
electronically of any instances when Ameritech's Committed Due Dates are in
jeopardy of not being met by Ameritech on any element or feature contained
in any order for Network Elements or Combinations. Ameritech shall indicate
its new committed due date as soon as such date is available.
1.10.1 Within twenty-four (24) hours of 21/st/ Century's request,
Ameritech will perform cooperative testing with 21/st/ Century
(including troubleshooting to isolate any problems) to test Network
Elements or Combinations purchased by 21/st/ Century in order to
identify any performance problems.
1.11 Subject to Article IX, Network Elements and Combinations will be
----------
provisioned with a combination of customer-specific and bulk orders, as
specified by 21/st/ Century.
1.11.1 When 21/st/ Century orders Network Elements or Combinations
that provide the same functionality as a bundled (resold) service, and
which are currently interconnected and functional and remain
interconnected to the same adjacent Network Elements, such Network
Elements and Combinations will remain interconnected and functional
without any disconnection or disruption of functionality. There shall
be no charge for such interconnection, except for any applicable
service charge.
1.12 Ameritech shall provide to 21/st/ Century upon request:
(a) a list of all services and features technically available from
each switch that Ameritech may use to provide Local Switching,
including whether the switch has the capability of supporting Inter-
and IntraLATA PICs by switch CLLI;
(b) a listing by street address detail, of the service coverage area
of each switch CLLI;
(c) when available, all engineering design and layout information for
each Network Element and Combination; provided that 21/st/ Century
--------
shall pay
Sch. 9.5 - 5
<PAGE>
Ameritech for the costs, as determined in accordance with
the Act, incurred by Ameritech to provide 21/st/ Century with copies
of such information;
(d) a listing of all technically available functionalities for each
Network Element or Combination; and
(e) advanced information on the details and requirement for planning
and implementation of NPA splits.
1.13 Promptly after the Effective Date/1/, Ameritech shall provide 21/st/
---
Century an initial electronic copy of the following information:
(a) Street address verification;
(b) Switch identification by service address; and
(c) Switch feature verification.
Electronic updates to such information shall be provided monthly to 21/st/
Century as changes are made to such information.
1.14 For order of Network Elements (and INP with the Installation of a
Loop) that require coordination among Ameritech, 21/st/ Century and 21/st/
Century's Customer, 21/st/ Century shall be responsible for any necessary
coordination with the 21/st/ Century Customer.
1.15 Provided 21/st/ Century has appropriate Documentation of
Authorization, Ameritech shall recognize 21/st/ Century as an agent for the
subscriber in coordinating the disconnection of services provided by
another CLEC or Ameritech.
1.16 Order Rejections
Ameritech shall reject and return to 21/st/ Century any order that
Ameritech cannot provision, and in its reject notification provide an error
code identifying the reasons for which the order was rejected.
1.17 Service Order Changes
1.17.1 If an installation or other 21/st/ Century-ordered work
requires a change from the original 21/st/ Century service order in any
manner, Ameritech shall call 21/st/ Century in advance of performing the
installation or other work to obtain authorization. Ameritech shall then
provide 21/st/ Century an estimate of additional labor hours and/or
- -------------------------
/1/ Because the terms of this Agreement are the result of 21/st/ Century's
adoption under Section 252(i) of the Act of the MCI Agreement, the Parties
agree that the term "Effective Date", for purposes of this Section 1.13 of
------------
Schedule 9.5, shall mean May 19, 1999.
------------
Sch. 9.5 - 6
<PAGE>
materials. After all installation or other work is completed, Ameritech
shall notify 21/st/ Century of actual labor hours and/or materials used in
accordance with regular service order completion schedules.
1.17.2 If an 21/st/ Century Customer requests a service change at the
time of installation or other work being performed by Ameritech on
behalf of 21/st/ Century, Ameritech, while at the Customer premises,
shall direct the 21/st/ Century Customer to contact 21/st/ Century so
as to avoid unnecessary delays in service activation should the
Ameritech representative leave the Customer premises.
2.0 Unbundled Local Loop Transmission
2.1 Access to Unbundled Local Loops.
-------------------------------
2.1.1 21/st/ Century shall access Ameritech's Unbundled Local Loops
via Collocation or in accordance with Article IX of this Agreement at
----------
the Ameritech Wire Center where that element exists and each Loop
shall be delivered to 21/st/ Century's Collocation by means of a
Cross-Connection, which shall be an additional charge.
2.1.2 Ameritech shall provide 21/st/ Century access to its unbundled
Loops at each of Ameritech's Wire Centers. In addition, if 21/st/
Century requests one or more Loops serviced by Integrated Digital Loop
Carrier or Remote Switching technology deployed as a Loop
concentrator, Ameritech shall, where available, move the requested
Loop(s) to a spare, existing physical Loop at no charge to 21/st/
Century. If, however, no spare physical Loop is available, Ameritech
shall within forty-eight (48) hours of 21/st/ Century's request notify
21/st/ Century of the lack of available facilities. 21/st/ Century
may then at its discretion make a Bona Fide Request for Ameritech to
provide the unbundled Loop through the demultiplexing of the
integrated digitized Loop(s). Notwithstanding anything to the
contrary in this Agreement, the provisioning intervals set forth in
Section 2.2.2 of this Schedule and the Ameritech Network Element
-------------
Performance Benchmarks set forth in Schedule 9.10 of this Agreement
-------------
shall not apply to unbundled Loops provided under this Section 2.1.2.
-------------
2.1.3 If 21/st/ Century orders a Loop type and the distance requested
on such Loop exceeds the transmission characteristics as referenced in
the corresponding Technical Reference specified below, distance
extensions may be requested where technically feasible to meet the
specification using such distance extensions and additional rates and
charges shall apply as set forth at Item V of the Pricing Schedule.
<TABLE>
<CAPTION>
==============================================================================================
Loop Type Technical Reference/Limitation
- ----------------------------------------------------------------------------------------------
<S> <C>
Electronic Key Line 2.5 miles
- ----------------------------------------------------------------------------------------------
ISDN Bellcore TA-NWT-000393
- ----------------------------------------------------------------------------------------------
</TABLE>
Sch. 9.5 - 7
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------
HDSL 2W T1E1 Technical Report Number 28
- ----------------------------------------------------------------------------------------------
HDSL 4W T1E1 Technical Report Number 28
- ----------------------------------------------------------------------------------------------
ADSL 2W ANSI T1.413-1995 Specification
==============================================================================================
</TABLE>
2.2 Provisioning of Unbundled Loops.
--------------------------------
The following coordination procedures shall apply for conversions of
"live" Telephone Exchange Services to unbundled Network Elements:
2.2.1 21/st/ Century shall request unbundled Loops from Ameritech by
delivering to Ameritech a valid electronic transmittal service order
(a "Service Order") using the electronic interface described in
Schedule 9.2.6. Within forty-eight (48) hours of Ameritech's receipt
--------------
of a Service Order, Ameritech shall provide 21/st/ Century the FOC
date according to the applicable Ameritech Network Element Performance
Benchmarks set forth in Section 9.10 of this Agreement by which the
------------
Loop(s) covered by such Service Order will be installed.
2.2.2 Ameritech shall provision unbundled Loops in accordance with
the time frames set forth on Schedule 9.10 or within such other
-------------
intervals as agreed upon by the Parties.
2.2.3 Ameritech agrees to coordinate with 21/st/ Century at least
forty-eight (48) hours prior to the due date a scheduled conversion
date and time (the "Scheduled Conversion Time") within a three (3)
hour period (the "Loop Conversion Window").
2.2.4 Not less than one (1) hour prior to the Scheduled Conversion
Time, either Party may contact the other Party and unilaterally
designate a new Scheduled Conversion Time (the "New Conversion Time").
If the New Conversion Time is within the Loop Conversion Window, no
charges shall be assessed on or waived by either Party. If, however,
the New Conversion Time is outside of the Loop Conversion Window, the
Party requesting such New Conversion Time shall be subject to the
following:
If Ameritech requests the New Conversion Time, the applicable Line
Connection Charge shall be waived; and
If 21/st/ Century requests the New Conversion Time, 21/st/ Century
shall be assessed a Line Connection Charge in addition to the Line
Connection Charge that will be incurred for the New Conversion Time.
2.2.5 Except as otherwise agreed by the Parties for a specific
conversion, the Parties agree that the time interval expected from
disconnection of "live" Telephone Exchange Service to the connection
of an unbundled Network Element at the 21/st/ Century Collocation
interface point will be thirty (30) minutes or less.
SCH. 9.5 - 8
<PAGE>
If a conversion interval exceeds thirty (30) minutes and such delay is
caused solely by Ameritech (and not by a 21/st/ Century contributing
Delaying Event), Ameritech shall waive the applicable Line Connection
Charge for such element. If 21/st/ Century has ordered INP with the
installation of a Loop, Ameritech will coordinate the implementation
of INP with the Loop conversion during the thirty (30)-minute interval
at no additional charge.
2.2.6 Requests for maintenance or repair of unbundled Loops are
initiated using the industry standard "electronic bonding" interface
(EBI) and are handled by the Ameritech Unbundling Service Center
("USC"). The USC works with local Ameritech personnel to perform any
manual testing that may be required to isolate the trouble.
2.2.7 Ameritech shall test for 21/st/ Century dial tone ("Dial Tone
Test") at Ameritech's MDF for 21/st/ Century's Virtual Collocated
Equipment or Physical Collocated equipment during a window not greater
than forty-eight (48) hours but not less than eight (8) hours prior to
the Scheduled Conversion Time (or New Scheduled Time, as applicable).
Ameritech shall perform the Dial Tone Test at no charge until the end
of Contract Year One (1)./1/ Thereafter, Ameritech shall charge
---
21/st/ Century for Dial Tone Test based on the mutual agreement of the
Parties.
3.0 Network Interface Device Capability.
3.1 Ameritech will provide 21/st/ Century access to NIDs in a manner that
will permit 21/st/ Century to connect its loop facilities to the Customer's
inside wiring through Ameritech's NID, as required. 21/st/ Century shall
establish this connection through an adjoining NID provided by 21/st/
Century.
3.2 Due to the wide variety of NIDs utilized by Ameritech (based on
Customer size and environmental considerations), 21/st/ Century may access
the Customer's inside wire by any of the following means:
(a) Where an adequate length of inside wire is present and
environmental conditions permit, 21/st/ Century may remove the inside
wire from Ameritech's NID and connect that wire to 21/st/ Century's
NID;
(b) Enter the Customer access chamber or "side" of "dual chamber" NID
enclosures for the purpose of extending a connecterized or spliced
jumper wire from the inside wire through a suitable "punch-out" hole
of such NID enclosures;
- ---------------------------
/1/ Because the terms of this Agreement are the result of 21/st/ Century's
adoption under Section 252(i) of the Act of the MCI Agreement, the
Parties agree that the term "Contract Year One (1)", for purposes of
this Schedule 9.5, shall expire on May 31, 1998.
------------
Sch. 9.5 - 9
<PAGE>
(c) Enter Ameritech's loop terminal enclosure located at a multiple
dwelling unit ("MDU") for the purpose of accessing Customer premises
inside wire and extending such wire to 21/st/ Century's own adjoining
NID; or
(d) Request Ameritech to make other rearrangements to the inside wire
terminations or terminal enclosure on a time and materials cost basis
to be charged to the requesting party (i.e., 21/st/ Century, its
----
agent, the building owner or the Customer).
3.3 If 21/st/ Century accesses the Customer's inside wire as described in
Section 2.2(d), the time and materials charges will be billed to the
--------------
requesting party (i.e., 21/st/ Century, the building owner or the
----
Customer).
3.4 In no case shall 21/st/ Century remove or disconnect Ameritech's loop
facilities from Ameritech's NIDs, enclosures, or protectors.
3.5 In no case shall 21/st/ Century remove or disconnect ground wires from
Ameritech's NIDs, enclosures, or protectors.
3.6 Maintenance and control of premises wiring (inside wire) is the
responsibility of the Customer. Any conflicts between service providers
for access to the Customer's inside wire must be resolved by the Customer.
3.7 Due to the wide variety of NID enclosures and outside plant
environments, Ameritech will work with 21/st/ Century to develop specific
procedures to establish the most effective means of implementing this
Section 3.0.
-----------
4.0 Unbundled Local Switching
4.1 Access to Unbundled Local Switching.
-----------------------------------
4.1.1 21/st/ Century shall access Ameritech's Unbundled Local
Switching via Collocation or in accordance with Article IX of this
----------
Agreement at the Ameritech Wire Center where that element exists and
each line-side and/or trunk-side port will be delivered to 21/st/
Century by means of a Cross-Connection, which shall be an additional
charge.
4.1.2 Ameritech shall provide 21/st/ Century access to its Unbundled
Local Switching at each of Ameritech's Wire Centers and will provide
21/st/ Century (i) all available basic local switching functions and
basic capabilities that the switch provides or (ii) for which
Ameritech Operations Support Systems functions are capable of
provisioning pursuant to a Bona Fide Request.
4.1.3 Unbundled Local Switching also provides access to additional
features and capabilities that the switch has available for
activation. 21/st/ Century has the
Sch. 9.5 - 10
<PAGE>
capability of activating these features on a line-by-line basis via an
electronic interface. The additional features available for activation
on the basic Unbundled Local Switching include:
(a) vertical features;
(b) Custom Calling, Custom Local Area Signaling Service features
("CLASS") features; and
(c) Centrex features.
4.1.4 Other basic and/or additional capabilities, functions and
features that the switch is capable of providing, but which Ameritech
does not currently provide, may be requested as optional special
capabilities. Ameritech will provide these special capabilities if
technically feasible and upon 21/st/ Century's Bona Fide Request.
21/st/ Century will pay the applicable recurring and nonrecurring
costs of developing, installing, providing and maintaining the
requested capability.
4.1.5 Ameritech will also, upon 21/st/ Century's Bona Fide Request,
provide any technically feasible customized local routing of traffic
through Unbundled Local Switching, by class of call (e.g., operator,
----
directory assistance, 9-1-1, toll, local, etc.). Ameritech will
develop and provide any requested customized routing the switch is
capable of providing upon agreement by 21/st/ Century to pay recurring
and non-recurring costs of developing, installing, updating, providing
and maintaining such custom routing.
4.1.6 Ameritech provides, on an optional basis, the ability to
connect line-side ports and/or trunk-side ports within the same switch
with a group of common attributes. An example is a request for
Unbundled Local Switching to provide a Centrex service with intercom
calling within the system and with certain common features. The
attributes available include intercom calling, group call pick-up, and
Automatic Route Selection (ARS). Intercom calling is defined as the
ability of the line-side ports to call one another by dialing 3-7
digits. Group call pick-up is defined as allowing one line-side port
to answer a call directed to another line-side port in the same call
pick-up group. ARS is defined as the ability to route calls to a
specific group of trunk-side ports.
4.1.7 Normally, Ameritech will switch traffic through its local
switching element in accordance with Ameritech standard switching
translations and screening in use in that switch. The custom routing
optional feature enables 21/st/ Century to specify special routing, by
class of call, of some or all traffic coming into its unbundled local
switch using any technically feasible routing capability of that
switch. Variations in the End-Office switching equipment used to
provide service in specific locations may cause differences in the
operation of certain features. Special routing capabilities that are
not otherwise available (i.e., features that the switch is capable of
----
providing) will be developed on an individual-case basis through the
Bona Fide Request process and will be installed, updated, maintained
and provided following 21/st/ Century's agreement to pay the
applicable costs.
Sch. 9.5 - 11
<PAGE>
4.2 Provisioning of Unbundled Local Switching.
-----------------------------------------
The following coordination procedures shall apply for conversions of
"live" Telephone Exchange Services to unbundled Network Elements:
4.2.1 21/st/ Century shall request Unbundled Local Switching from
Ameritech by delivering to Ameritech a valid electronic transmittal
service order (a "Service Order") using the electronic interface
described on Schedule 9.2.6. In addition, pre-ordering functions are
--------------
supported via electronic data interchange (EDI) format as utilized for
Resale Services. Within forty-eight (48) hours of Ameritech's receipt
of a Service Order, Ameritech shall provide 21/st/ Century the FOC
date by which the Unbundled Local Switching ports covered by such
Service Order will be installed.
Where connection of the Unbundled Local Switching port(s) to
customized routing is required by 21/st/ Century, the specific custom
routing pattern desired must already exist. In those instances where
the custom routing pattern does not already exist, 21/st/ Century may
request the development and establishment of such custom routing
pattern via a Bona Fide Request. While the custom routing pattern is
being developed, 21/st/ Century may do one of the following: (a) defer
activation of the Unbundled Local Switching port until the routing
pattern is established, (b) offer the Customer resale on an interim
basis, or (c) convert the existing basic office routing pattern. If
21/st/ Century elects option (c) and later desires to convert the
Unbundled Local Switching port using Ameritech's office routing
pattern to a customized routing pattern, an additional Line Connection
Charge will apply.
4.2.2 Ameritech agrees to coordinate with 21/st/ Century at least
forty-eight hours prior to the due date a scheduled conversion date
and time (the "Scheduled Conversion Time") in the "A.M." (12:00
midnight to 12:00 noon) or "P.M." (12:00 noon to 12:00 midnight) (as
applicable, the "LS Conversion Window").
For subscriber conversions requiring coordinated cut-over activities, on a
per-order basis, Ameritech and 21/st/ Century will agree on a scheduled
conversion time, which will be on a designated date.
4.2.3 Not less than one (1) hour prior to the Scheduled Conversion
Time, either Party may contact the other Party and unilaterally
designate a new Scheduled Conversion Time (the "New Conversion Time").
If the New Conversion Time is within the LS Conversion Window, no
charges shall be assessed on or waived by either Party. If, however,
the New Conversion Time is outside of the LS Conversion Window, the
Party requesting such New Conversion Time shall be subject to the
following:
Sch. 9.5 - 12
<PAGE>
If Ameritech requests the New Conversion Time, the applicable Line
Connection Charge shall be waived; and
If 21/st/ Century requests the New Conversion Time, 21/st/ Century
shall be assessed a Line Connection Charge in addition to the Line
Connection Charge that will be incurred for the New Conversion Time.
Ameritech will notify 21/st/ Century when conversion is complete.
4.2.4 Except as otherwise agreed by the Parties for a specific
conversion, the Parties agree that the time interval expected from
disconnection of "live" Telephone Exchange Service to the connection
of an unbundled Network Element at the 21/st/ Century Collocation
interface point will be thirty (30) minutes or less. If a conversion
interval exceeds thirty (30) minutes and such delay is caused solely
by Ameritech (and not by an 21/st/ Century contributing Delaying
Event), Ameritech shall waive the applicable Line Connection Charge
for such element.
If 21/st/ Century has ordered INP with the installation of a Loop,
Ameritech will coordinate the implementation of INP with the Loop
conversion during the thirty (30)-minute interval at no additional
coordination charge (other than the applicable standard service order
and line connection charges).
Ameritech shall provide 21/st/ Century the functionality of blocking
calls (e.g., 900, 976 international calls) by line or trunk on an
----
individual switching element basis.
4.2.5 When ordering a Local Switching Element, 21/st/ Century may
order from Ameritech separate interLATA and intraLATA capabilities
(i.e., 2 PICs where available) on a line basis.
-----
4.2.6 Unless otherwise directed by 21/st/ Century, and to the extent
technically feasible, when 21/st/ Century orders a Network Element or
Combination, all pre-assigned trunk or telephone numbers currently
associated with that Network Element or Combination shall be retained
without loss of feature capability.
4.3 Tandem Switching.
----------------
4.3.1 Tandem Switching creates a temporary transmission path between
interoffice trunks that are interconnected at a switch for the purpose
of routing a call or calls. Unbundled Tandem Switching is ordered
using electronic interfaces. Trunk side ports are ordered using the
Access Service Request ("ASR"), which provides for electronic ordering
based on industry standards adopted through OBF. ASR is the process
used as of the Effective Date to order Exchange Access Services. Both
pre-ordering and ordering functions and access to associated
Operations Support Systems functions are supported electronically
through these interfaces.
Sch. 9.5 - 13
<PAGE>
4.3.2 Ameritech will service, operate, and maintain the unbundled
Tandem Switching for 21/st/ Century at parity with the service,
operation, and maintenance Ameritech provides to itself, its
subsidiaries, Affiliates and any other person. Unless requested
otherwise, where applicable and technically feasible, Ameritech will
provide unbundled Tandem Switching using the same specifications,
interfaces, parameters, intervals, procedures and practices it uses to
provide comparable Tandem Switching for all other Customers and
carriers. Any feature or function existing in the Tandem Switch will
be provided to 21/st/ Century on a non-discriminatory basis.
Congestion control and overflow routing will be provided on a non-
discriminatory basis.
4.3.3 Tandem Switching performance will be measured to ensure parity
with all other Telecommunications Carriers that are interconnected
with Ameritech. Performance will be measured on switching, call
recording, and network management controls.
4.3.4 Switch downtime will be measured through FCC reportable
incidents report. CPI Index will be measured through calls blocked
and customer out of service incidents.
4.3.5 Electronic Billing Accuracy Centers (EBAC) measures billing
errors from the CABS error hold file report. Ameritech employs
RAVE/A&T, which enables on-line investigation of AMA volumes and will
alert EBAC to possible AMA recording failures.
4.3.6 Congestion Control and overflow criteria are set by the use of
NTMOS Surveillance system which polls EDAS and NMA data on call
volumes and make-busy standards. Ameritech sets automatic thresholds
with preplan routing and overflow selection. The system is also
monitored via a manual surveillance system early recognition of
performance problems.
5.0 Interoffice Transmission Facilities.
Ameritech shall:
5.1 Provide 21/st/ Century exclusive use of Interoffice Transmission
Facilities dedicated to 21/st/ Century, or use of the features, functions,
and capabilities of Interoffice Transmission Facilities shared by more than
one Customer or carrier, including 21/st/ Century;
5.2 Provide all technically feasible transmission facilities, features,
functions, and capabilities that 21/st/ Century could use to provide
Telecommunications Services;
5.3 Permit, to the extent technically feasible, 21/st/ Century to connect
such interoffice facilities to equipment designated by 21/st/ Century,
including 21/st/ Century's Collocated facilities; and
Sch. 9.5 - 14
<PAGE>
5.4 Permit, to the extent technically feasible, 21/st/ Century to obtain
the functionality provided by Ameritech's digital cross-connect systems
separate from dedicated transport.
6.0 Signaling Networks and Call-Related Databases
6.1 Signaling Networks.
------------------
6.1.1 If 21/st/ Century purchases Switching Capability from
Ameritech, Ameritech shall provide access to its signaling network
from that switch in the same manner in which Ameritech obtains access
to such switch itself. In addition, Ameritech shall provide 21/st/
Century access to Ameritech's signaling network for each of 21/st/
Century's switches when 21/st/ Century uses its own switching
facilities. This connection shall be made in the same manner as
Ameritech connects one of its own switches to an STP. Notwithstanding
the foregoing, Ameritech shall not be required to unbundle those
signaling links that connect Service Control Points to STPs or to
permit 21/st/ Century to link its own STPs directly to Ameritech's
switch- or call-related databases.
6.1.2 If 21/st/ Century has its own switching facilities, Ameritech
shall provide 21/st/ Century access to STPs to each of 21/st/
Century's switches, in the same manner in which Ameritech connects one
of its own switches to an STP, or in any other technically feasible
manner (e.g., bringing an "A" link from 21/st/ Century's switch to
----
21/st/ Century's STP, or linking 21/st/ Century's switch to its own
STP and then connecting that STP to 21/st/ Century's STP via a "B" or
"D" link); provided that Ameritech shall not be required to (i)
--------
unbundle the signaling link connecting SCPs to STPs, (ii) permit
direct linkage of 21/st/ Century's own STPs to 21/st/ Century's
switch- or call-related databases or (iii) unbundle an SCP from its
associated STP.
6.1.3 The Parties shall agree upon appropriate mediation facilities
and arrangements for the Interconnection of their signaling networks
and facilities, as necessary to adequately safeguard against
intentional and unintentional misuse of the signaling networks and
facilities of each Party. Such arrangements shall provide at a
minimum:
. Certification that 21/st/ Century's switch is compatible with
Ameritech's SS7 network;
. Certification that 21/st/ Century's switch is compatible with
Ameritech's AIN SCP;
. Certification that 21/st/ Century's switch is compatible with a
desired AIN application residing on Ameritech's SCP;
Sch. 9.5 - 15
<PAGE>
. Agreement on procedures for handling maintenance and
troubleshooting related to AIN services;
. Usage of forecasts provided by 21/st/ Century, so that Ameritech
can provide sufficient SS7 resources for 21/st/ Century and all
other requesting carriers;
. Mechanisms to control signaling traffic at agreed-upon levels, so
that Ameritech's SS7 resources can be fairly shared by all
requesting carriers;
. Mechanisms to restrict signaling traffic during testing and
certification, as necessary to minimize risks to the service
quality experienced by Customers served by Ameritech's network
and those of other carriers while compatibility and
interconnection items are verified; and
. Mechanisms to ensure protection of the confidentiality of
Proprietary Information of both carriers and Customers.
6.2 Call-Related Databases.
----------------------
6.2.1 For purposes of switch query and database response through a
signaling network, Ameritech shall provide 21/st/ Century access to
its call-related databases, including the Line Information Database,
Toll-Free Calling database, downstream number portability databases,
and Advanced Intelligent Network databases by means of physical access
at the STP linked to the unbundled database.
6.2.2 If 21/st/ Century purchases Unbundled Local Switching, 21/st/
Century may, upon request, use Ameritech's SCP in the same manner, and
via the same signaling links, as Ameritech. If 21/st/ Century has
deployed its own switch, and has linked that switch to Ameritech's
signaling system, 21/st/ Century shall be given access to Ameritech's
SCP in a manner that allows 21/st/ Century to provide any call-
related, database-supported services to Customers served by 21/st/
Century's switch. If the Implementation Team is unable to agree in
the Implementation Plan to appropriate mediation mechanisms with
respect to access to the AIN SCPs, the Parties shall adopt the
mechanisms adopted by the Commission. Ameritech shall provide 21/st/
Century access to call-related databases in a manner that complies
with the CPNI requirements of Section 222 of the Act.
6.2.3 The Parties shall agree upon appropriate mediation facilities
arrangements for the Interconnection of their signaling networks,
databases, and associated facilities, as necessary to adequately
safeguard against intentional and unintentional misuse of the
signaling networks and facilities of each Party. Such arrangements
shall provide for at a minimum:
. Capabilities to protect each Party's information;
Sch. 9.5 - 16
<PAGE>
. Agreements on handling maintenance and troubleshooting related to
AIN services;
. Usage forecasts provided by 21/st/ Century so that Ameritech can
provide sufficient resources for other requesting carriers, and
capabilities to ensure that the Parties abide by such forecasts;
. Procedures to ensure, prior to deployment, that each service will
properly operate within Ameritech's network;
. Procedures to verify proper deployment of each service in the
network; and
. Mechanisms to ensure protection of the confidentiality of
proprietary information of both carriers and customers.
6.3 Service Management Systems.
--------------------------
6.3.1 Ameritech shall provide 21/st/ Century with the information
necessary to enter correctly, or format for entry, the information
relevant for input into Ameritech's Service Management System ("SMS").
In addition, Ameritech shall provide 21/st/ Century equivalent access
to design, create, test, and deploy Advanced Intelligent Network-based
services at the SMS.
6.3.2 Ameritech shall provide 21/st/ Century with the information
necessary to enter correctly, or format for entry, the information
relevant for input into its SMS. Access will be provided in an
equivalent manner to that which Ameritech currently uses to provide
such access to itself (e.g., submitting magnetic tapes if 21/st/
----
Century inputs magnetic tapes, or through an electronic interface
equivalent to that used by 21/st/ Century). The Implementation Team
shall set forth in the Implementation Plan the terms and conditions
relating to such access. If the Implementation Team is unable to
agree to appropriate mediation mechanisms with respect to access to
the AIN SMSs and SCEs, the Parties shall adopt the mechanisms adopted
by the Commission.
6.3.3 Ameritech shall provide access to its SMS in a manner that
complies with the CPNI requirements of Section 222 of the Act.
7.0 Operations Support Systems Functions
7.1 Ameritech shall provide 21/st/ Century access to Operations Support
Systems functions on or before the dates set forth on the Implementation
Schedule.
7.2 Ameritech shall also provide 21/st/ Century access to the
functionality of any internal gateway systems Ameritech employs in
performing the above-listed OSS functions for its own Customers. A
"gateway system" means any electronic interface
Sch. 9.5 - 17
<PAGE>
Ameritech has created for its own use in accessing support systems for
providing any of the above-listed OSS functions.
8.0 Operator Services and Directory Services.
8.1 Ameritech shall provide 21/st/ Century access to Ameritech's Operator
Service and Directory Assistance facilities where technically feasible.
8.2 Ameritech shall provide unbundled Operator Services ("OS") and
Directory Assistance ("DA") to 21/st/ Century in conjunction with Telephone
Exchange Service provided to 21/st/ Century as a purchaser of Resale
Services and as an Unbundled Local Switching Network Element or directly as
a separate Network Element. A list identifying the NPA/Exchange areas of
Ameritech Directory Assistance, and dependent Information Call Completion
services will be provided to 21/st/ Century and will be updated as such DA
services are provided in additional NPA/Exchange Areas.
8.3 As a facilities-based provider, 21/st/ Century will obtain any
required custom routing and obtain or provide the necessary direct trunking
and termination facilities to the mutually agreed-upon meet point with
Ameritech facilities for access to unbundled OS and DA services. 21/st/
Century is responsible for delivering its OS and DA traffic to Ameritech's
operator service switch. Specifically, 21/st/ Century shall deliver its
traffic direct from the End Office to the operator service switch location,
and there can be no Tandem Switching for OS. The operator service location
to which 21/st/ Century will deliver its OS or DA traffic will be
determined by Ameritech based on the existing capacity of its service
centers. Ameritech will, if technically feasible, enable 21/st/ Century to
deliver its OS or DA traffic to the operator service switch most closely
located to the 21/st/ Century's NPA/exchange originating the call.
8.4 Ameritech will provide and maintain the equipment at its OS and DA
centers necessary to perform the services under this Agreement, with the
goal of ensuring that the OS and DA service meets current industry
standards.
8.5 Ameritech will provide OS and DA in accordance with its then-current
internal operating procedures and/or standards.
8.6 Ameritech will maintain a quality of service that will satisfy the
standards, if any, established by the Commission having jurisdiction over
the provision of such service. 21/st/ Century has the right, once
annually, to visit each Ameritech-owned or -subcontracted office upon
reasonable notice to Ameritech or with greater frequency by mutual consent
of the Parties. Upon request, Ameritech will provide monthly system
results, including speed-of-answer, average work time and, for DA only, and
abandon-from-queue measurements.
8.7 21/st/ Century is solely responsible for providing all equipment and
facilities to deliver OS and DA traffic to the point of Interconnection
with Ameritech facilities.
Sch. 9.5 - 18
<PAGE>
8.8 21/st/ Century will provide and maintain the equipment at its offices
necessary to permit Ameritech to perform its services in accordance with
the equipment operations and traffic operations which are in effect in
Ameritech's DA and OS offices. 21/st/ Century will locate, construct, and
maintain its facilities to afford reasonable protection against hazard and
interference.
8.9 Upon request and to the extent technically feasible, Ameritech will
unbundle OS and DA from resellers of its Telephone Exchange Service, and
for 21/st/ Century, so 21/st/ Century can provide its own OS or DA service
or obtain it from a third party. 21/st/ Century will acquire any required
custom routing and arrange for or provide other facilities, services and
Network Elements necessary to deliver its OS and DA traffic to Ameritech's
designated office, or to the office of another provider, as applicable.
8.10 Upon request, and as technically feasible, Ameritech will provide,
through an electronic interface, unbundled access to its databases used to
provide DA and OS for purposes of enabling 21/st/ Century to provide its
own OS or DA service, or as otherwise authorized by the FCC or the
Commission. Such unbundled access to DA and OS databases is provided as is
technically feasible based upon the facilities, equipment and software
involved, and upon agreement by 21/st/ Century to pay to Ameritech its
costs as defined in the Act of developing, installing, providing and
maintaining such Network Element.
8.11 The Parties shall provide DA data in a form mutually agreed upon by
the Parties.
8.11.1 If available, DA data shall specify whether the subscriber is
a residential, business, or government subscriber and shall include,
if available, all levels of indentation and all levels of
information.
8.12 Specifically, upon request, Ameritech will provide, through an
electronic interface, unbundled access to its DA database to permit 21/st/
Century to have its local exchange directory assistance listings in the
areas incorporated into the database, and/or to read the DA listing (with
the exception of a non-published listing) in that database for the purpose
of providing its own DA service. Such unbundled access will be provided in
a technically feasible manner based upon the facilities, equipment and
software involved, and upon agreement by 21/st/ Century to pay to Ameritech
its costs as defined in the Act of developing, installing, providing and
maintaining such network element.
8.13 Access of resellers and 21/st/ Century to DA and OS of Ameritech, and
the DA and OS Network Elements provided hereunder, whether provided on a
bundled or unbundled basis, will, as applicable and as feasible, be
provided through the standard interfaces, parameters, intervals, service
descriptions, protocols, procedures, practices and methods that Ameritech
provides to all Ameritech end-user customers of its DA and OS services.
Upon request, Ameritech will, as technically feasible, provide a different
quality of service, upon agreement by 21/st/ Century to pay to Ameritech
its costs of developing, installing, maintaining and repairing access to
and provision of the Network Element at such quality of service.
Sch. 9.5 - 19
<PAGE>
8.14 21/st/ Century will furnish to Ameritech all information necessary
for provision of OS and DA. This information, to the extent it is
identified as such, shall be treated as Proprietary Information. For OS
this information includes emergency agency phone numbers, rate information
(such as mileage bands and operator surcharge information), and originating
screening information. 21/st/ Century will furnish to Ameritech all
information necessary for provision of OS and DA.
8.14.1 To the extent that 21/st/ Century does not mirror Ameritech's
operator surcharge rates, then Ameritech will, if technically
feasible, enter 21/st/ Century's surcharge rates into Ameritech's
rate tables, and will charge 21/st/ Century for changing those tables
at the rates then charged by Ameritech for such service.
8.14.2 For DA services, 21/st/ Century will furnish Ameritech,
ninety (90) days (or such earlier time as the Parties may agree upon)
before DA service is initiated, details necessary to provide that
service. This information includes listing information for the areas
to be served by Ameritech and network information necessary to
provide for the direct trunking of the DA calls.
8.14.3 21/st/ Century will keep these records current and will
inform Ameritech, in writing, at least thirty (30) days prior to any
changes in the format to be made in such records. 21/st/ Century will
inform Ameritech of other changes in the records on a mutually
agreed-upon schedule.
8.15 If 21/st/ Century purchases OS or DA Network elements upon request
and as, technically feasible, Ameritech will re-brand such OS and DA
services based upon 21/st/ Century's agreement to pay rates that compensate
Ameritech for any costs it incurs in developing, installing, providing and
maintaining such rebranded service. To the extent that multiple carriers
request the same branding service, such rate shall be allocated on a pro
---
rata share. For branding of calls, 21/st/ Century must provide two (2)
----
cassette tapes of an announcement, no longer than three (3) seconds or at
parity with Ameritech, for installation on each OS and DA switch serving
21/st/ Century's Customers.
8.16 Branding: Re-branding is available as follows:
--------
(a) Mechanized front-end branding is available for all manual and
automated OS calls.
(b) Mechanized back-end branding is available for automated calling
card calls handled via ACCS.
(c) On mechanized collect and billed-to-third calls, back-end
branding is not currently available. Such calls can be manually
handled and branded. If Customer desires mechanized branding, the
feature can be installed if 21/st/ Century pays for feature purchase
and installation.
Sch. 9.5 - 20
<PAGE>
Normally, OS and DA services, both bundled and unbundled, will be branded
with Ameritech's name as the provider of the service. Upon request from
21/st/ Century, and as technically feasible, Ameritech will re-brand OS and
DA traffic from 21/st/ Century's telephone exchange lines, or to 21/st/
Century's unbundled OS or DA Network Element. Re-branded service requires
that 21/st/ Century arrange to have the subject OS or DA traffic delivered
to Ameritech's Central Office on separate trunks, which may require that it
obtain custom routing, and obtain or provide such trunks and other
applicable. Re-branding is provided at rates that recover Ameritech's
costs of developing, installing, providing and maintaining such service.
8.17 21/st/ Century will provide Ameritech during the term of this
Agreement its DA listings. DA listings provided to Ameritech by 21/st/
Century under this Agreement will be used and maintained by Ameritech only
for providing Telecommunications Services, and will not be disclosed to
third parties. This section does not prohibit Ameritech and 21/st/ Century
from entering into a separate agreement which would allow Ameritech to
provide or sell 21/st/ Century's DA listing information to third parties,
but such provision or sale would only occur under the terms and conditions
of the separate agreement.
8.18 Ameritech will supply 21/st/ Century with call-detail information so
that 21/st/ Century can rate and bill the call. This information excludes
rating and invoicing of Customers, unless negotiated on an individual-case
basis.
Sch. 9.5 - 21
<PAGE>
SCHEDULE 9.10
NETWORK ELEMENT PERFORMANCE BENCHMARKS
A. Non-DS1 Loops - standard intervals.
Volume* Interval
------ --------
1-24 5 Business Days
25-48 6 Business Days
49-96 7 Business Days
97+ Negotiated
*Number of Loops per order per day
B. DS1 Unbundled Local Transport
Interval
--------
1. Facilities Available 7 Business Days
2. Facilities or Force Negotiated
Not Available
C. DS3-Unbundled Local Transport Negotiated Interval
D. OC-N-Unbundled Local Transport Negotiated Interval
Sch. 9.10 - 1
<PAGE>
SCHEDULE 10.1
WHOLESALE RESALE SERVICES
The Resale Services provided by Ameritech hereunder and the rates, charges and
prices for such Resale Services are set forth in ILL. C.C., No. 19, Part 22 and
ILL. C.C., No. 20, Part 22.
Sch. 10.1 - 1
<PAGE>
SCHEDULE 10.3.1
GRANDFATHERED SERVICES AND SUNSETTED SERVICES
ILLINOIS
The following list contains Grandfathered Services which are found in Part 20 of
either ICC No. 19 for competitive services, or ICC No. 20 for non-competitive
services.
ICC No. 19
- ----------
Integrated Information Network
Centrex Switching Service
Centrex Service
Ameritech Integrated Digital Network
Ameritech Central Office Information Manager Service
Ameritech Business Solutions Centrex
Nondedicated 800/312 NPA Service
Outward WATS
WATS for 800 Service
Ameritech Host Interconnect Service for ESCON
ICC No. 20
- ----------
Centrex
Starline
Ameritech Custom Business Service
Public Switched Digital Service
Intercom Calling Service
Single Line Premiere Communications Service
Ameritech Service Management System
Basic 911 Telecommunications Service
Special needs Services
Lobby Interphone Service for Multiple Apartment Buildings
Hotel Service
Message Register Service
Nondedicated 800/312 NPA Service
Customized Intercept
Series 7000 Channel Services
Series 10000 Channel Service (Entrance Facilities)
Joint Use Arrangements/1/
Direct High Capacity Service
- -----------------------
/1/ Sunsetted Service, all other services are Grandfathered Services.
Sch. 10.3.1 - 1
<PAGE>
Delta 24 Channel Services
Dataphone Select-a-Station Service
SCHEDULE 10.9
RESALE PERFORMANCE BENCHMARKS
A. Installation
1. Installation Intervals
a. POTS
(1) Percentage Installed on Time
(2) Installation Interval More than Six (6) Business Days
b. HICAP: Percentage of Missed Appointments
SUBRATE: Percentage of Missed Appointments
2. New Service Failures
a. POTS: Percentage of New Service Failures During First Seven
(7) Calendar Days from Installation Date
b. HICAP: Percentage of New Service Failures During First Thirty
(30) Calendar Days from Installation Date
c. SUBRATE: Percentage of New Service Failures During First Thirty
(30) Calendar Days from Installation Date
B. Repair
1. Time to Repair
a. POTS: Percentage of Repairs Not Completed within twenty-four
(24) hours
b. HICAP: Percentage of Repairs Not Completed within two (2) hours
c. SUBRATE: Percentage of Repairs Not Completed within three and
one-half (3 1/2) hours
2. Percentage of Initial Trouble Reports
Sch. 10.3.1 - 2
<PAGE>
3. Percentage of Code 4 Troubles
C. Time to Provide Firm Order Commitment
1. Switched Services: Percentage of Firm Order Commitments Provided within
four (4) Business Days of Date of Order
2. HICAP Services: Percentage of Firm Order Commitments Provided within one
(1) Business Day of Time of Order
D. Speed of Answer
1. Service Center: Percentage of Calls to Service Center made during
normal business hours that are answered within ten (10) seconds
2. Repair Center: Percentage of Calls to Repair Center that are answered
within twenty (20) seconds.
3. Operator Services: Toll Assistance Speed of answer (seconds).
4. Operator Services: Directory Assistance Speed of answer (seconds).
SCHEDULE 10.9.6
CREDIT ALLOWANCES
ILLINOIS
1.0 General.
When a service provided by either Party (the "Providing Party") to the
other Party (the "Purchasing Party") is interrupted and such interruption
exceeds the qualification period applicable to such service as set forth in this
Schedule 10.9.6, the Providing Party shall, at the Purchasing Party's request,
- ---------------
provide the Purchasing Party a credit allowance for the interrupted service (the
"Credit Allowance") as calculated in this Schedule 10.9.6. A service shall be
---------------
considered interrupted when the service is rendered useless and inoperative.
For purposes of calculating Credit Allowances, an interruption shall be deemed
to begin at the time that such interruption is reported to or detected by
Ameritech, whichever occurs first, and shall end at the time such service is
repaired, as evidenced by Ameritech's records.
Notwithstanding the foregoing, a Credit Allowance shall not be given for
interruptions caused by (i) negligence or willful act of the Purchasing Party or
its Customers, (ii) Customer-provided facilities, or (iii) electric power
failure where the Customer furnishes such electronic power.
Sch. 10.9 - 3
<PAGE>
The Credit Allowance shall be based upon the ratio of (i) the duration of
the interruption measured from the time such interruption begins and expressed
in multiples of the allowance increment applicable to such service, as set forth
in this Schedule 10.9.6, to (ii) the total number of such allowance increments
---------------
in a thirty (30)-day month (the "Allowance Ratio"). The Credit Allowance shall
equal the Allowance Ratio times the monthly charge to the Purchasing Party for
-----
such affected service.
2.0 Qualification periods.
Qualification Allowance
Service Period Increment
------- ------------- ---------
A. All services except those listed below 12 hours 24 hours
B. Telecommunications Channel Service
(1) Series 1000 and Series 3000
intraexchange 24 hours 24 hours
interexchange 1/2 hour 1/2 hour
Qualification Allowance
Service Period Increment
------- ------------- ---------
(2) Series 2000
a. All Series 2000 Channels
except type 202 24 hours 24 hours
b. Type 2002 Channels
intraexchange 24 hours 24 hours
interexchange 1/2 hour 1/2 hour
(3) Series 7000
Type 7003 2 hours 1 hour
C. WATS
D. Foreign Exchange, Foreign Central Office
and Foreign District Service 24 hours 24 hours
E. Direct Digital Service, direct High Capacity Service except for individual
channelizing (plug-ins) and NOVALINK Fiber Optic Service.
(1) Interruptions (as defined in applicable tariffs) of 24 Hours or Less
--------------------------------------------------------------------
Length of Interruption Credit
---------------------- ------
Less than 30 minutes None
30 minutes and up to, but not including, 3 hours 1/10 day
3 hours and up to, but not including, 6 hours 1/5 day
6 hours and up to, but not including, 9 hours 2/5 day
9 hours and up to, but not including, 12 hours 3/5 day
12 hours and up to, but not including, 15 hours 4/5 day
15 hours and up to 24 hours inclusive One day
Two or more interruptions of 30 minutes or more during any period up
to, but not including 3
Sch. 10.9.6 - 4
<PAGE>
hours, shall be considered as one interruption.
(2) Interruptions (as defined in applicable tariffs) of Over 24 Hours
-----------------------------------------------------------------
Credit will be allowed in 1/5 day multiples for each 3-hour period of
interruption or fraction thereof. No more than one full day's credit
will be allowed for any period of 24 hours.
Sch. 10.9.6 - 5
<PAGE>
SCHEDULE 10.11.1
FORM OF REPRESENTATION OF AUTHORIZATION
21/st/ Century/Ameritech hereby represents to Ameritech/21/st/ Century, for
purposes of obtaining a Customer's Customer Proprietary Network Information
("CPNI") or for placing an order to change or establish a Customer's service,
that it is a duly certificated LEC and that it is authorized to obtain CPNI and
to place orders for Telephone Exchange Service (including Resale Service) upon
the terms and conditions contained herein.
1. With respect to requests for CPNI regarding prospective Customers of 21/st/
Century/Ameritech (i.e., those Customers for whom 21/st/ Century/Ameritech
----
has not obtained Documentation of Authorization to provide Telephone
Exchange Service), 21/st/ Century/Ameritech acknowledges that it must
obtain written or electronic authorization in the form of a signed letter,
tape-recorded conversation, password verification or by other means, in
each case as approved by the FCC or the Commission ("Documentation of
Authorization"), that explicitly authorizes 21/st/ Century/Ameritech to
have access to the prospective Customer's CPNI. However, 21/st/
Century/Ameritech may obtain a blanket Document of Authorization for the
Customer authorizing the release of CPNI to 21/st/ Century/Ameritech and
any and all requests for such CPNI made over a period of time designated by
such authorization. The Documentation of Authorization must be made by the
prospective Customer or the prospective Customer's authorized
representative. In order to obtain the CPNI of the prospective Customer,
21/st/ Century/Ameritech must submit to Ameritech/21/st/ Century the
Documentation of Authorization. If 21/st/ Century/Ameritech cannot provide
applicable Documentation of Authorization, then Ameritech/21/st/ Century
shall not provide CPNI to 21/st/ Century/Ameritech.
2. Ameritech/21/st/ Century will only disclose CPNI to agents of 21/st/
Century/Ameritech identified in the Documentation of Authorization.
3. If 21/st/ Century/Ameritech has already obtained Documentation of
Authorization from the Customer to place an order for Telephone Exchange
Service for the Customer, 21/st/ Century/Ameritech need not submit
Documentation of Authorization to obtain the Customer's CPNI.
4. With respect to placing a service order for Telephone Exchange Service
(including Resale Services) for a Customer, 21/st/ Century/Ameritech
acknowledges that it must obtain Documentation of Authorization that
explicitly authorizes 21/st/ Century/Ameritech to provide Telephone
Exchange Service to such Customer. The Documentation of Authorization must
be made by the prospective Customer or Customer's authorized
representative. 21/st/ Century/Ameritech need not submit the Documentation
of Authorization to process a service order. However, 21/st/
Century/Ameritech hereby represents that it will not submit a service order
to Ameritech/21/st/ Century unless it has
Sch. 10.11.1 - 6
<PAGE>
obtained appropriate Documentation of Authorization from the prospective
Customer and has such Documentation of Authorization in its possession.
5. The Documentation of Authorization must clearly and accurately identify
21/st/ Century/Ameritech and the prospective Customer.
6. 21/st/ Century/Ameritech shall retain or be able to produce all
Documentation of Authorization for as long as 21/st/ Century/Ameritech
provides Telephone Exchange Service to the Customer or for as long as
21/st/ Century/Ameritech makes requests for information on behalf of the
Customer.
7. 21/st/ Century/Ameritech shall provide Documentation of Authorization for
Customers or prospective Customers to Ameritech/21/st/ Century upon
request, when such Documentation of Authorization is at issue.
8. 21/st/ Century/Ameritech is responsible for, and shall hold
Ameritech/21/st/ Century harmless from, any and all Losses (as defined in
that certain Interconnection Agreement under Sections 251 and 252 of the
Telecommunications Act of 1996, dated as of May 5, 1997 by and between
Ameritech Information Industry Services, a division of Ameritech Services,
Inc. on behalf of and as agent for Ameritech Illinois and 21/st/ Century
Telecom of Illinois, Inc. (the "Interconnection Agreement")) resulting from
Ameritech/21/st/ Century's reliance upon 21/st/ Century/Ameritech's
representations as to its authority to act on behalf of a Customer or
prospective Customer in obtaining CPNI or placing a service order for
Telephone Exchange Service.
9. If 21/st/ Century/Ameritech fails to repeatedly and materially abide by the
procedures set forth herein, Ameritech/21/st/ Century reserves the right to
insist upon the submission of Documentation of Authorization for each
Customer in connection with a request for a service order.
10. This Representation of Authorization shall commence on the date noted below
and shall continue in effect until the termination or expiration of the
Interconnection Agreement.
Dated this day of 199 .
----- ----- --
21/st/ Century Telecom of Illinois, Inc. Ameritech Information Industry
Services, a division of Ameritech
Services, Inc. on behalf of and
as agent for Ameritech Illinois.
By: By:
-------------------------------------
Title: Title:
----------------------------------
Printed Name: Printed Name:
---------------------------
Sch. 10.11.1 - 7
<PAGE>
SCHEDULE 10.12.5
LAW ENFORCEMENT INTERFACES
1.0 Introduction.
Consistent with Applicable Law, it is necessary for 21/st/ Century and Ameritech
to provide interface requirements to allow 21/st/ Century to use a standard set
of procedures for meeting the requirements of applicable law enforcement
agencies ("Law Enforcement Process"). The Law Enforcement Process will enable
21/st/ Century to provide identical services to its Customers. These services
include Annoyance Call Bureau, wire intercept, wire trap, wire trace, fraud
control, physical security and subpoena management.
2.0 Law Enforcement.
Definition - The Law Enforcement Process assures that 21/st/ Century (as a
reseller of Resale Services) is in total compliance with law enforcement
requirements related to providing local Services to its Customers. Ameritech
(switch owner or access provider) agrees to support law enforcement requirements
as provided by the CALEA.
3.0 Annoyance Call Bureau.
3.1. Definition - Ameritech Annoyance Call Bureau (AACB) conducts
investigations to help determine who the unwanted callers are after victims
receive annoying calls and files an official complaint with the local law
enforcement agency. Annoying calls are: threatening, harassing, obscene,
prank, hang-ups, unwanted sales pitches, and survey calls. The information
obtained will only be released to the local law enforcement agency.
3.2. When 21/st/ Century must initiate a wire trap or trace as a result of
its customer receiving an annoying call (e.g., threatening, harassing,
----
obscene, prank, hang-ups, unwanted sales pitches and survey calls), the
following operational interfaces should occur:
3.2.1. 21/st/ Century (the reseller) shall inform its Customer that
it must file a formal complaint with the local police department and
obtain agency's name, officer's name and case or report number.
3.2.2. 21/st/ Century shall contact Ameritech Annoyance Call Bureau
on behalf of its Customer and provide the required information to
initiate trap or call trace.
3.2.3. The AACB shall conduct investigations to determine who the
unwanted caller is; work with local police departments to gather
evidence; and even testify in court on behalf of 21/st/ Century
Customers who have received annoying calls. The AACB will build case
for and establish trap for twenty-one (21) days. 21/st/ Century shall
contact the AACB to renew the trap beyond twenty-one (21) days.
Sch. 10.12.5 - 8
<PAGE>
3.2.4. The AACB shall provide to 21/st/ Century a toll-free number
that will be accessible daily Monday through Friday from 8:00 a.m. -
5:00 p.m.
3.2.5. For non-emergency (not life-threatening) situations, 21/st/
Century shall advise its Customer to contact its local Law Enforcement
Agency and to provide 21/st/ Century with required information to
initiate a trap or call trace. 21/st/ Century will contact the AACB
during standard operating hours to establish a case. For emergency
(life-threatening) situations, 21/st/ Century shall inform its
Customer to contact its local Law Enforcement Agency, and this Agency
will contact Ameritech to initiate a trap or call trace.
3.2.6. Additionally, for emergency situations, Ameritech corporate
security will provide 21/st/ Century representatives with an emergency
security contact available seven (7) days a week, twenty-four (24)
hours a day, and 21/st/ Century will provide Ameritech representatives
with an emergency security contact seven (7) days a week, twenty-four
(24) hours a day.
3.2.7. 21/st/ Century's Customer must contact 21/st/ Century with the
dates and times of the unwanted calls. 21/st/ Century shall fax the
dates and times of the unwanted calls to the Annoyance Call Bureau.
3.2.8. At the end of the tracing investigation (twenty-one (21)-day
period), the Ameritech Annoyance Call Bureau shall send written
confirmation to 21/st/ Century informing 21/st/ Century of the
disposition of the case (i.e., successful or non-successful). All
----
evidence obtained on a successful case will be forwarded to the local
Law Enforcement Agency that 21/st/ Century provided to the AACB.
21/st/ Century shall inform its Customer of the results of the
investigation.
3.2.9. If 21/st/ Century Customers call Ameritech to initiate an
annoying call report, Ameritech shall advise the person receiving the
annoying or harassing call to call 21/st/ Century.
4.0 Wire Intercept.
4.1. Definition - Requests from Law Enforcement Agencies to conduct a form
of electronic or mechanical eavesdropping where, upon court order, law
enforcement officials surreptitiously monitor phone calls (e.g.,
----
conversations or data) of 21/st/ Century Customers.
4.2. Operational Interface Requirements - The Law Enforcement Agency
(e.g., local police department or government organization) shall serve
----
Ameritech with a court order, authorizing Ameritech to conduct a wire
intercept on the 21/st/ Century Customer line.
5.0 Pen Register (Dial Number Recorder).
Sch. 10.12.5 - 9
<PAGE>
5.1. Definition - Requests from Law Enforcement Agencies to conduct a
"form" of identifying calls dialed by 21/st/ Century Customers in local
Exchange Areas. A pen register is a mechanical device that records the
numbers dialed or pulsed on a telephone by monitoring the electrical
impulses caused when the dial on the telephone is released. A pen register
does not overhear oral communications and does not indicate whether calls
are actually completed; thus, there is no recording or monitoring of the
conversations.
5.2. Operational Interface Requirements - See Wire Intercept, Section 4.1.
6.0 Trace.
6.1. Definition - A form of electronic identification of calling numbers,
where, upon consent from the 21/st/ Century Customer (via 21/st/ Century)
or court order, law enforcement officials request a record of calling
numbers to the premises of the 21/st/ Century Customer.
6.2. Central Office Features - Call Trace is an advanced custom calling
feature that provides 21/st/ Century direct line Customers the ability to
activate the feature by dialing a designated code. This will automatically
trace the telephone number of the line used for the last call received by
the Customer. The traced number will not be provided to the Customer but
will be provided to law enforcement officials.
7.0 Subpoena Management.
7.1. Definition - The law enforcement process initiated to compel the
production of certain specific documents (e.g., Customer information, name,
----
address, service type, call usage records, etc.) relevant to a legal
proceeding are made and make them readily retrievable by local police
departments, government organizations and attorneys. Other legal demands
require the capability to honor other legal process demands (e.g.,
----
establishment of dialed number recorders, wire intercepts, and trace
services, etc.)
7.2. Operational Interface Requirements - The Law Enforcement Agency
(e.g., local police department, government organization or attorney) shall
----
serve Ameritech an original subpoena naming Ameritech in its court document
for requests for Customer information (see above definition). Ameritech
shall forward call trace information to the Law Enforcement Agency for
inquiries regarding 21/st/ Century Customers. If the Law Enforcement
Agency serves 21/st/ Century the original subpoena, 21/st/ Century shall
forward a copy of the original subpoena to Ameritech and advise the Law
Enforcement Agency to re-send an original subpoena naming Ameritech in its
court document. Ameritech shall notify 21/st/ Century of the resolution of
the investigation. However, Ameritech shall only provide the results of
the investigation to the proper Law Enforcement Agency.
7.3. Operations Interface Requirements for calls originating from a long
distance carrier, computer, fax machine, pay phones and telemarketing calls
to 21/st/ Century's Customers are pending further discussions with
Ameritech.
Sch. 10.12.5 - 10
<PAGE>
SCHEDULE 10.13
RESALE MAINTENANCE PROCEDURES
By the end of Contract Month/1/ 1, the Implementation Team shall agree
upon the processes to be used by the Parties for maintenance of Resale Services.
These processes will address the implementation of the requirements of this
Schedule 10.13.
- --------------
1. Ameritech shall provide repair, maintenance and testing for all Resale
Services in accordance with the terms and conditions of this Schedule 10.13.
--------------
21/st/ Century shall handle all interaction with 21/st/ Century Customers,
including all calls regarding service problems, scheduling of technician visits,
and notifying the subscriber of trouble status and resolution.
2. Ameritech technicians shall provide repair service that is at least
equal in quality to that provided to Ameritech Customers; trouble calls from
21/st/ Century Customers shall receive response time priority that is at parity
to that of Ameritech Customers and shall be based on trouble severity,
regardless of whether the Customer is an 21/st/ Century Customer or an Ameritech
Customer.
3. Ameritech shall provide 21/st/ Century with the same scheduled and non-
scheduled maintenance, including required and recommended maintenance intervals
and procedures, for all Resale Services provided to 21/st/ Century under this
Schedule that it currently provides for the maintenance of its own network.
Ameritech shall provide 21/st/ Century notice of any scheduled maintenance
activity that may impact 21/st/ Century's Customers on the same basis it
provides such notice to its retail Customers. Scheduled maintenance shall
include such activities as switch software retrofits, power tests, major
equipment replacements and cable rolls.
4. Ameritech shall provide notice of non-scheduled maintenance activity
that may impact 21/st/ Century Customers. Ameritech shall provide maintenance
as promptly as possible to maintain or restore service and shall advise 21/st/
Century of any such actions it takes.
5. If service is provided to 21/st/ Century Customers before an Electronic
Interface (EI) is established between 21/st/ Century and Ameritech, 21/st/
Century will transmit repair calls to Ameritech repair bureau by telephone.
6. Ameritech repair bureau, including the EI to be established pursuant to
the Implementation Plan, shall be on-line and operational twenty-four (24) hours
per day, seven (7) days per week, except when preventative maintenance and
software revisions require an out-of-service condition. Ameritech will provide
21/st/ Century a twenty-four (24)-hour advanced notification of such out-of-
service conditions.
- -----------------------
/1/ Because the terms of this Agreement are the result of 21/st/ Century's
adoption under Section 252(i) of the Act of the MCI Agreement, the Parties
agree that the term "Contract Month 1", for purposes of this Schedule
--------
10.13, shall expire on March 19, 1998.
-----
Sch. 10.13 - 11
<PAGE>
7. Ameritech shall provide progress reports and status-of-repair efforts
to 21/st/ Century upon request and at a frequency interval to be determined by
21/st/ Century. Ameritech shall inform 21/st/ Century of restoration of Resale
Service after an outage has occurred.
8. Maintenance charges for premises visits by Ameritech technicians shall
be billed by 21/st/ Century to its Customer and not by Ameritech. The Ameritech
technician shall, however, present the Customer with an unbranded form detailing
the time spent, the materials used and an indication that the trouble has either
been resolved or that additional work will be necessary, in which case the
Ameritech technician shall make an additional appointment with the Customer and
notify 21/st/ Century as to the schedule of the appointment. The Ameritech
technician shall obtain the Customer's signature when available upon said form
and then use the signed form to input maintenance charges into Ameritech's
repair and maintenance database.
9. Dispatching of Ameritech technicians to 21/st/ Century Customer
premises shall be accomplished by Ameritech pursuant to a request received from
21/st/ Century. The EI established between the Parties shall have the
capability of allowing 21/st/ Century to receive trouble reports, analyze and
sectionalize the trouble, determine whether it is necessary to dispatch a
service technician to the Customer's premises and verify any actual work
completed on the Customer's premises.
10. Upon receiving a referred trouble from 21/st/ Century, the Ameritech
technician will offer a dispatch appointment and quoted repair time dependent
upon Ameritech's force-to-load condition. Ameritech's maintenance
administrators will override this standard procedure on a non-discriminatory
basis.
11. Disaster Recovery. The Implementation Plan will establish a process
for disaster recovery that addresses the following:
(a) Events affecting Ameritech's network, work centers and operational
support systems;
(b) Establishing and maintaining a single point of contact responsible
for disaster recovery activation, statusing and problem resolution during
the course of a disaster, and restoration;
(c) Procedures for notifying 21/st/ Century of problems, initiating
restoration plans and advising 21/st/ Century of the status of resolution;
(d) Definition of a disaster; and
(e) Equal priority, as between 21/st/ Century Customers and Ameritech
Customers, for restoration efforts, consistent with FCC Service Restoration
guidelines, including, without limitation, deployment of repair personnel
and access to spare parts and components.
Sch. 10.13 - 12
<PAGE>
SCHEDULE 10.13.2
SERVICE ORDERING AND PROVISIONING PROCEDURES AND
INTERFACE FUNCTIONALITY
1. Electronic interfaces will provide 21/st/ Century with the ability to:
(a) Obtain, during sales discussions with a Customer, access to the
following Ameritech Customer service record data in a manner that is
transparent to the Customer:
. Billing telephone number/name/address
. Service Location Address
. Working telephone number(s) on the account
. Existing service and features
. Blocking
. CLASS Features
. Telephone Assistance Programs, Telephone Relay Service and similar
services indicator
. Special Exemption Status indicator
. Directory Listing Information
. Information necessary to identify the IntraLATA toll provider and
InterLATA provider, as applicable;
(b) Obtain information on all features and services available;
(c) Enter the 21/st/ Century Customer order for all desired features and
services;
(d) Assign a telephone number (if the 21/st/ Century Customer does not
have one assigned);
(e) Establish the appropriate directory listing;
(f) Determine if a service call is needed to install the line or service;
(g) Schedule dispatch and installation, if applicable;
(h) Provide installation dates to Customer;
(i) Order local intraLATA toll service and enter 21/st/ Century Customer's
choice of primary interexchange carrier on a single, unified order;
(j) Suspend, terminate or restore service to an 21/st/ Century Customer;
and
(k) Define other functions as agreed to in the Implementation Plan.
Sch. 10.13.2 - 13
<PAGE>
Ameritech will support four (4) transaction types: Assume, Change, New and
Delete, as described in Ameritech's Electronic Service Guide, which is based on
TCIF Customer Service, Issue 5. If any additional transactional types are made
available, the Implementation Team shall address availability and procedures for
those additional transaction types.
2. 21/st/ Century shall be entitled to place orders to transfer a Customer to
21/st/ Century without identifying the specific features and services being
subscribed by such Customer at the time of the request ("Migration-As-Is").
Furthermore, if a Customer requests changes to its features and/or such service
at the time of transfer, as part of a request for Migration-As-Is, 21/st/
Century need only specify the features and/or services that are to change.
However, unless agreed to by Ameritech, Migration-As-Is will not include any
service subscribed that is not a Telecommunications Service.
3. Critical or Expedited Orders. 21/st/ Century may request that the standard
interval for provisioning will be expedited if Ameritech's standard intervals do
not meet the 21/st/ Century Customer's requested due date. Orders will be
expedited by Ameritech on the same basis as it expedites orders for its
subsidiaries, Affiliates and retail Customers. If Ameritech will be unable to
meet an 21/st/ Century expedite request, Ameritech will notify 21/st/ Century.
4. General Resale Ordering and Provisioning Requirements.
(a) Ameritech shall provide provisioning services to 21/st/ Century Monday
through Friday from 8:00 a.m. to 5:00 p.m. CST. 21/st/ Century may
request Ameritech to provide Saturday, Sunday, holiday and/or off-hour
provisioning services. If 21/st/ Century requests that Ameritech
perform provisioning services at times or on days other than as
required in the preceding sentence, Ameritech shall quote, within
three (3) Business Days of the request, a cost-based rate for such
services. If 21/st/ Century accepts Ameritech's quote, Ameritech
shall perform such provisioning services.
(b) Ameritech shall provide a single point of contact (each, a "SPOC") for
ordering and provisioning contacts and order flow involved in the
purchase and provisioning of Ameritech's Resale Services. The SPOCs
shall provide an electronic interface twenty-four (24) hours a day,
seven (7) days a week, for all ordering and provisioning order flows.
Each SPOC shall also provide to 21/st/ Century a toll-free nationwide
telephone number (operational from 8:00 a.m. to 8:00 p.m., Monday
through Saturday), which will be answered by capable staff trained to
answer questions and resolve problems in connection with the
provisioning of Resale Services.
(c) Ameritech will recognize 21/st/ Century as the Customer of Record of
all Resale Services ordered by 21/st/ Century and will send all
notices, invoices and pertinent Customer information directly to
21/st/ Century.
Sch. 10.13.2 - 14
<PAGE>
(d) When requested by 21/st/ Century, Ameritech will schedule installation
appointments with Ameritech's representative on the line with 21/st/
Century's representative until 21/st/ Century has access to
Ameritech's scheduling system.
(e) Ameritech will provide 21/st/ Century with a Firm Order Confirmation
("FOC") for each order within the interval agreed upon by the
Implementation Team. The FOC must contain an enumeration of 21/st/
Century's ordered resale features, options, physical Interconnection,
quantity and Ameritech commitment date for order completion
("Committed Due Date"), which commitment date shall be established on
a non-discriminatory basis with respect to installation dates for
comparable orders at such time.
(f) Upon work completion, Ameritech will provide 21/st/ Century
electronically (unless otherwise notified by 21/st/ Century) with an
order completion per order that states when that order was completed.
Ameritech shall respond with specific order detail as enumerated on
the FOC.
(g) Ameritech shall provide to 21/st/ Century upon request:
(1) a list of all services and features and InterLATA and IntraLATA
PICs technically available from each switch that Ameritech may
use to provide Local Switching, by switch CLLI;
(2) detail of the service coverage area of each switch CLLI; and
(3) Industry standard notification to carriers regarding information
on the details and requirements for planning and implementation
of NPA splits.
(h) For Resale Services that require coordination among Ameritech, 21/st/
Century and 21/st/ Century's Customer, 21/st/ Century shall be
responsible for any necessary coordination with the 21/st/ Century
Customer.
5. Provided 21/st/ Century has appropriate Documentation of Authorization,
Ameritech shall recognize 21/st/ Century as an agent for the subscriber in
coordinating the disconnection of services provided by another CLEC or
Ameritech.
6. If no Applicable Law governs an intraLATA toll carrier selection and if the
Customer does not select an intraLATA toll carrier, the default carrier shall be
the local service provider of that Customer.
7. OBF Compliance: Ameritech agrees to work cooperatively to implement future
OBF-developed processes related to ordering and provisioning.
8. Service Migrations and New Subscriber Additions: For resale services,
Ameritech shall not require a disconnect order from a subscriber, another local
service provider or any other
Sch. 10.13.2 - 15
<PAGE>
entity to process an 21/st/ Century order to establish 21/st/ Century Local
Service and/or migrate a subscriber to 21/st/ Century local service.
9. Order Rejections: As soon as reasonably practicable, Ameritech shall
reject and return to 21/st/ Century any order that Ameritech cannot provision
and in its reject notification provide an error code identifying the reason(s)
why such order was rejected.
10. Service Order Changes
(a) If an installation or other 21/st/ Century-ordered work requires a
change from the original 21/st/ Century service order in any manner,
Ameritech shall call 21/st/ Century in advance of performing the
installation or other work to obtain authorization. Ameritech shall
then provide 21/st/ Century an estimate of additional labor hours
and/or materials. After all installation or other work is completed,
Ameritech shall immediately notify 21/st/ Century of actual labor
hours and/or materials used in accordance with regular service order
completion schedules.
(b) If an 21/st/ Century Customer requests a service change at the time
of installation or other work being performed by Ameritech on behalf
of 21/st/ Century, Ameritech, while at the Customer premises, shall
direct the 21/st/ Century Customer to contact 21/st/ Century so as to
avoid unnecessary delays in service activation, should the Ameritech
representative leave Customer premises.
11. Implementation Team. The Implementation Team shall address systems and
process testing, service suspensions/restorations and disconnects.
12. Special Construction. If the provision of any Resale Services requires
special construction, 21/st/ Century shall pay to Ameritech any applicable
special construction charges, as determined in accordance with the Act. If
special construction is required, the Parties shall mutually agree on the nature
and manner of such special construction, the applicable charges thereto and the
negotiated interval(s) that will apply to the provisioning of such Resale
Service(s) in lieu of the standard intervals set forth on Schedule 10.9.
-------------
SCHEDULE 12.9.1
PHYSICAL COLLOCATION SPACE RESERVATION
Space for Physical Collocation may be reserved on the following basis:
1. 21/st/ Century may reserve additional space in an Ameritech Central
Office in which it has (or is ordering) Physical Collocation for permitted
telecommunications-related equipment.
2. A reservation may be maintained only by the payment of a non-recurring
charge to defray the administrative costs of the reservation system
("Reservation Charge").
Sch. 10.13.2 - 16
<PAGE>
3. The reservation can be made for an amount of space no greater than the
amount of active Physical Collocation space being utilized (or ordered) for
Interconnection with and/or access to the Network Elements of Ameritech by
21/st/ Century in the particular Central Office.
4. The reservation takes a priority based on the time at which it is made.
5. If Ameritech receives an order for Physical Collocation in an office in
which all the unoccupied space is covered by reservations, all reservations
will be prioritized. The holders(s) of the lowest-priority reservation(s)
that, when considering all higher-priority reservations, still represent(s)
available space sufficient to fill the order(s) for Physical Collocation
(each, an "Option Party") will be given written notice of its (their)
option of "enforcing" or relinquishing its (their) reservation(s).
In this case, an Option Party may enforce its reservation by payment
of the recurring Physical Collocation floor space charge otherwise
applicable to the reservation space (in lieu of the non-recurring
Reservation Charge). The reservation will be maintained until the Physical
Collocation arrangement in that office is terminated or the reservation is
terminated, whichever comes first. A new reservation may be activated by
payment of the Reservation Charge, but it will take a new priority based on
the time of reactivation. If an Option Party decides to enforce its
reservation in this manner, the holder(s) of the reservation(s) with the
next-higher priority will be given the option of enforcing or relinquishing
its (their) reservation(s).
If an Option Party declines to enforce its reservation as indicated
above, the reservation is relinquished and the reservation payment is
forfeited. A new reservation may be activated by payment of another
Reservation Charge, but the new reservation will be given a priority based
on the time Ameritech received the reactivation reservation and payment of
another Reservation Charge. The holder(s) of the reservation(s) with the
next-higher priority will be required to enforce or relinquish its (their)
reservation(s) until such time as all Option Parties have either enforced
or relinquished its (their) space reservation(s).
6. The holder of a valid reservation may place an order for Physical
Collocation for the reserved space at any time. If there is sufficient
unoccupied space to accommodate the order after subtracting space covered
by reservations of higher priority, the order will be processed. If there
is insufficient space to accommodate the order after subtracting space
covered by valid reservations of Option Parties with higher priority that
have been enforced, the holder's reservation shall be maintained.
7. In a Central Office, Ameritech may reserve space on the following
conditions:
. The amount of space must be the least amount of space reasonably
necessary for the provision of a communications-related service,
including Interconnection and the provision of unbundled Network
Elements. Except for space reserved
Sch. 12.9.1 - 17
<PAGE>
for switch (including Tandem Switches and STPs) conversion and growth
and for augmentation and conversion of mechanical and electrical
support systems and building infrastructure, the reserved space must
reasonably be anticipated to be used in three (3) years.
. The total amount of space reserved cannot exceed the amount of space
Ameritech is currently using in the Central Office.
8. Ameritech shall enforce its reservation in the same manner in which
21/st/ Century and other collocating Telecommunicating Carriers shall be
required to enforce their reservations. In that case, Ameritech may impute
the floor space charge to the operations for which the space is reserved.
Sch. 12.9.1 - 18
<PAGE>
SCHEDULE 12.9.3
COLLOCATION CAPACITY PLANNING
By the end of the third Contract Month after the Effective Date/1/, 21/st/
Century and Ameritech shall jointly develop a planning process for meeting
21/st/ Century's space and intraoffice facility requirements, which shall
include the procedures to be followed for the 21/st/ Century quarterly forecast
of anticipated additional power requirements.
SCHEDULE 12.12
DELIVERY OF COLLOCATED SPACE
1.0 Delivery of Physical Collocation Space
1.1 Upon receiving the written notification of the availability of
Collocation space from Ameritech, 21/st/ Century shall send written
verification that it still requires each Collocation space requested on
21/st/ Century's application for which space is available. This written
verification is 21/st/ Century's firm order for service for each
Collocation space requested. Subject to Section 1.2 below, 21/st/
-----------
Century's written verification shall be accompanied by 21/st/ Century's
payment of forty percent (40%) of all applicable Central Office Build-Out
("COBO") fees (the "Initial COBO Payment"). COBO modifications and
additions to space described in the proposal will not begin until the
Initial COBO Payment has been paid. Delayed payment of the Initial COBO
Payment may delay the actual service date.
1.2 So long as 21/st/ Century has a satisfactory credit rating with
Ameritech for the twelve (12)-month period preceding the date of 21/st/
Century's request for Collocation pursuant to Section 12.12, 21/st/ Century
-------------
shall pay the COBO charges as follows:
Initial COBO Payment: 40% of COBO charges
Delivery by Ameritech of confirmation
- ----------------------
/1/ Because the terms of this Agreement are the result of 21/st/ Century's
adoption under Section 252(i) of the Act of the MCI Agreement, the
Parties agree that the term "Contract Month 3", for purposes of this
Schedule 12.9.3, shall expire on May 19, 1998.
---------------
Sch. 12.9.3 - 1
<PAGE>
that construction of space is fifty percent
(50%) complete: 40% of COBO charges
Completion of space conditioning: 20% of COBO charges
If 21/st/ Century's credit rating is not satisfactory within the
aforementioned period, 21/st/ Century's method of payment of the COBO
charges shall be in accordance with the provisions of Ameritech's
applicable tariff.
2.0 Additional Rules and Regulations Applicable to Physical Collocation Space
Physical Collocation will be provided subject to the following provisions:
2.1 21/st/ Century will be responsible for all extraordinary costs, as
determined in accordance with the Act, incurred by Ameritech to prepare the
Collocation space for the installation of 21/st/ Century's equipment and
for extraordinary costs to maintain the Collocation space for 21/st/
Century's equipment on a going-forward basis. Extraordinary costs may
include costs for such items as asbestos removal, fire suppression system
or containment, modifications or expansion of cable entry facility,
increasing the DC power system infrastructure capacity, increasing the
capacity of the standby AC system or the existing commercial power
facility, conversion of non-Collocation space, compliance with federal and
state requirements, or other modifications required by local ordinances.
Ameritech will charge for these costs on a time-sensitive or time-and-
materials basis. An estimate of such costs, as determined in accordance
with the Act, will be provided to 21/st/ Century prior to commencing such
work. Extraordinary costs will only be billed to 21/st/ Century if such
costs have been authorized by 21/st/ Century. Ameritech must advise 21/st/
Century if extraordinary costs will be incurred within ten (10) Business
Days after the initial walkthrough referenced in Section 12.12.2(b).
------------------
Otherwise, 21/st/ Century will not be responsible for such costs.
Extraordinary costs do not include costs associated with maintenance and
upkeep of the building.
Within ten (10) Business Days after the initial walkthrough referenced in
Section 12.12.2(b), Ameritech shall provide to 21/st/ Century a written
------------------
proposal that covers 21/st/ Century's requirements for the space and
details the associated requirements and the applicable charges required to
meet 21/st/ Century's specific request and the expected service date.
21/st/ Century shall acknowledge acceptance of the charges in the written
proposal by signing it and returning a copy to Ameritech. Upon receipt of
21/st/ Century's signed proposal, Ameritech will begin the work and charge
21/st/ Century for the actual time and material needed to complete the
modifications, plus a reasonable contribution. In no case will actual
charges exceed those estimated by more than ten percent (10%).
2.2 Each Party will be responsible for notifying the other Party of any
significant outages of a Party's equipment that could impact any of the
services offered by the other Party and provide estimated clearing time for
restoration.
Sch. 12.12 - 2
<PAGE>
2.3 The Parties shall coordinate to ensure that services are installed in
accordance with the service request.
2.4 Each Party is responsible for testing, if necessary, with the other
Party to identify and clear a trouble when the trouble has been
sectionalized (isolated) to a service provided by that Party.
2.5 Before beginning delivery, installation, replacement or removal work
for equipment and/or facilities located within the Collocation space,
21/st/ Century shall obtain Ameritech's written approval of 21/st/
Century's proposed scheduling of the work in order to coordinate use of
temporary staging areas and other building facilities, which approval shall
not be unreasonably withheld or delayed. Ameritech may make reasonable
request for additional information before granting approval and may
reasonably require scheduling changes. 21/st/ Century shall indicate on
the drawings provided by Ameritech, pursuant to Schedule 12.15, 21/st/
--------------
Century's plans for equipment to be installed in the Collocation space
prior to commencing installation.
2.6 Ameritech shall have the right to inspect 21/st/ Century's completed
installation of equipment and facilities prior to 21/st/ Century turning up
such equipment and facilities. 21/st/ Century shall provide written
notification to Ameritech when 21/st/ Century has completed its
installation of equipment and facilities in the Collocation space, and
Ameritech shall, within two (2) Business Days of receipt of such notice,
either (i) inspect such Collocation space or (ii) notify 21/st/ Century
that Ameritech is not exercising its right to inspect such Collocation
space at that time and that 21/st/ Century may turn up its equipment and
facilities. Failure of Ameritech to either inspect the Collocation space
or notify 21/st/ Century of its election not to inspect such space within
the foregoing two (2) Business Day period shall be deemed an election by
Ameritech not to inspect such Collocation space. 21/st/ Century shall have
the right to be present at such inspection, and if 21/st/ Century is found
to be in non-compliance with the terms and conditions of this Agreement
that relate to the installation and use of 21/st/ Century's Collocated
equipment and facilities, 21/st/ Century shall modify its installation to
achieve compliance prior to turning up its equipment and facilities.
2.7 Ameritech shall have the right to make periodic inspections of 21/st/
Century's equipment and facilities occupying a Collocation space and
associated entrance conduit and riser space. Ameritech will notify 21/st/
Century in writing not less than two (2) Business Days in advance of such
inspections, and 21/st/ Century shall have the right to be present at the
time of such inspection. If 21/st/ Century is found to be in non-
compliance with the terms and conditions of this Agreement that relate to
the installation and use of 21/st/ Century's Collocated equipment and
facilities, 21/st/ Century must modify its installation to achieve
compliance.
3.0 Delivery of Virtual Collocation Space
3.1 Ameritech shall allow periodic inspections of Virtual Collocation
space where 21/st/ Century equipment is located.
Sch. 12.12 - 3
<PAGE>
3.2 Ameritech shall ensure that all applicable alarm systems (e.g., power)
----
that support 21/st/ Century equipment are operational and the supporting
databases are accurate so that equipment that is in alarm will be properly
identified and notification shall be sent to 21/st/ Century as soon as
reasonably possible.
3.3 Virtual Collocation shall be provided in accordance with the terms and
conditions of Tariff F.C.C. No. 2, Section 16.3; provided, however, if any
-------- -------
provision of such tariff is inconsistent with the Act, the Act shall
govern.
SCHEDULE 12.15
COMMON REQUIREMENTS
The following requirements are applicable to both Physical and Virtual
Collocation:
1. Ameritech shall provide to 21/st/ Century any intraoffice facilities
that 21/st/ Century requests and that Ameritech provides by tariff or
contract to any carrier.
2. Ameritech shall allow for a Fiber Meet arrangement between the Parties'
networks and facilities at the DS0, DS1, DS3, OC3, OC12 and OC48 rates
pursuant to mutual agreement of the Parties.
3. 21/st/ Century may provide basic telephone service with a connection
jack for the Collocated space.
4. Ameritech shall provide adequate lighting, ventilation, power, heat,
air conditioning and other environmental conditions for 21/st/ Century's
space and equipment. These environmental conditions shall comply with
Bellcore Network Equipment-Building System (NEBS) standards TR-EOP-000063
or other standards upon which the Parties may mutually agree.
5. Ameritech shall provide access, where available, to eyewash stations,
shower stations, bathrooms and drinking water within the Collocated
facility on a twenty-four (24)-hours-per-day, seven (7)-days-per-week basis
for 21/st/ Century personnel and its designated agents.
6. Ameritech shall provide ingress and egress of fiber cabling to 21/st/
Century Collocated spaces.
7. Ameritech shall provide 21/st/ Century with written notice five (5)
Business Days prior to those instances where Ameritech or its
subcontractors may be performing non-emergency work that may affect the
Collocated space occupied by 21/st/ Century or the AC and DC power plants
that support 21/st/ Century equipment. Ameritech will inform 21/st/
Century by telephone of any emergency-related activity that Ameritech or
its subcontractors may be performing that may affect the Collocated space
occupied by 21/st/
Sch. 12.12 - 4
<PAGE>
Century or the AC and DC power plants that support 21/st/ Century
equipment. Notification of any emergency-related activity shall be made as
soon as practicable after Ameritech learns that such emergency activity is
necessary.
8. 21/st/ Century shall not be required by Ameritech to relocate its
equipment during the Initial Term or any Renewal Term. If 21/st/ Century,
at Ameritech's request, agrees to relocate its equipment, then Ameritech
shall reimburse 21/st/ Century for any and all costs reasonably associated
with such relocation.
9. Should Ameritech sell or lease a Central Office or any portion thereof
to a third person during the Initial Term or any Renewal Term, Ameritech
shall require such third person to comply fully with the applicable terms
and conditions of this Agreement as they relate to such third person.
10. Power, as referenced in this Schedule 12.15, refers to any electrical
--------------
power source supplied by Ameritech for 21/st/ Century equipment. It
includes all superstructure, infrastructure and overhead facilities,
including cable, cable racks and bus bars. Ameritech will supply power to
support 21/st/ Century equipment at equipment specific DC and AC voltages
as mutually agreed upon by the Parties. Ameritech shall supply power to
21/st/ Century at parity with that provided by Ameritech to itself or to
any third person. If Ameritech performance, availability or restoration
falls below industry standards, Ameritech shall bring itself into
compliance with such industry standards as soon as technologically
feasible.
11. Subject to space limitations and 21/st/ Century's compliance with the
applicable request process and payment requirements of this Agreement,
Ameritech shall provide power to meet 21/st/ Century's reasonable needs for
placement of equipment, Interconnection or provision of service.
12. Both 21/st/ Century's power equipment and Ameritech's power equipment
supporting 21/st/ Century's equipment shall comply with applicable state
and industry standards (e.g., Bellcore, NEBS and IEEE) or manufacturer's
----
equipment power requirement specifications for equipment installation,
cabling practices and physical equipment layout.
13. Ameritech will provide 21/st/ Century with written notification within
ten (10) Business Days of any scheduled AC or DC power work or related
activity in the Collocated facility that poses a reasonable risk of or
causes an outage or any type of power disruption to 21/st/ Century
equipment located in the Ameritech facility. Ameritech shall provide
21/st/ Century prompt notification by telephone of any emergency power
activity.
14. Power plant alarms shall adhere to Bellcore Network Equipment-Building
System (NEBS) standards TR-EOP-000063.
Sch. 12.15 - 5
<PAGE>
15. Cabling shall adhere to Bellcore Network Equipment-Building System
(NEBS) standards TR-EOP-000063.
16. Ameritech shall provide Lock Out Tag Out and other electrical safety
procedures and devices in accordance with OSHA or industry guidelines.
17. Ameritech shall, within ten (10) Business Days after receipt of the
Initial COBO Payment for Physical Collocation or within ten (10) Business
Days after the initial walkthrough for Virtual Collocation, provide 21/st/
Century with a copy of any existing drawings showing 21/st/ Century's
proposed Collocation space and any related Ameritech facilities, and
provide information relating to measurements for necessary 21/st/ Century
cabling that are not obtainable from the drawings. Any copies of drawings
shall be redacted so as not to provide proprietary information of other
carriers. So long as Ameritech charges other Telecommunications providers
for the provision of the foregoing drawings and information, 21/st/ Century
shall reimburse Ameritech for the costs, if any, incurred by Ameritech to
provide 21/st/ Century with such drawings and information.
SCHEDULE 12.16
ADDITIONAL REQUIREMENTS APPLICABLE TO PHYSICAL COLLOCATION
The following additional requirements shall be applicable to Physical
Collocation only:
1. Subject to space limitations and 21/st/ Century's compliance with the
applicable request process and payment requirements for the space, Ameritech
shall provide space, as requested by 21/st/ Century, to meet 21/st/ Century's
needs for placement of equipment necessary for Interconnection and access to
Network Elements.
2. Ameritech shall allow requests for contiguous space in increments of
100 ft/2/ if the space is not subject to outstanding requests by other
Telecommunications Carriers.
3. Other than reasonable security restrictions, Ameritech shall place no
restriction on access to the 21/st/ Century Collocated space by 21/st/ Century's
employees and designated agents. Such space shall be available to 21/st/
Century designated agents twenty-four (24) hours per day each day of the week.
In no case should any reasonable security restrictions be more restrictive than
those Ameritech places on its own personnel or independent contractors.
4. For each building in which Collocated space is provided and upon
request by 21/st/ Century for that building, Ameritech will, at its option,
either certify that the building complies with all applicable environmental,
health and safety regulations or complete an Environmental, Health & Safety
Questionnaire provided by 21/st/ Century. 21/st/ Century may provide this
questionnaire with its request for Collocation, and Ameritech shall return it or
the applicable certification to 21/st/ Century within ten (10) Business Days
after Ameritech's receipt thereof.
Sch. 12.15 - 6
<PAGE>
5. Ameritech shall permit 21/st/ Century to install, on equipment node
enclosures, an intrusion alarm that can be remotely monitored by 21/st/
Century's work center; provided, however, that no such 21/st/ Century-installed
-------- -------
equipment shall interfere with the existing use of the Central Office.
6. 21/st/ Century shall not require advance approval from Ameritech to
make improvements or alterations to the Collocated equipment configuration that
are not substantial and do not require additional power.
7. Central Office power supplied by Ameritech into the 21/st/ Century
equipment area shall be supplied in the form of fused power feeds from
Ameritech's main power distribution board to 21/st/ Century's BDFB located in
the designated 21/st/ Century equipment area. The power feeders (cables) shall
efficiently and economically support the requested quantity and capacity of
21/st/ Century equipment. The termination location shall be as mutually agreed
upon by the Parties.
8. Ameritech power equipment supporting 21/st/ Century's equipment shall:
(a) Provide appropriate Central Office ground, connected to a ground
electrode located within the 21/st/ Century Collocated space, at a
level above the top of 21/st/ Century's equipment plus or minus two
(2) feet to the left or right of 21/st/ Century's final request; and
(b) Provide feeder capacity and quantity to support the ultimate
equipment layout for 21/st/ Century equipment upon completion of the
equipment node construction in accordance with 21/st/ Century's
request for Collocation.
PRICING SCHEDULE -- ILLINOIS
ITEM I -- 9-1-1 Service
-----------------------
See Exhibit PS-I
ITEM II -- Reciprocal Compensation/Transiting
---------------------------------------------
A. End Office Local Termination $0.005000 per minute
B. Tandem Switching $0.000956 per minute
C. Tandem Transport Termination $0.000193 per minute
D. Tandem Transport Facility Mileage $0.000012 per minute/mile
Sch. 12.16 - 7
<PAGE>
ITEM III -- Information Services Traffic
----------------------------------------
Information Services Billing and Collection: $0.03 per message
ITEM IV -- BLV/BLVI Traffic
---------------------------
A. Busy Line Verification (BLV): $0.924 per use
B. Busy Line Verification Interrupt (BLVI): $1.079 per use
(in addition to BLV charge)
ITEM V -- Unbundled Network Elements
------------------------------------
1. Unbundled Loop Rates
1. Recurring Rates
<TABLE>
<CAPTION>
Monthly Rates
Access Area/1/
A B C
2-Wire Analog ----------------------------
<S> <C> <C> <C>
Basic $3.72 $10.02 $11.53
Ground Start $3.75 $10.58 $12.27
COPTS Coin [low priority] $3.76 $10.83 $12.56
Electronic Key Line [low priority] $3.94 $13.95 $16.64
4-Wire Analog $7.35 $22.97 $27.38
Digital
ISDN - 2-Wire $3.79 $11.44 $13.54
4-Wire 64 Kbps $58.80 $57.73 $56.10
4-wire 1.544 mbps $69.54 $86.62 $85.91
2-Wire ADSL-Compatible $3.72 $10.02 $11.53
2-Wire HDSL-Compatible $3.72 $10.02 $11.53
4-Wire HDSL-Compatible $7.35 $22.97 $27.38
</TABLE>
- ----------------------
/1/ "Access Area" is as defined in Ameritech's applicable tariffs for business
and residential Exchange Line Services.
Illinois Pricing Schedule -- 8
<PAGE>
Cross Connect Charge
(additional, per cross connect):
2-wire $0.15
4-wire $0.30
6-wire $0.49
8-wire $0.60
DS1 $5.19
DS3 $0.76
Service Coordination Charge $1.14
2. Non-Recurring Rates
Service Order--Establish Change: $14.7/2/
(Business or Residence)
Line Connection: $36.54/3/
(Business or Residence)
B. NID/4/ No charge
Non-Recurring Monthly
------------------------
C. Switching
1. Unbundled Local Switching
A. Custom Routing
- per new LCC, per switch $232.24 -
B. ULS Ports
- Basic Line Port, per port - $6.41
- Ground Start Line Port, per port - $6.98
- COPTS-Coin Line Port, per port - $6.98
- ------------------
/2/ The Service Order Charge is a per occasion charge applicable to any number
of Loops ordered for the same location and same Customer account.
/3/ The Line Connection Charge applies to each Loop.
/4/ Access to Network Interface Device for Accessing Customer Premises Wiring
(Inside Wire).
Illinois Pricing Schedule -- 9
<PAGE>
- ISDN-Direct Port, per port - $ 30.74
per telephone number - $ 0.01
- DID Trunk port, per port [low priority] - $ 13.62
per telephone number - $ 0.01
add/rearrange each termination - -
- ISDN Prime Trunk Port, per port - $155.73
per telephone number - $ 0.01
add/rearrange channels - -
- Digital Trunking Trunk Port, per port - $105.09
[low priority]
- Custom Routing Port, per port - -
per individual trunk termination - $ 59.10
- Centrex Basic Line Port, per port - $ 10.96
- Centrex ISDN Line Port, per port - $ 30.74
- Centrex EKL Line Port, per port - $ 30.90
- Centrex Attendant Console Line Port,
per port - $ 94.78
C. Centrex System Charges
- System Features, per common block - $331.93
- Common Block establishment, each $487.48 -
- System features change or
rearrangement, per feature,
per occasion $ 67.18 -
- System feature activation, per
feature, per occasion $259.11 -
2. Service Charges
Initial Port Connection Charge - Line Port $ 64.57 -
Initial Port Connection Charge - Attendant
Console Port $129.15 -
Initial Trunk Port Connection Charge $770.29 -
Illinois Pricing Schedule -- 10
<PAGE>
Subsequent Port Connection Charge $ 29.16 -
Service Ordering Charges
- Initial
-------
Line port, per occasion $ 17.37 -
Trunk port, per occasion $398.73 -
- Subsequent
----------
per occasion $ 17.37 -
- Record Order per occasion $ 15.97 -
Conversion Charge
- change from one type of line-port to
another, per each changed $ 59.36 -
Ameritech Cross-Connection Service per
carrier transport facility,
- 2-Wire (Line port), each $ .15 -
- DSI (Trunk port) (each individual trunk) $ 5.19 -
3. Service Coordination Fee
- per carrier bill, per switch - $ 1.14
4. Subsequent Training
- per Company person, per hour $ 80.11
5. ULS Usage
- Billing Development $35,328.87 -
Minute-of-Use
-------------
- Per minute-of-use or fraction thereof - .002962
D. Unbundled Tandem Switching
Tandem Trunk (DS1) - $120.21
Unbundled Trunk Port Features - $ 13.53
Service Order Charge $398.73 -
Line Connect Charge per DS1 $770.29 -
Illinois Pricing Schedule -- 11
<PAGE>
Subsequent Changes $ 29.16 -
DS-1 Cross Connect - $ 5.19
Per Minute
----------
Usage Without Tandem Trunks $0.000378
E. Interoffice Transmission Facilities DS1
1. Entrance Facility
- Per Point of Termination Terminating
Bit Rate 1.544 Mbps
Area A $ 69.54
Area B $ 86.62
Area C $ 85.91
2. Interoffice Mileage Termination
- Per Point of Termination
1.544 Mbps
Area A $ 16.29
Area B $ 16.29
Area C $ 16.29
Interoffice Milage
- Per mile
1.544 Mbps
Area A $ 1.75
Area B $ 1.75
Area C $ 1.75
3. Optional Features and Functions
(a) Clear Channel Capability
- Per 1.544 Mbps Circuit Arranged
Area A $448.20
Area B $448.20
Area C $448.20
Illinois Pricing Schedule -- 12
<PAGE>
(b) Interconnection Central Office Multiplexing
- DS1 to Voice/Base Rate/128.0, 256.0,
384.0 Kbps Transport
Area A $276.28
Area B $276.28
Area C $276.28
F. Interoffice Transmission Facilities - DS3
1. Entrance Facility
- Per Point of Termination
(a) DS3 with Electrical interface
- Per Termination
Area A $630.31
Area B $715.89
Area C $697.49
2. Interoffice Mileage Termination
- Per Termination
- Electrical
Area A $203.61
Area B $203.61
Area C $203.61
Interoffice Mileage
- Per Mile
Area A $ 37.94
Area B $ 37.94
Area C $ 37.94
Illinois Pricing Schedule -- 13
<PAGE>
3. Optional Features and Functions
(a) Interconnection - Central Office Multiplexing
- Per Arrangement
- DS3 to DS1
Area A $598.53
Area B $598.53
Area C $598.53
G. Interoffice Transmission Facilities - OC-3
1) Entrance Facility
- Per Point of Termination Terminating Bit
Rate 155.52 Mbps $1,607.00
2) Interoffice Mileage Termination
- Per Point of Mileage Termination 155.52 Mbps $469.00
Interoffice Mileage
- Per Mile 155.52 Mbps $250.00
3) Optional Features and Functions
a) OC-3 Add/Drop Multiplexing
- Per arrangement $1,107.00
b) Add-Drop Function
- Per DS3 Add or Drop $120.00
- Per DS1 Add or Drop $ 50.00
c) 1+1 Protection
- Per OC-3 Entrance Facility $ 57.00
d) 1+1 Protection with Cable Survivability
- Per OC-3 Entrance Facility $ 57.00 $500.00
e) 1+1 Protection with Route Survivability
Illinois Pricing Schedule -- 14
<PAGE>
1) Per OC-3 Entrance Facility Apply Rates and Charges
as (c) above plus (2) below
2) Per Quarter Route Mile $ 50.00
H. Interoffice Transmission Facilities - OC-12
1) Entrance Facility
- Per Point of Termination Terminating Bit
Rate 622.08 Mbps $4,000.00
2) Interoffice Mileage Termination
- Per Point of Mileage Termination
622.08 Mbps $700.00
Interoffice Mileage
- Per Mile 622.08 Mbps $500.00
3) Optional Features and Functions
a) OC-12 Add/Drop Multiplexing
- Per arrangement $2,750.00
b) Add/Drop Function
- Per OC-3 Add or Drop $150.00
- Per DS3 Add or Drop $120.00
c) Cross-Connection of Services OC-12 to
OC-12 Cross-Connect
- Per Circuit $550.00
d) 1+1 Protection
- Per OC-12 Entrance Facility $250.00
e) 1+1 Protection with Cable Survivability
- Per OC-12 Entrance Facility $250.00 $600.00
f) 1+1 Protection with Route Survivability
Illinois Pricing Schedule -- 15
<PAGE>
1) Per OC-12 Entrance Facility Apply Rates and Charges as
(d) above plus (2) below
2) Per Quarter Route Mile $ 75.00
I. Interoffice Transmission Facilities - OC-48
1) Entrance Facility
- Per Point of Termination Terminating Bit
Rate 2488.32 Mbps $8,000.00
2) Interoffice Mileage Termination
- Per Point of Mileage Termination
2488.32 Mbps $1,575.00
Interoffice Mileage
- Per Mile 2488.32 Mbps $550.00
3) Optional Features and Functions
a) OC-48 Add/Drop Multiplexing
- Per arrangement (not to exceed 12 DS3s
or equivalent) $1,375.00
b) Add/Drop Function
- Per OC-12 Add or Drop $375.00
- Per OC-3 Add or Drop $150.00
- Per DS3 Add or Drop $120.00
c) Cross-Connection of Services OC-48
to OC-48 Cross-Connect
- Per Circuit $1,100.00
d) 1+1 Protection
- Per OC-48 Entrance Facility $1,175.00
e) 1+1 Protection with Cable Survivability
- Per OC-48 Entrance Facility $1,175.00 $700.00
f) 1+1 Protection with Route Survivability
Illinois Pricing Schedule -- 16
<PAGE>
1) Per OC-48 Entrance Facility Channel Apply Rates and Charges as
(d) above plus (2) below
2) Per Quarter Route Mile $100.00
J. Installation and Rearrangement Charges for Interoffice Transmission
Facilities
Design and Central Carrier Connection
Administration Office Connection Charge Per
Charge, Per Order Charge, Per Circuit Termination
----------------- ------------------- ------------------
DS1 Service
1.544 Mbps
Area A $408.05 $636.43 $588.93
Area B $408.05 $636.43 $588.93
Area C $408.05 $636.43 $588.93
DS3 Service
44.736 Mbps
Area A $308.81 $675.22 $379.09
Area B $308.81 $675.22 $379.09
Area C $308.81 $675.22 $379.09
OC-3 Service
155.52 $ 50.00 $375.00 $450.00
OC-12 Service
622.08 Mbps $ 50.00 $375.00 $450.00
OC-48 Service
2488.32 Mbps $ 50.00 $500.00 $600.00
Illinois Pricing Schedule -- 17
<PAGE>
K. Signaling Networks and Call-Related Databases
1. Signaling Networks
Signaling Link IL.C.C. 21 Section No. 8
Port Termination $267.82 (monthly)
Signaling Switching ISUP $0.000143 per message
Signal Transport ISUP $0.000086 per message
Signal Formulation ISUP $0.000459 per message
Signal Tandem Switching ISUP $0.000312 per message
Signal Switching TCAP $0.000118 per message
Signal Transport TCAP $0.000058 per message
Signal Formulation TCAP $0.000325 per message
Non-Recurring Costs NRCs
Port Termination $666.37
Originating Point Code
per service added or changed $ 23.09
Global Title Address Transfer
per service added or changed $ 12.41
2. Call-Related Databases
Unbundled Local Switching Interconnection
-----------------------------------------
-800DB Call-Routing Query $0.002654
-800DB Routing Options $0.000773
Local STP Interconnection
-------------------------
-800DB Carrier-ID-Only $0.001286
-800DB Routing Options $0.000228
Regional STP Interconnection
----------------------------
-800DB Carrier-ID-Only $0.001208
-800DB Routing Options $0.000149
Illinois Pricing Schedule -- 18
<PAGE>
Carrier-Provided Operator Services
----------------------------------
Interconnection at local STP
-LIDB Validation $0.015733
-LIBD Transport $0.000090
-Out-of-Region-Query $0.057625
Interconnection at regional STP
-LIDB Validation $0.015733
-LIBD Transport $0.000011
Unbundled Operator Services
---------------------------
-LIDB Validation $0.015733
-LIBD Transport $0.000634
-Out-of-Region-Query $0.058169
3. Service Management Systems
Access to Databases - to the extent technically feasible, based on TELRIC
-------------------
costs, via the Bona Fide Request process.
L. Operator Services and Directory Assistance
1. Operator Services
Manual Call Assistance Occurrences - rates will apply based on the
----------------------------------
total monthly volume and a LIDB charge will apply separately to all
occurrences requiring billing validation.
$0.362 per occurrence
Automated Call Assistance Occurrences - rates will apply based on the
-------------------------------------
total monthly volume, and a LIDB charge will apply separately to all
automated occurrences.
$0.022 per occurrence
Branding per trunk group - $916.08 non-recurring charge
2. Directory Assistance
Branding is a one-time charge assessed, on a per trunk group basis, for
the mechanized front-end branding of Directory Assistance calls.
Illinois Pricing Schedule -- 19
<PAGE>
Information Call Completion rates apply on a completed call basis. In
addition to the charge for Information Call Completion, normal Directory
Assistance charges, and applicable usage charges apply, if the call is
completed on the Company's network. If a call is not completed, only the
appropriate charge for Directory Assistance Service will apply.
Rates do not include custom routing, unbundled network elements, end
office or tandem switching (where requested).
Per Call Charge Price Non-Recurring
- -------- ------ ----- -------------
Information Call Completion, per $0.023
completed call
Branding, per trunk group/5/ $916.08
Monthly Payment
Term Payment Plans
================================================================================
Description 1 Month 12 Months 24 Months 36 Months
- --------------------------------------------------------------------------------
Directory Assistance, $.255 $.255 $.255 $.255
Term Payment Plan,
rate per call
================================================================================
The minimum period for the Term Payment Plan is one month, unless otherwise
specified. The month-to-month price is subject to Company initiated changes.
3. Directory Assistance Facilities
Access to Databases - To the extent technically feasible, based on
-------------------
TELRIC costs, via the Bona Fide Request process.
M. Rates for Maintenance.
- -------------------
/5/ When branding service is provided on a combined toll and assist Operator
Service and Directory Assistance trunk group basis, as technically
feasible, a single branding charge will apply. The telecommunications
carrier is also responsible for the rates applicable to custom routing,
transport and any other services or network elements it orders to deliver
its traffic to the Company's switch on separate direct trunks.
Illinois Pricing Schedule -- 20
<PAGE>
1. Trip Charge - $69.27 per trouble dispatch
2. Time Charge - $28.52 per quarter hour with a quarter hour minimum and
quarter hour increments.
N. Combinations.
Non-Recurring
Monthly Charge
------- ------
1. Loop/Network Combination $___ $___
2. Switching Combination No. 1 $___ $___
3. Unbundled Element Platform $___ $___
--------------------------
O. Common Transport
----------------
ITEM VI -- Wholesale Resale Services
------------------------------------
A. See Schedule 10.1
ITEM VII -- Collocation
-----------------------
See Exhibit PS-VII
ITEM VIII -- Structure
----------------------
See Exhibit PS-VIII
ITEM IX -- SERVICE PROVIDER NUMBER PORTABILITY
----------------------------------------------
I.N.C. /6/ Per Month /6/
------ ---------
A. SPNP-Remote
per number ported $0.00___ $0.00___
- ---------------------
/6/ Rates suspended pending commission approval of a competitively neutral
cost recovery mechanism.
Illinois Pricing Schedule -- 21
<PAGE>
per additional call path (1-5) $0.00___ $0.00___
per additional call path (6-90) $0.00___ $0.00___
B. SPNP-Direct
Service Establishment Charge
per SPNP-Direct Trunk group, per switch $0.00___ $0.00___
SPNP-Direct Channel Termination charges,
per SPNP-Direct VG channel termination $0.00___ $0.00___
per SPNP-Direct DS1 channel termination $0.00___ $0.00___
SPNP-Direct Number Charges, per number ported $0.00___ $0.00___
SPNP-Direct Transport Charges,
per SPNP-Direct VG transport $0.00___ $0.00___
per SPNP-Direct VG w/o transport $0.00___ $0.00___
per SPNP-Direct DS1 transport $0.00___ $0.00___
per SPNP-Direct DS1 w/o transport $0.00___ $0.00___
Subsequent additions, deletions or
rearrangement of SPNP-Direct trunk
terminations in addition to above charges
per occasion $0.00___ $0.00___
EXHIBIT PS-I
RATE TABLE -- ILLINOIS
E911 SERVICES PROVIDED:
Automatic Number Identification (ANI), Automatic Location Identification (ALI)
and selective routing (SR), charge per 100 Access Lines/1/ serviced by the E911
Network: $29.62 per month.
- --------------------
/1/ Or fraction thereof. The minimum charge will be based upon 100 Access
Lines. Number of Access Lines applicable will include all lines contained
within the ALI/DMS database, including those that are outside of the
Customer's geographical boundary jurisdiction, but within Requesting
Carrier's exchange boundary and set for routing via the E911 network.
Illinois Pricing Schedule -- 22
<PAGE>
The per 100 Access Lines charge will include the following number of trunks per
trunk group between the Ameritech Central Office and Ameritech Control Offices
deemed sufficient to accommodate traffic:
===========================================================
Trunks provided at
Access Lines no additional charge
-----------------------------------------------------------
01 - 1,500 = 2 Trunks
-----------------------------------------------------------
1,501 - 7,500 = 3 Trunks
-----------------------------------------------------------
7,501 - 18,500 = 4 Trunks
-----------------------------------------------------------
18,501 - 33,500 = 5 Trunks
===========================================================
Should Exchange Carrier desire more trunks than those described above, Exchange
Carrier shall acquire such additional trunks from Ameritech at rates, terms and
conditions provided in Ameritech's tariffs.
Optional Manual Update: Update of the ALI/DMS data base from paper copies of
service order activity furnished by Exchange Carrier,
charge per updated record: $6.66
Address and Routing File: $276.55 per request per NPA (per quarter)/2/
E9-1-1 Control Office $1,314.83 non-recurring charge per
Software Enhancement - E9-1-1 Control Office
Connection Charge
SERVICES PROVIDED
A. Exchanges covered by Agreement:
Ameritech shall provide E911 Service described in Section 3.9 and Schedule
----------- --------
3.9 and selected by Requesting Carrier in the Exchange Area(s) in which both of
- ---
the following conditions are met: (1) Requesting Carrier is authorized to
provide local exchange services in such Exchange Area(s), and (2) Ameritech is
the 911 service provider in such Exchange Area(s).
B. Requesting Carrier Updates:
- ------------------
/2/ This charge applies for entire NPA or fraction thereof.
Illinois Pricing Schedule -- 23
<PAGE>
If Requesting Carrier elects to furnish daily updates to the Customer
information contained within the Requesting Carrier database, Ameritech will
provide Requesting Carrier with the proper address to which updates should be
sent.
COLLOCATION
EXHIBIT PS-VII
PHYSICAL COLLOCATION -- ILLINOIS
Non-Recurring Monthly
Charges Recurring
------------- ---------
Order Charge/Per Order $ 302.30 --
Central Office Build Out
- - per Initial 100 sq. ft.
Floor Space Request/C.O. $33,788.47 --
- - per Add'l 100 sq. ft.
Floor Space Request/C.O. $13,148.87 --
Cable Vault Splicing/per Initial splice $ 205.57 --
Cable Vault Splicing/per Subsequent splice $ 15.24 --
Splice Testing/per Initial Splice Test $ 47.16 --
Splice Testing/per Subsequent Splice Test $ 2.77 --
Cable Pulling from Manhole to Cable Vault/
per First foot $ 223.06 --
Cable Pulling from Manhole to Cable Vault/
per Add'l foot $ 1.11 --
Cable Pulling from Cable Vault to the
transmission node/per First foot $ 83.24 --
Cable Pulling from Cable Vault to the
transmission node/per add'l foot $ 0.83 --
Power Delivery/per Power Lead $ 1,802.17 --
Transmission Node Enclosure/
per initial 100 sq. feet $ 4,554.43 --
Illinois Pricing Schedule -- 24
<PAGE>
Non-Recurring Monthly
Charges Recurring
------------- ---------
Transmission Node Enclosure/
per Add'l 100 sq. feet $ 1,798.67
Diverse Riser/per Floor Traversed $ 553.40 --
Space Reservation Charge/per Each request $ 785.91 --
Central Office Floor Space/per 100 sq. ft. -- $878.34
Riser Space/Foot -- $ 1.33
Entrance Conduit/per Innerduct per foot -- $ 0.07
Power Consumption/per Fuse AMP -- $ 6.87
200 Conductor Electrical Cross Connect Block -- $ 63.68
Digital Cross-Connect Panel (DSX-3)/per DS-3
Termination -- $ 15.16
Digital Cross-Connect Panel/per DSX-1 Panel
(Up to 56 DS-1 Term) -- $ 47.49
Optical Cross-Connect Panel/per OCX Panel Segment -- $ 5.16
Passive Bay Termination (Bay and Panel)/
DS-1 Termination -- $ 0.53
Passive Bay Termination (Bay and Panel)/
DS-3 Termination -- $ 6.82
200 Electrical Conductor Termination Block
(Located Outside Transmission Node)/per Each -- $ 63.68
Digital Timing Source/per Synchronization
Signal Provided -- $ 12.77
DS-1 Repeater -- $ 5.92
DS-3 Repeater -- $ 34.39
COLLOCATION
EXHIBIT PS-VII
VIRTUAL COLLOCATION -- ILLINOIS
Illinois Pricing Schedule -- 25
<PAGE>
COLLOCATION
EXHIBIT PS-VII
VIRTUAL COLLOCATION -- ILLINOIS
Non-Recurring Monthly
Charges Recurring
------------- ---------
Service Order $ 114.63 --
Optical Line - Cable Vault Splicing/
per Initial Splice $ 205.57 --
Optical Line - Cable Vault Splicing/
per Subsequent Splice $ 15.24 --
Optical Line - Splicing Test/
per Initial Splice $ 47.16 --
Optical Line - Splicing Test/
per Subsequent Splice Test $ 2.77 --
Optical Line - Cable Pulling - Manhole to Vault/
per First Foot $ 223.06 --
Optical Line - Cable Pulling - Manhole to Vault/
per Add'l Foot $ 1.11 --
Optical Line - Cable Pulling - Vault to LGX Panel/
per First Foot $ 83.24 --
Optical Line - Cable Pulling - Vault to LGX Panel/
per Add'l Foot $ 0.83 --
Optical Line - Diverse Riser/per Floor Traversed $ 553.40 --
Project Management Fee/per Initial 7' Bay
Installed on Initial or Subsequent Order $3,143.65 --
Illinois Pricing Schedule -- 26
<PAGE>
COLLOCATION
EXHIBIT PS-VII
VIRTUAL COLLOCATION -- ILLINOIS
Non-Recurring Monthly
Charges Recurring
------------- ---------
Project Management Fee/per Initial 7' Bay
Installed on Initial or Subsequent Order/
per Add'l 7' Bay Installed on Initial
or Subsequent Order $1,571.82 --
Project Management Fee/
per Initial Shelf Installed on Subsequent Order $2,357.74 --
Project Management Fee/
per additional shelf installed on subsequent order $1,414.64 --
Project Management Fee/
per Bay Rearrangement and/or Miscellaneous Work $1,886.19 --
Power Delivery/per 7' Bay Installed $1,802.17 --
Thru-Connect per DSX-1 to DSX-1 $ 7.00 $ 0.19
Thru-Connect per OCX to OCX $ 7.00 $ 1.34
7' Bay (Company Provided)/per Bay $ 393.21 $38.09
7' Bay (Customer Installed/Pre-Packaged)/per Bay -- $32.88
Optical Line - Entrance Facility/per Foot -- $ 0.07
Optical Line - Riser Space/per Foot -- $ 0.30
Optical Line - Riser Space/per Fiber Termination -- $ 1.51
Power Consumption/per Fuse AMP -- $ 6.87
200 Electrical Conductor Cross-Connect Block/
per Block -- $63.68
Digital Cross-Connect Panel/
per DS-3 Termination -- $15.16
Illinois Pricing Schedule -- 27
<PAGE>
COLLOCATION
EXHIBIT PS-VII
VIRTUAL COLLOCATION -- ILLINOIS
Non-Recurring Monthly
Charges Recurring
------------- ---------
Digital Cross-Connect Panel/
per DS-1 Panel (up to 56 DS-1 Terminations) -- $47.49
Optical Cross-Connect Panel/
per Panel Segment -- $ 5.16
Digital Timing Source per Timing Circuit -- $ 2.54
EXHIBIT PS-VIII
Illinois Pricing Schedule -- 28
<PAGE>
EXHIBIT PS-VII
STRUCTURE PRICING
POLE ATTACHMENT AND CONDUIT OCCUPANCY ACCOMMODATIONS
Nonrecurring Charge Per Year
------------------- --------
Administrative Fee
- - per request or assignment $ 200.00
Pole Attachment Fee
- - per pole, per year for each one foot of
usable space occupied and for each power
supply or equipment case or cabinet
attached to a pole $2.36
Conduit Attachment Fee
- - per foot of innerduct occupied per year $.41/3/
- ---------------------
/3/ If an Attaching Party occupies an entire duct, the Attachment Fee shall be
two (2) times the rate per innerduct foot for the Attachment.
Illinois Pricing Schedule -- 29
<PAGE>
EXHIBIT 10.10
NETWORK PRODUCTS PURCHASE AGREEMENT
TABLE OF CONTENTS
I NETWORK PRODUCTS PURCHASE AGREEMENT ("NPPA")
II CARRIER NETWORKS PRODUCT ATTACHMENT
III S/DMS ACCESSNODE PRODUCT ATTACHMENT
IV S/DMS TRANSMISSION PRODUCT ATTACHMENT
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
PAGE 1 OF 18
NETWORK PRODUCTS PURCHASE AGREEMENT
Northern Telecom Inc., a Delaware corporation having offices at 5405 Windward
Parkway, Alpharetta, Georgia 30004-3895 ("Nortel") and 21st Century Telecom
Group, Inc., an Illinois corporation, having its principal offices and place of
business at 350 North Orleans Street, Suite 600, Chicago, Illinois 60654-1509
("Buyer"), acting on behalf of itself and its Affiliates (as defined in Exhibit
A hereto) agree as follows:
1. SCOPE AND TERM
--------------
1.1 Certain terms used in this Agreement shall be defined as set forth in
Exhibit A.
1.2 The terms and conditions of this Agreement shall apply to the purchase by
Buyer and the sale by Nortel of Equipment and Services and the licensing of
Software furnished in connection with such Equipment. The terms and
conditions contained in a Product Attachment hereto shall modify or
supplement the other terms and conditions of this Agreement, only with
respect to the Product Line and Services described in the applicable
Product Attachment.
1.3 All Products and Services obtained by Buyer pursuant to this Agreement
shall be obtained by Buyer solely for initial use by Buyer in its internal
business to provide services available through its networks, and not as
stock in trade or inventory that is intended for resale by Buyer to any
third party as new and unused material. All such Products shall be
installed in the United States. Notwithstanding anything to the contrary
contained in the preceding sentence, nothing in this Section 1.3 shall
prevent Buyer from reselling used Products or, with the permission of
Nortel, making incidental sales of new Equipment purchased hereunder;
provided, however, that Buyer's principal intent for purchasing is not with
a view toward resale.
1.4 This Agreement, including any Product Attachments hereto, shall commence
on the date last signed by the parties and be in effect for a period of
thirty-six (36) months from such date ("Term"). This Agreement or any part
thereof may be terminated in accordance with the express provisions of this
Agreement concerning termination or by written agreement of the parties.
1.5 The termination of this Agreement or any part thereof shall not affect the
obligations of either party thereunder that have not been fully performed
with respect to any accepted Order, unless such Order is expressly
terminated in accordance with this Agreement or by written agreement of the
parties.
1.6 During the Term, as set forth in Section 1.4 herein, Buyer shall purchase
and take delivery of Products and other products manufactured by Nortel and
Services, exclusive of TNS Services, having a minimum cumulative total
value of /***/ ("Purchase
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
PAGE 2 OF 18
Commitment"). The Purchase Commitment shall be satisfied by the total
prices and fees paid by Buyer for such Products and Services. The parties
have agreed in the following Product Attachments for the sale of Products
and Services contained therein. Purchase of such Products and Services
shall be referred to herein as "Qualified Products and Services":
Product Attachment for S/DMS Carrier Networks Products
Product Attachment for S/DMS Transmission Products
Product Attachment for S/DMS AccessNode Products
Additional pricing and other terms and conditions for other Nortel
products and services will be mutually agreed upon by the parties and
added as separate Product Attachments.
1.7 In the event Buyer fails to meet the Purchase Commitment by the end of the
Term, Buyer shall pay to Nortel as liquidated damages, and not as a
penalty, /***/ of the difference between the sum of Buyer's cumulative
purchases of Products and Services during the Term and Buyer's Purchase
Commitment. Nortel shall invoice Buyer immediately upon expiration of the
Term for such liquidated damages and such invoice shall be due and payable
within thirty (30) days of the date of such invoice.
1.8 Conditions to Buyer's Obligation to Fulfill the Purchase Commitment.
--------------------------------------------------------------------
1.8.1 Buyer's Purchase Commitment under Section 1.6 is subject to the conditions
set forth below. Should any of these conditions be initially satisfied but
subsequently fail or subsequently occur, Buyer's commitment requirement
shall be adjusted in the manner set forth herein.
1.8.1.1 Buyer Relieved of Purchase Commitment Obligation.
In the event that any of the conditions precedent set forth in
this Section 1.8.1.1 are not met, Buyer shall be relieved in its
entirety of the obligation to satisfy the Purchase Commitment, at
no penalty to Buyer, except as provided under Section 3.2. The
conditions for which Buyer shall be relieved of its Purchase
Commitment obligation are as follows:
(a) Nortel is in material breach of the terms and conditions of
this Agreement; or
(b) The Board of Directors or executive management of the Buyer
changes the business direction of the Buyer such that Buyer is to
exit the industry, discontinue the line of business or make a
formal decision to not grow the line of business such that the
Products and Services to be purchased hereunder are no longer
- --------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
PAGE 3 OF 18
needed and are inconsistent with a volume purchase commitment and
Buyer does not buy comparable products from another
telecommunication equipment provider; or
(c) A change in regulatory requirements occurs that makes it
unfeasible for the Buyer to honor its Purchase Commitment in its
entirety; or
(d) The economic well being of the Buyer declines to such a great
extent that honoring its Purchase Commitment is neither practical
nor prudent and Buyer does not buy comparable products from
another telecommunication equipment provider.
1.8.1.2 In the event that Nortel fails to comply with any of the
conditions precedent set forth in this Section 1.8.1.2, Buyer's
Purchase Commitment shall be equitably reduced to reflect the
impact on Buyer of such failure. The conditions precedent that
will result in Buyer's Purchase Commitment being equitably reduced
if not satisfied are as follows:
(a) During any calendar year in the Term, Nortel fails to offer
Products and Services that are reasonably competitive in features,
size, weight, quality, functionality, and price with equipment
available from other suppliers and where Nortel's failure to do so
places Buyer in a competitive disadvantage and has a material
adverse financial impact on Buyer.
(b) If Nortel shall be in default of its obligations to deliver
Products and Services ordered under this Agreement, Buyer's
Purchase Commitment shall be equitably reduced. Such reduction of
Buyer's Purchase Commitment pursuant to this Section 1.8.1.2 shall
be based on the magnitude and duration of such default by Nortel
and the effect upon Buyer's business resulting from Nortel's
inability to deliver Products and Services in a timely manner,
including cost to Buyer's operations and the impact on Buyer's
ability to attract and maintain customers.
2. ORDERING
--------
2.1 All purchases pursuant to this Agreement shall be made by means of Orders
issued from time to time by Buyer and accepted by Nortel in writing within
fifteen (15) days. Any Order not so accepted shall be deemed rejected and,
therefore, void. Nortel agrees that it shall use reasonable efforts to
accept all such Orders placed by Buyer with respect to Product quantities
and delivery dates requested. In the event Nortel cannot comply with
Buyer's requested delivery date, before rejecting any Order, Nortel shall
propose an alternative delivery date.
2.2 Affiliates of Buyer shall be allowed to place Orders under this Agreement
as long as such Affiliates agree, in writing, to be bound by the terms
herein, and provided that Nortel
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
PAGE 4 OF 18
shall be entitled to reject such Order(s) in accordance with Section 2.1.
Nortel agrees that any Order for Qualified Products and Services and other
Nortel products placed by an Affiliate and for which payment is ultimately
received by Nortel shall count toward the Purchase Commitment.
2.3 All Orders shall reference this Agreement and the applicable Product
Attachment and shall be governed solely by the terms and conditions set
forth herein as modified or supplemented pursuant to Section 1.2 by the
terms and conditions of any applicable Product Attachments.
3. ANTICIPATED VOLUME LEVEL, TNS CREDITS AND RECONCILIATION
3.1 Nortel and Buyer acknowledge that the prices established in the applicable
Product Attachment(s) and pricing schedule(s) hereto are quoted and
predicated on Buyer purchasing during the Term of this Agreement no less
than /***/ of any other Nortel products and Services. In addition, Buyer
agrees to provide Nortel with an eighteen (18-month) rolling forecast of
such anticipated purchases.
3.2 In the event Buyer does not purchase or license Product(s) aggregating
/***/ by the expiration or earlier termination of the Term, in addition to
any amount payable under Section 1.7, Nortel shall calculate the difference
between the /***/ and the actual amount of Product(s) purchased or licensed
("Actual Purchases") and Nortel shall invoice Buyer for an amount equal to
/***/ of the Actual Purchases, for each /***/ or part thereof, that the
Actual Purchases fall short of the /***/, but, in no event shall such
percentage exceed /***/.
For example, if Buyer has Actual Purchases of /***/, the sum invoiced by
Nortel would be calculated as follows:
(a) The shortfall is /***/, therefore the multiplier is/***/, ( i.e.
/***/ for each /***/ of shortfall);
(b) The Actual Purchases against which the /***/ multiplier is applied
are /***/;
(c) The forfeited amount to be returned to Nortel would be,
therefore,/***/ , (i.e. /***/ x /***/).
3.3 In partial consideration of Buyer's Purchase Commitment and Nortel's
anticipation that Buyer may make Actual Purchases of /***/, for each /***/
of Product(s) and Services Buyer has purchased and taken delivery of from
Nortel during the Term, Nortel /***/ of the total value of the Qualified
Products and Services actually purchased by Buyer ("TNS Service Credit") up
to the /***/ that may be applied toward the purchase of TNS Services for
any Product line referenced in Section 1.6 herein, provided that prior to
receiving such TNS
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
PAGE 5 OF 18
Service Credit(s) Buyer shall have purchased Qualified Products and
Services from all three Product Attachments hereto ("TNS Service Credit
Criteria").
3.4 Nortel agrees that, commencing on the date last signed by the parties
("Execution Date") and until utilized in full, Buyer shall be entitled to
use and apply no more than a maximum credit equal to /***/, (i.e., a
maximum aggregate TNS Service Credit of /***/). In the event that Buyer
reaches such maximum credit level before the end of the Term, Buyer shall
not be entitled to any additional TNS Service Credits.
3.5. Commencing on the Execution Date and for each of the first two years of
the Term, Buyer shall be permitted to apply, in advance, an aggregate TNS
Service Credit equal to /***/ of Buyer's Purchase Commitment level, each
year, provided that Buyer shall apply no more than /***/ of the allotment
for such year during the first quarter. For example, Buyer will be entitled
to take total TNS Service Credits up to /***/ hereunder. Accordingly,
Buyer may apply advance credits of up to /***/ (i.e., /***/ x /***/ x
/***/) in each of the first two years of the Term, provided that no more
than /***/ (i.e., /***/ x /***/) may be used in the first quarter of any
given year of the Term.
3.6 TNS Service Credits may not be redeemed for cash or used for the purchase
of Products. All TNS Service Credits must be taken within twelve (12)
months of the end of the Term or shall be deemed forfeited. Buyer shall not
be entitled to any refund for any TNS Service Credit(s) not used. The use
of any TNS Service Credit shall not reduce the Purchase Commitment and
shall not entitle Buyer to be granted additional TNS Service Credits.
3.7 If, at the end of the Term, Buyer has not made sufficient purchases under
this Agreement to have earned any TNS Service Credits applied in advance,
Nortel shall invoice Buyer, and Buyer agrees to pay, for the actual costs
of such TNS Services applied, but unearned.
3.8 In the event that Buyer exceeds /***/ in purchases during the Term, for
the remainder of the Term, Buyer shall be entitled to a /***/ discount off
net price ("Product Discount") on any subsequent purchases of Hardware and
Software provided hereunder. Notwithstanding anything to the contrary in
the preceding sentence, Nortel agrees that in the event that Buyer's
purchases aggregate /***/ during the Term, Buyer will receive an additional
credit of /***/ to be applied against any purchases during the Term of
Products in excess of /***/; provided, however that such credit may only be
used for up to fifty percent (50%) of the price of Products on any Order.
Buyer agrees that it will not be entitled to receive a cash refund of any
unused credit.
3.9 Unless otherwise provided in one of the Product Attachments herein, during
the Term, provided Buyer has satisfied its obligations under Sections 1.6
and 1.7 with respect to the Purchase Commitment, then Nortel agrees, for
the benefit of Buyer only, /***/. In the
- ------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
PAGE 6 OF 18
event that Nortel decides to discontinue the manufacture of any such
Equipment, then Nortel shall give Buyer written notice of such intent at
least twelve (12) months prior to the date of such discontinuance, during
which period Buyer may order as much of such Equipment as it needs at the
prices set forth in the referenced Product Attachments. In the event Nortel
replaces any of the Equipment with equipment that is equivalent with
respect to form, fit and function, then the price for such equipment shall
be the same as the price for the Equipment that said equipment replaced.
If, however, Nortel replaces any Equipment with equipment that is
materially different with respect to form, fit or function, then the price
for such equipment shall be no more than Nortel's then standard and current
list price for such equipment. Nothing herein shall be construed to require
Nortel to continue to manufacture any Equipment.
4. PRICES
------
4.1 The prices, charges, and fees applicable to Orders shall be set forth in
the appropriate Product Attachments and may be revised in accordance with
the provisions stated therein. Buyer shall pay transportation charges,
including insurance, in accordance with the applicable Product Attachment.
Nortel agrees that all transportation and insurance costs will be charged
to Buyer on a pass through basis and Nortel shall not markup any such
charges prior to invoicing Buyer for same.
4.2 Until the total of all prices, charges and fees for Products and related
Services furnished hereunder shall have been paid to Nortel, Buyer shall
cooperate with Nortel in perfecting Nortel's purchase money security
interest in such Products and Buyer shall promptly execute all documents
and take all actions required by Nortel in connection therewith. Buyer
shall not sell, lease or otherwise transfer such Products or any portion
thereof or allow any liens or encumbrances to attach to such Products or
any portion thereof prior to payment in full to Nortel of the total of all
such prices, charges, and fees.
4.3 Nortel agrees that, if at any time during the Term it implements an across
the board (i.e., to all customers) price reduction to any of the Qualified
Products or Services hereunder, and such price reduction is effective at,
or prior to, shipment of Products to Buyer or performance of Services on
behalf of Buyer, then Buyer shall be charged such reduced prices.
5. TERMS OF PAYMENT
----------------
5.1 The amounts payable for Products and Services may be invoiced by Nortel to
Buyer in accordance with the applicable Product Attachments. All amounts
payable and properly invoiced pursuant to this Agreement shall be paid by
Buyer to Nortel within thirty (30) days from the date of Nortel's invoice
in accordance with the payment instructions contained in such invoice.
Notwithstanding anything to the contrary contained in the preceding
sentence, Nortel agrees that in no event shall it invoice Buyer for
Products or
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
PAGE 7 OF 18
Services prior to shipping such Products or performing such Services,
unless mutually agreed upon or as set forth in a Product Attachment hereto.
5.2 Overdue payments, excluding those that are the subject of a good faith
dispute, shall be subject to interest charges, calculated daily commencing
on the 31st day after the date of the invoice, at one and one half percent
(1-1/2%) per month or such lesser rate as may be the maximum permissible
rate under applicable law. Notwithstanding anything to the contrary
contained in the preceding sentence, no such interest charge shall accrue
on any balance or invoice that is disputed by Buyer in good faith.
5.3 Good faith disputes related to charges for Services shall not prevent Buyer
from remitting the full amount invoiced for Products within thirty (30)
days from the date of such invoice.
6. TAXES
-----
At Nortel's direction, Buyer shall promptly pay to Nortel or pay directly
to the applicable government or taxing authority, if requested by Nortel,
all taxes and charges, including, without limitation, penalties and
interest, that may be imposed by any federal, state, or local governmental
or taxing authority arising hereunder, such as, but not limited to all such
taxes and charges relating to the purchase, license, ownership, possession,
use, operation or relocation of any Equipment, Software, or Services
furnished by Nortel pursuant to this Agreement, excluding, however, all
taxes computed upon the net income of Nortel. Buyer's obligations pursuant
to this Section 6 shall survive any termination of this Agreement.
7. RISK OF LOSS, TITLE
-------------------
7.1 In the event that Nortel does not install the Products, risk of loss or
damage to Products shall pass to Buyer upon delivery to the delivery
location specified by Buyer in its Order, and Buyer shall keep such
Products fully insured for the total amount then due Nortel for such
Products. Buyer shall cause its insurers with respect to such Products to
name Nortel as loss payee as Nortel's interests may appear.
7.2 In the event that Nortel installs the Products, risk of loss or damage to
Products shall pass to Buyer upon delivery to the installation site
specified by Buyer in its Order. Nortel and Buyer agree, however, that each
party shall be liable for damages to Products that occur as a result of
negligence or willful misconduct of that party's officers, agents or
employees.
7.3 Good title to Equipment furnished hereunder, shall be free and clear of all
liens and encumbrances, shall vest in Buyer upon full payment by Buyer of
the total prices, charges and fees payable by Buyer for such Equipment and
any related Software or Services furnished by Nortel in connection with
such Equipment.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
PAGE 8 OF 18
7.4 Buyer is hereby granted a license to use Software subject to the terms set
forth in Exhibit B herein.
8. TESTING, TURNOVER AND ACCEPTANCE
--------------------------------
8.1 If Nortel installs any Products furnished hereunder, the rights and
obligations of the parties with respect to testing, turnover and acceptance
of such Products shall be as set forth in the applicable Product
Attachment.
8.2 If Nortel does not install Products furnished hereunder, Nortel shall prior
to delivery of the Products perform such factory tests as Nortel determines
to be appropriate in order to confirm that such Products shall be in
accordance with the applicable Specifications and any mutually agreed upon
test plan as set forth in the applicable Product Attachment(s). Buyer shall
have a period of ten (10) business days after delivery to inspect such
Products and shall notify Nortel immediately of any defects, deficiencies
or shortages. In the event Buyer does not notify Nortel of any such
defects, deficiencies or shortages, Buyer shall be deemed to have accepted
the Products on the eleventh (11th) business day after the delivery date.
8.3 In the event that Buyer places Products into "revenue-generating service",
such Products shall be deemed to have been accepted by Buyer without
limitation or restriction. In no event would the foregoing limit any rights
that Buyer may have under this Agreement as set forth in Exhibit D and the
Warranty Section of each applicable Product Attachment hereto.
8.4 Security Features. Notwithstanding anything to the contrary contained
elsewhere in this Agreement, if Nortel delivers to Buyer a Software update,
Software enhancement or such other version release or upgrade of the
Software without informing Buyer that such Software update, Software
enhancement or such other version release or upgrade omits previously
included security features and that result in the unauthorized or improper
access and use of Buyer's system by third parties, then Nortel shall /***/
Buyer shall use commercially reasonable efforts to detect fraud or other
improper access or use of Buyer's system by third parties and shall
promptly notify Nortel of any incidence of same believed by Buyer to result
from such Software change.
Buyer is responsible for the accuracy and completeness of data transcript
information that it supplies to Nortel. Nortel is responsible for the
accuracy and completeness of data transcript information that it supplies
Buyer or enters into Buyer's system or systems.
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
PAGE 9 OF 18
In the event that Buyer believes that it has a claim against Nortel under
this Section 8.4, Buyer shall promptly notify Nortel of such claim and
shall cooperate with Nortel in conducting a joint investigation to identify
the source of the error or omission. Buyer acknowledges and agrees that any
claim to be made under this provision must be made within six (6) months of
receipt and Installation of such Software update, Software enhancement or
other Software release.
Buyer and Nortel agree that once Buyer makes a claim under this Section
8.4, Buyer shall, at its option: (i) require Nortel to /***/ (ii) continue
to operate its system with the new Software that permits such breach of
security of Buyer's system. In the event that Buyer elects to exercise its
option under (i) above, Nortel /***/. In the event that Buyer elects to
exercise its option under (ii) above, Buyer shall bear the risk of loss of
any breach of security of its system occurring subsequent to the date that
Buyer makes its claim under this Section 8.4.
9. DISCLAIMERS OF WARRANTIES AND REMEDIES
--------------------------------------
THE WARRANTIES AND REMEDIES SET FORTH IN EXHIBIT D AND IN ANY PRODUCT
ATTACHMENT CONSTITUTE THE ONLY WARRANTIES OF NORTEL WITH RESPECT TO THE
PRODUCTS AND SERVICES AND BUYER'S EXCLUSIVE REMEDIES IN THE EVENT SUCH
WARRANTIES ARE BREACHED. THEY ARE IN LIEU OF ALL OTHER WARRANTIES, WRITTEN
OR ORAL, STATUTORY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NORTEL
SHALL NOT BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY
NATURE WHATSOEVER, BEFORE OR AFTER THE PLACING OF ANY PRODUCT INTO SERVICE.
10. LIABILITY FOR BODILY INJURY, PROPERTY DAMAGE AND PATENT INFRINGEMENT
--------------------------------------------------------------------
10.1 A party hereto shall defend the other party against any suit, claim, or
proceeding brought against the other party for direct damages due to bodily
injuries (including death) or damage to tangible property that allegedly
result from the gross negligence or willful misconduct of the defending
party in the performance of this Agreement. The defending party shall pay
all litigation costs, reasonable attorney's fees, settlement payments and
such direct damages awarded or resulting from any such suit, claim or
proceeding.
10.2 Nortel shall defend Buyer against any suit, claim or proceeding brought
against Buyer alleging that any Products, excluding Vendor Items, furnished
hereunder infringe any United States patent. Nortel shall pay all
litigation costs, reasonable attorney's fees,
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
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AGREEMENT NO. TCC9701N
PAGE 10 OF 18
settlement payments and any damages awarded or resulting from any such
suit, claim or proceeding. With respect to Vendor Items, Nortel shall
assign any rights with respect to infringement of U.S. patents granted to
Nortel by the supplier of such Vendor Items to the extent of Nortel's right
to do so.
10.3 The party entitled to defense pursuant to Section 10.1 or 10.2 shall
promptly advise the party required to provide such defense of the
applicable suit, claim, or proceeding and shall cooperate with such party
in the defense or settlement thereof. The party required to provide such
defense shall have sole control of the defense of the applicable suit,
claim, or proceeding and of all negotiations for its settlement or
compromise. Notwithstanding anything to the contrary contained elsewhere in
this Section 10.3, the party required to provide such defense shall not
enter into any form of settlement agreement that materially deprives the
party entitled to defense of its indemnification rights under this Section
without first consulting with the party entitled to defense and reaching
mutual agreement on the terms and conditions of such settlement agreement
negatively affecting such indemnification rights.
10.4 Upon providing the Customer with notice of a potential or actual
infringement claim, Nortel may (or in the case of an injunction, shall), at
Nortel's option, either procure a right to use, replace or modify, or
require the return of the affected Product for a refund of its depreciation
cost.
10.5 The obligations of Nortel hereunder with respect to any suit, claim, or
proceeding described in Section 10.2 shall not apply with respect to
Products that are (a)manufactured or supplied by Nortel in accordance with
any design or any special instruction furnished by Buyer, (b)used by Buyer
in a manner or for a purpose not contemplated by this Agreement, (c)located
by Buyer outside the United States, or (d)used by Buyer in combination with
other products not provided by Nortel, including, without limitation, any
software developed solely by Buyer through the permitted use of Products
furnished hereunder, provided the infringement arises from such combination
or the use thereof. Buyer shall indemnify and hold Nortel harmless against
any loss, cost, expense, damage, settlement or other liability, including,
but not limited to, attorneys' fees, that may be incurred by Nortel with
respect to any suit, claim, or proceeding described in this Section 10.5.
10.6 The provisions of Sections 10.2 through 10.5 state the entire liability of
Nortel and its suppliers and the exclusive remedy of Buyer with respect to
any suits, claims, or proceedings of the nature described in Section 10.2.
Nortel's total cumulative liability, pursuant to Sections 10.2 shall for
each infringement claim /***/.
10.7 Each party's respective obligations pursuant to this Section shall survive
any termination of this Agreement.
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
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AGREEMENT NO. TCC9701N
PAGE 11 OF 18
11. REMEDIES AND LIMITATION OF LIABILITY
------------------------------------
11.1 Nortel shall have the right to suspend its performance by written notice
to Buyer and forthwith remove and take possession of all Products that
shall have been delivered to Buyer, if, prior to payment to Nortel of any
amounts due pursuant to this Agreement with respect to such Products, Buyer
shall (a) become insolvent or bankrupt or cease, be unable, or admit in
writing its inability, to pay all debts as they mature, or make a general
assignment for the benefit of, or enter into any arrangement with,
creditors, (b) authorize, apply for, or consent to the appointment of, a
receiver, trustee, or liquidator of all or a substantial part of its assets
or have proceedings seeking such appointment commenced against it that are
not terminated within ninety (90) days of such commencement, or (c) file a
voluntary petition under any bankruptcy or insolvency law or under the
reorganization or arrangement provisions of the United States Bankruptcy
Code or any similar law of any jurisdiction or have proceedings under any
such law instituted against it that are not terminated within ninety (90)
days of such commencement.
11.2 In the event of any material breach of this Agreement that shall continue
for sixty (60) or more days after written notice of such breach (including
a reasonably detailed statement of the nature of such breach) shall have
been given to the breaching party by the aggrieved party, the aggrieved
party shall be entitled at its option to avail itself of any and all
remedies available at law or equity, except as otherwise provided in this
Agreement, or terminate the Agreement.
11.3 Nothing contained in Section 11.2 or elsewhere in this Agreement shall
make Nortel liable for any incidental, indirect, consequential or special
damages of any nature whatsoever for any breach of this Agreement whether
the claims for such damages arise in tort, contract, or otherwise, or shall
increase the liability of Nortel under Section 9 or 10 or Exhibit D beyond
that prescribed therein.
11.4 Nortel shall not be liable for any additional costs, expenses, losses or
damages resulting from errors, acts or omissions of Buyer, including, but
not limited to, inaccuracy, incompleteness or untimeliness in the provision
of information by Buyer to Nortel or fulfillment by Buyer of any of its
obligations under this Agreement. Buyer shall pay Nortel the amount of any
such costs, expenses, losses or damage incurred by Nortel.
11.6 The limitations on Nortel's liability and other obligations set forth in
Sections 9, 10, and 11 shall survive any termination of this Agreement.
12. FORCE MAJEURE
-------------
12.1 If the performance by a party of any of its obligations under this
Agreement shall be interfered with by reason of any circumstances beyond
the reasonable control of that party, including without limitation,
unavailability of supplies or sources of energy, power failure, breakdown
of machinery, or labor difficulties, including without limitation,
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AGREEMENT NO. TCC9701N
PAGE 12 OF 18
strikes, slowdowns, picketing or boycotts, then that party shall be excused
from such performance for a period equal to the delay resulting from the
applicable circumstances and such additional period as may be reasonably
necessary to allow that party to resume its performance. With respect to
labor difficulties as described above, a party shall not be obligated to
accede to any demands being made by employees or other personnel.
12.2 Notwithstanding anything to the contrary contained in this Section 12, if
a non-performing party's condition of force majeure shall remain in effect
for a period of ninety (90) days or longer, then the other party shall, at
its election, be entitled to terminate this Agreement.
13. CONFIDENTIAL INFORMATION
------------------------
13.1 Each party that receives the other party's Confidential Information shall
use reasonable care to hold such Confidential Information in confidence and
not disclose such Confidential Information to anyone other than to its
employees and employees of its Affiliates on a need to know basis. A party
that receives the other party's Confidential Information shall not
reproduce such Confidential Information, except to the extent reasonably
required for the performance of its obligations pursuant to this Agreement
and in connection with any permitted use of such Confidential Information.
13.2 Buyer shall take reasonable care to use Nortel's Confidential Information
only for study, operating, or maintenance purposes in connection with
Buyer's use of Products furnished by Nortel pursuant to this Agreement.
13.3 Nortel shall take reasonable care to use Buyer's Confidential Information
only to perform Nortel's obligations to provide Products and Services to
Buyer, provided Nortel may use any of Buyer's Confidential Information for
the development, manufacture, marketing and maintenance of new products and
services and changes or modifications to the existing Products and
Services, that Nortel may, in either case, provide to third parties without
restriction.
13.4 The obligations of either party pursuant to this Section 13 shall not
extend to any Confidential Information that: (i) recipient can demonstrate
through written documentation was already known to the recipient prior to
its disclosure to the recipient; (ii) was known or generally available to
the public at the time of disclosure to the recipient; (iii) becomes known
or generally available to the public (other than by act of the recipient)
subsequent to its disclosure to the recipient; (iv) is disclosed or made
available in writing to the recipient by a third party having a bona fide
right to do so, or, (v) is required to be disclosed by process of law,
provided that the recipient shall notify the disclosing party promptly upon
any request or demand for such disclosure.
13.5 The parties' obligations pursuant to this Section 13 shall survive the
termination of this Agreement.
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AGREEMENT NO. TCC9701N
PAGE 13 OF 18
14. BUYER'S RESPONSIBILITIES
------------------------
14.1 All sites to which the Products shall be delivered or installed shall be
prepared by Buyer in accordance with Nortel's standards, including, without
limitation, environmental requirements.
14.2 Buyer shall provide Nortel-designated personnel access to the Products
during the times deemed necessary by Nortel to install, maintain and
service the Products in accordance with Nortel's obligations. Nortel
personnel shall comply with Buyer's reasonable site and security
regulations, provided Nortel receives written notice of any such
regulations reasonably in advance of the arrival of Nortel's personnel at
the site.
14.3 Buyer shall provide reasonable working space and facilities, including
heat, light, ventilation, telephones, electrical current, trash removal and
other necessary utilities for use by Nortel-designated maintenance
personnel, and adequate secure storage space, if required by Nortel, for
Products and materials. Buyer shall also provide adequate security for the
Products while on Buyer's site.
14.4 Buyer shall obtain all necessary governmental permits applicable to Buyer
in connection with the installation, operation, and maintenance of Products
furnished hereunder, excluding any applicable permits required in the
normal course of Nortel's doing business. If requested in writing by
Buyer, Nortel, for a nominal fee, will assist Buyer in identifying and
obtaining such necessary government permits that may be applicable to
Buyer.
14.5 Any information that Nortel reasonably requests from Buyer and that is
necessary for Nortel to properly install or maintain the Products shall be
provided by Buyer to Nortel in a timely fashion and in a form reasonably
specified by Nortel.
15. HAZARDOUS MATERIALS
-------------------
15.1 Prior to issuing any Order for Services to be performed at Buyer's
facilities, Buyer shall identify and notify Nortel in writing of the
existence of all Hazardous Materials of which Buyer is aware and that
Nortel may encounter during the performance of such Services, including,
without limitation, any Hazardous Materials contained within any equipment
to be removed by Nortel.
15.2 If Buyer breaches its obligations pursuant to Section 15.1, (a)Nortel may
discontinue the performance of the appropriate Services until all the
applicable Hazardous Materials have been removed or abated to Nortel's
satisfaction by Buyer at Buyer's sole expense, and (b)Buyer shall defend,
indemnify and hold Nortel harmless from any and all damages, claims,
losses, liabilities and expenses, including, without limitation, attorneys'
fees, that
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AGREEMENT NO. TCC9701N
PAGE 14 OF 18
arise out of Buyer's breach of such obligations. Buyer's obligations
pursuant to this Section 15.2 shall survive any termination of this
Agreement.
16. SUBCONTRACTING
--------------
Nortel may subcontract any of its obligations under this Agreement, but no
such subcontract shall relieve Nortel of primary responsibility for
performance of its obligations. Additionally, Nortel shall warrant to Buyer
the quality of any such subcontracted Services as set forth in Exhibit D
and the Warranty Section of each applicable Product Attachment hereto.
17. REGULATORY COMPLIANCE
---------------------
In the event of any change in the Specifications or Nortel's manufacturing
or delivery processes for any Products as a result of the imposition of
requirements by any government, Nortel may upon notice to Buyer, increase
its prices, charges and fees to cover the added costs and expenses directly
and indirectly incurred by Nortel as a result of such change.
18. GENERAL
-------
18.1 If any of the provisions of this Agreement shall be invalid or
unenforceable under applicable law and a party deems such provisions to be
material, that party may terminate this Agreement upon notice to the other
party. Otherwise, such invalidity or unenforceability shall not invalidate
or render this Agreement unenforceable, but this Agreement shall be
construed as if not containing the particular invalid or unenforceable
provision and the rights and obligations of the parties shall be construed
and enforced accordingly.
18.2 A party shall not release, without the prior written approval of the other
party, any advertising or other publicity relating to this Agreement
wherein such other party may reasonably be identified. In addition each
party shall take reasonable precautions to keep the existence and the
contents of this Agreement confidential so long as this Agreement remains
in effect and for a period of three (3) years thereafter, except as may be
reasonably required to enforce this Agreement or by law.
18.3 The construction, interpretation and performance of this Agreement shall be
governed by the laws of the State of Illinois.
18.4 Neither party may assign or transfer this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party,
such consent not to be unreasonably withheld, except Buyer's consent shall
not be required for any assignment or transfer by Nortel (a)to any
Affiliate of all or any part of this Agreement or of Nortel's
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AGREEMENT NO. TCC9701N
PAGE 15 OF 18
rights hereunder, or (b)to any third party of Nortel's right to receive any
monies that may become due to Nortel pursuant to this Agreement.
18.5 Notices and other communications shall be transmitted in writing by
certified United States Mail, postage prepaid, return receipt requested, by
guaranteed overnight delivery, or by facsimile addressed to the parties as
follows:
To Buyer: 21st Century Telecom Group, Inc.
350 North Orleans, Suite 600
Chicago, Illinois 60654
Attention: Mr. Jay Carlson, Chief Technical Officer
Facsimile: (312) 470-2111
with copies to: Piper & Marbury L.L.P.
1200 19th Street N.W.
Washington, D.C. 20036
Attention: Mark Tauber, Esq.
Facsimile: (202) 223-2085
Director of Purchasing and Contracts
21st Century Telecom Group, Inc.
350 North Orleans Street, Suite 600
Chicago, Illinois 60654-1509
Facsimile: (312) 470-2111
To Nortel: Northern Telecom Inc.
5405 Windward Parkway
Alpharetta, Georgia 30004-3895
Attention: Vice-President, Carrier Networks
Facsimile: (770) 708-5565
with a copy to Nortel: Northern Telecom Inc.
5405 Windward Parkway
Alpharetta, Georgia 30004-3895
Attention: Mr. Peter Farranto, Sr. Counsel
Facsimile: (770) 708-5272
In addition, notices submitted by Buyer to Nortel specific to any Product
Attachment shall be delivered to the address stated in the applicable
Product Attachment along with a copy submitted to Nortel at the address
stated above.
Any notice or communication sent under this Agreement shall be deemed given
upon receipt, as evidenced by the United States Postal Service return
receipt Mail if given by certified United States Mail, on the following
business day if sent by guaranteed
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AGREEMENT NO. TCC9701N
PAGE 16 OF 18
overnight delivery, or on the transmission date if given by facsimile
during the receiving party's normal business hours.
The address information listed for a party in this Section or any Product
Attachment may be changed from time to time by that party by giving notice
to the other as provided above.
18.6 In the event of a conflict between the provisions of this Agreement that
are not contained in a Product Attachment and the provisions of a Product
Attachment, the provisions of the Product Attachment shall prevail with
respect to the Product Line and Services described in that Product
Attachment.
18.7 All headings used herein are for index and reference purposes only, and
shall not be given any substantive effect. This Agreement has been created
jointly by the parties, and no rule of construction requiring
interpretation against the drafter of this Agreement shall apply in its
interpretation.
18.8 Buyer shall not export any technical data received from Nortel pursuant to
this Agreement, or release any such technical data with the knowledge or
intent that such technical data will be exported or transmitted to any
country or to foreign nationals of any country, except in accordance with
applicable U.S. law concerning the exporting of such technical data. Buyer
shall obtain all authorizations from the U.S. government in accordance
with applicable law prior to exporting or transmitting any such technical
data as described above.
18.9 Any changes to this Agreement may only be effected if agreed upon in
writing by duly authorized representatives of the parties hereto. No
agency, partnership, joint venture, or other similar business relationship
shall be or is created by this Agreement.
18.10 This Agreement may be executed in two counterparts, each of which shall be
deemed an original and both of which, when taken together, shall
constitute one and the same instrument.
18.11 The Product Attachments, exhibits and schedules attached hereto, are
hereby incorporated by reference herein, and made a part of this Agreement
with the same force and effect as though set forth in their entirety
herein. Such documents together with this Agreement are herein referred to
as the "Agreement".
18.12 In the event of any conflict or inconsistency among the provisions of this
Agreement and the documents attached and incorporated herein, such
conflict shall be resolved by giving precedence to this Agreement.
Notwithstanding anything to the contrary contained in the preceding
sentence, any Product Attachment shall supersede with respect to that
particular Product.
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AGREEMENT NO. TCC9701N
PAGE 17 OF 18
18.13 If Buyer notifies Nortel prior to the scheduled shipment date of Products
that Buyer does not wish to receive such Products on the date agreed by
the parties, or the installation site or other delivery location is not
prepared in sufficient time for Nortel to make delivery in accordance with
such date, or Buyer fails to take delivery of any portion of such
Products, Nortel may place the applicable Products in storage. In that
event Buyer shall be liable for all additional costs thereby incurred by
Nortel; provided, however, that Buyer shall only be liable for Nortel's
actual out-of-pocket expenses, with no additional mark-up thereon.
Delivery by Nortel of any Products to a storage location as provided above
shall be deemed to constitute delivery of the Products to Buyer for
purposes of this Agreement, including, without limitation, provisions for
payment, invoicing, passage of risk of loss, and commencement of the
Warranty Period.
18.14 Nortel shall support Buyer with joint press announcements, as mutually
agreed upon, related to the execution of this Agreement. Further, Nortel
shall periodically support Buyer with application brief collaterals, as
mutually agreed upon, describing Buyer's key applications and uses of the
Products purchased hereunder. Any requests for use of the Nortel logo must
be submitted in advance and approved in writing by Nortel.
19. ENTIRE AGREEMENT
----------------
This Agreement, including all Product Attachments, Exhibits and Schedules
constitutes the entire agreement of the parties with respect to the
subject matter hereof, and save as expressly provided herein, may not be
altered or amended, except in writing, expressly intending such alteration
or amendment and signed by authorized representatives of each party
hereto.
NORTEL PROPRIETARY INFORMATION
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AGREEMENT NO. TCC9701N
PAGE 18 OF 18
NORTHERN TELECOM INC. 21ST CENTURY TELECOM GROUP, INC.
By:____________________________ By:______________________________
(Signature) (Signature)
Name:__________________________ Name:____________________________
(Print) (Print)
Title:_________________________ Title:___________________________
Date:__________________________ Date:____________________________
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
EXHIBIT A
PAGE 1 OF 2
EXHIBIT A
DEFINITIONS
-----------
As used in the Agreement (as defined below), the following initially
capitalized terms shall have the following meanings:
"Affiliate" shall mean any entity, as mutually agreed upon and set forth in
Exhibit E herein, that is a parent corporation of Nortel or Buyer, or a
corporation that Nortel, Buyer or such parent, directly or indirectly, owns
or controls 50% of the shares or other securities in such corporation.
"Agreement" shall mean the Networks Products Purchase Agreement to which
this Exhibit, and all other Exhibits and Product Attachments, are attached.
"Confidential Information" shall mean all information, including, without
limitation, specifications, drawings, documentation, know-how, pricing
information, and business plans, of every kind or description that may be
disclosed by either party or an Affiliate to the other party in connection
with this Agreement, provided the disclosing party shall clearly mark any
such information that is disclosed in writing as the confidential property
of the disclosing party and the disclosing party shall identify the
confidential nature of any such information that it orally discloses at the
time of such disclosure and shall provide a written summary of the orally
disclosed information to the recipient within fifteen (15) days of such
disclosure.
"Equipment" shall mean the hardware listed or otherwise identified in, or
pursuant to, any Product Attachment.
"Exhibits" shall mean Exhibits A, B, C, D, and E attached hereto, and any
additional Exhibits that Nortel and Buyer subsequently agree in writing
shall be incorporated into, and made a part of the Agreement by reference.
"Hazardous Materials" shall mean any pollutants or dangerous, toxic or
hazardous substances (including, without limitation, asbestos) as defined
in, or pursuant to, the OSHA Hazard Communication Standard (29 CFR Part
1910, Subpart Z), the Resource Conservation and Recovery Act of 1976 (42
USC Section 6901, et seq.), the Toxic Substances Control Act (15 USC
Section 2601, et seq.), the Comprehensive Environmental Response
Compensation and Liability Act (42 USC Section 9601, et seq.), and any
other federal, state or local environmental law, ordinance, rule or
regulation.
"Order" shall mean a written purchase order issued by Buyer to Nortel. Each
Order shall specify on the face of the Order the types and quantities of
Products or Services to be furnished by Nortel pursuant to the Order, the
applicable prices, charges or fees with
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AGREEMENT NO. TCC9701N
EXHIBIT A
PAGE 2 OF 2
respect to such Products or Services, Buyer's facility to which the
Products are to be delivered, the delivery or completion schedule, and any
other information that may be required to be included in an Order in
accordance with the provisions of this Agreement.
"Product Attachments" shall mean any Product Attachments that the parties
agree in writing shall be incorporated into, and made a part of, this
Agreement.
"Product Attachment Term" shall mean the period set forth in Section 1.4
herein.
"Product Line" shall mean the Products described in and that may be
furnished pursuant to a specific Product Attachment.
"Products" shall mean any Equipment or Software that may be provided under
this Agreement.
"Services" shall mean all installation, engineering, training, and support
services, exclusive of TNS Services, listed or otherwise identified in, or
pursuant to, any Product Attachment that may be purchased from or provided
by Nortel and that are associated with the Product Line described in that
Product Attachment.
"Software" shall mean (a)programs in machine-readable code or firmware that
(i) are owned by, or licensed to, Nortel or any of its Affiliates, (ii)
reside in Equipment memories, tapes, disks or other media, and (iii)provide
basic logic operating instructions and user-related application
instructions, and (b)documentation associated with any such programs that
may be furnished by Nortel to Buyer from time to time.
"Specifications" shall mean, with respect to any Product Line, the
specifications identified in the applicable Product Attachment, provided
Nortel shall have the right at its sole discretion to modify or amend such
specifications at any time.
"Third Party Software Vendor" shall mean any supplier of programs contained
in the Software that is not an Affiliate.
"TNS Services" shall mean Total Network Solution Services as set forth in
Exhibit C herein.
"Vendor Items" shall mean, with respect to a Product Line, those portions
of the Product that are identified in the applicable Product Attachment as
Vendor Items.
"Warranty Period" shall mean, with respect to a Product Line, the Warranty
Period specified in the applicable Product Attachment.
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AGREEMENT NO. TCC9701N
EXHIBIT B
PAGE 1 OF 2
EXHIBIT B
SOFTWARE LICENSE
----------------
1. Buyer acknowledges that the Software may contain programs that have been
supplied by, and are proprietary to, Third Party Software Vendors. In
addition to the terms and conditions herein, Buyer shall abide by any
additional terms and conditions provided by Nortel to Buyer with respect to
any Software provided by any Third Party Software Vendor.
2. Upon Buyer's payment to Nortel of the applicable fees with respect to any
Software furnished to Buyer pursuant to this Agreement, Buyer shall be
granted a personal, non-exclusive, paid-up license to use the version of
the Software furnished to Buyer only in conjunction with Buyer's use of the
Equipment with respect to which such Software was furnished for the life of
that Equipment as it may be repaired or modified. Buyer shall be granted no
title or ownership rights to the Software, which rights shall remain in
Nortel or its suppliers.
3. As a condition precedent to this license and to the supply of Software by
Nortel pursuant to the Agreement, Nortel requires Buyer to give proper
assurances to Nortel for the protection of the Software. Accordingly, all
Software supplied by Nortel under or in implementation of the Agreement
shall be treated by Buyer as the exclusive property, and as proprietary and
a TRADE SECRET, of Nortel or its suppliers, as appropriate, and Buyer
shall: a) hold the Software, including, without limitation, any methods or
concepts utilized therein in confidence for the benefit of Nortel or its
suppliers, as appropriate; b)not provide or make the Software available to
any person except to its employees on a 'need to know' basis; c)not
reproduce, copy, or modify the Software in whole or in part except as
authorized by Nortel; d)not attempt to decompile, reverse engineer,
disassemble, reverse translate, or in any other manner decode the Software;
e)issue adequate instructions to all persons, and take all actions
reasonably necessary to satisfy Buyer's obligations under this license; and
f)forthwith return to Nortel, or with Nortel's consent destroy, any
magnetic tape, disc, semiconductor device or other memory device or system
or documentation or other material, including, but not limited to all
printed material furnished by Nortel to Buyer that shall be replaced,
modified or updated.
4. The obligations of Buyer hereunder shall not extend to any information or
data relating to the Software that is now available to the general public
or becomes available by reason of acts or failures to act not attributable
to Buyer.
5. Buyer shall not assign this license or sublicense any rights herein granted
to any other party without Nortel's prior written consent.
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AGREEMENT NO. TCC9701N
EXHIBIT B
PAGE 2 OF 2
6. Buyer shall indemnify and hold Nortel and its suppliers, as appropriate,
harmless from any loss or damage resulting from a breach of this Exhibit B.
The obligations of Buyer under this Exhibit B shall survive the termination
of the Agreement and shall continue if the Software is removed from
service.
7. Nortel warrants that it has the right to sublicense any applicable third
party software provided under this Agreement.
NORTEL PROPRIETARY INFORMATION
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AGREEMENT NO. TCC9701N
EXHIBIT C
EXHIBIT C
TOTAL NETWORK SOLUTIONS SERVICES
--------------------------------
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AGREEMENT NO. TCC9701N
EXHIBIT D
PAGE 1 OF 3
EXHIBIT D
LIMITED WARRANTIES AND REMEDIES
-------------------------------
1. Nortel warrants that the Equipment supplied hereunder will under normal use
and service be free from defective material and faulty workmanship and will
conform to the applicable Specifications for the Warranty Period specified
in the Product Attachment with respect to such Equipment. The foregoing
warranty shall not apply to items normally consumed in operation, such as,
but not limited to, lamps and fuses or to Vendor Items. Any installation
Services performed by Nortel with respect to such Equipment shall be free
from defects in workmanship for the Warranty Period set forth in the
applicable Product Attachment.
2. Nortel's sole obligation and Buyer's exclusive remedy under the warranty
set forth in Section 1 above shall be limited to the replacement or repair,
at Nortel's option and expense, of the defective Equipment, or correction
of the defective installation Services. Replacement Equipment may be new
or reconditioned at Nortel's option.
3. Nortel warrants that any Software licensed by Nortel to Buyer under this
Agreement shall function during the Warranty Period of the Equipment with
respect to which such Software is furnished without any material, service-
affecting nonconformance to the applicable Specifications, provided that
Buyer shall have paid all undisputed Software support fees specified in the
applicable Product Attachment. If the Software fails to so function,
Buyer's sole remedy and Nortel's sole obligation under this warranty is for
Nortel to correct such failure through, at Nortel's option, the replacement
or modification of the Software or such other actions as Nortel reasonably
determines to be appropriate, and Nortel shall do so in a manner as
expeditiously as commercially reasonably practicable.
Nortel further warrants that both before and after January 1, 2000, any
Software licensed by Nortel to Buyer under this Agreement shall function
during the Term of the Agreement without any material, service-affecting
nonconformance to the applicable Specifications. If the Software fails to
so function, Buyer's sole remedy and Nortel's sole obligation under this
warranty is for Nortel to correct such failure through, at Nortel's option,
the replacement or modification of the Software or such other actions as
Nortel reasonably determines to be appropriate.
4. Unless otherwise stated in a Product Attachment, (a) Nortel's warranties in
Section 3 above shall only apply to the portion of the Software actually
developed by Nortel or its Affiliates, (b) all other Software shall be
provided by Nortel "AS IS", (c) Nortel shall assign to Buyer on a
nonexclusive basis any warranty on such other Software provided to Nortel
by the developer of such other Software to the extent of Nortel's legal
right to do so.
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AGREEMENT NO. TCC9701N
EXHIBIT D
PAGE 2 OF 3
5. The obligations and remedies set forth in Sections 1, 2, and 3 above shall
be conditional upon: the Equipment not having been altered or repaired,
the Software not having been modified, and the Products not having been
installed outside the United States; any defect or nonconformance not being
the result of mishandling, abuse, misuse, improper storage, improper
performance of installation, other services, maintenance or operation by
other than Nortel (including use in conjunction with any product that is
incompatible with the applicable Equipment or Software or of inferior
performance), or any error, act, or omission of Buyer described in Section
11.4; the Product not having been damaged by fire, explosion, power
failure, power surge, or other power irregularity, lightning, failure to
comply with all applicable environmental requirements for the Products
specified by Nortel or any other applicable supplier, such as but not
limited to temperature or humidity ranges, or any act of God, nature or
public enemy; and written notice of the defect having been given to Nortel
within the applicable Warranty Period.
6. The performance by Nortel of any of its obligations described in Section 2
or 3 of this Exhibit D shall not extend the applicable Warranty Period
except to the extent specified in the applicable Product Attachment.
7. Upon expiration of the applicable Warranty Period for Equipment furnished
hereunder, repair and replacement Service for such Equipment shall be
available to Buyer from Nortel in accordance with Nortel's then-current
terms, conditions and prices. Such repair and replacement Service and
notice of any discontinuance of such repair and replacement Service shall
be available for a minimum period set forth in the Product Attachment
applicable to such Equipment. This provision shall survive the expiration
of this Agreement.
8. Unless Nortel elects to repair or replace defective Equipment at Buyer's
facility, all Equipment to be repaired or replaced, whether in or out of
warranty, shall be packed by Buyer in accordance with Nortel's instructions
stated in the applicable Product Attachment and shipped at Buyer's expense
and risk of loss to a location designated by Nortel. Replacement Equipment
shall be returned to Buyer at Nortel's expense and risk of loss. Buyer
shall ship the defective Equipment to Nortel within thirty (30) days of
receipt of the replacement Equipment. In the event Nortel fails to receive
such defective Equipment within such thirty-(30) day period, Nortel shall
invoice Buyer for the replacement Equipment at the then-current price in
effect therefor.
9. With respect to any Vendor Item furnished by Nortel to Buyer pursuant to
this Agreement, Nortel shall assign to Buyer on a nonexclusive basis any
warranty granted by the party that supplied such Vendor Item to Nortel to
the extent of Nortel's right to do so.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
EXHIBIT D
PAGE 3 OF 3
10. Neither Nortel nor Nortel's suppliers, as appropriate, shall have any
responsibility for warranties offered by Buyer to any of its customers.
Buyer shall indemnify Nortel and Nortel's suppliers, as appropriate, with
respect thereto.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
EXHIBIT E
PAGE 1 OF 1
EXHIBIT E
AFFILIATES
Northern Telecom Inc. 21st Century Telecom Group, Inc.
Northern Telecom Ltd.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
CARRIER NETWORKS PRODUCT ATTACHMENT
PAGE 1 OF 11
PRODUCT ATTACHMENT
CARRIER NETWORKS PRODUCTS
Northern Telecom Inc. ("Nortel") and 21st Century Telecom Group, Inc. ("Buyer")
agree as follows:
1. INCORPORATION BY REFERENCE
--------------------------
This Product Attachment shall be incorporated into and made a part of
Network Products Purchase Agreement No. TCC9701N ("NPPA") between Nortel
and Buyer.
2. DEFINITIONS
-----------
For purposes of this Product Attachment:
"Acceptance Criteria" shall mean, with respect to any Products installed by
Nortel hereunder, the standards and specifications contained in the Nortel
Installation Manuals that are applicable to such Products.
"Equipment" shall mean the equipment listed in Schedule A.
"Extension" shall mean Equipment and Software that Nortel engineer, install
and that is added to an Initial System after the Turnover Date of the
Initial System.
"Initial System" shall mean the Equipment and Software that is included in
any configuration identified in Schedule A as an "Initial System."
"Installation Site" shall mean Buyer's facility identified in an Order to
which the applicable Products identified in such Order shall be delivered
or at which the applicable Services, if any, are to be performed,
respectively.
"Merchandise" shall mean any Equipment that is not part of a System and
with respect to which no engineering or installation Services shall be
provided by Nortel.
"Product Attachment Term" shall mean the period set forth in Section 1.4 of
the NPPA.
"Services" shall mean the services described in Schedule B.
"Software" shall mean the software listed in Schedule A.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
CARRIER NETWORKS PRODUCT ATTACHMENT
PAGE 2 OF 11
"Specifications" shall mean with respect to any Products furnished
hereunder, the specifications published by Nortel which Nortel identifies
as its standard performance specifications for such Products as of the date
of Buyer's Order for such Products.
"System" shall mean any Initial System or Extension.
"Turnover Date" shall mean, with respect to any Products installed by
Nortel hereunder, the date on which Nortel provides the Turnover Notice to
Buyer pursuant to Section 8.a. of this Product Attachment.
"Warranty Period" shall mean, with respect to:
(a) Any Equipment included in any System, the period which shall commence
/***/. With respect to Software included in any System, the warranty
period shall be /***/.
(b) Merchandise, the period which shall commence /***/ with respect to
such Merchandise by Nortel to Buyer and /***/,
(c) Installation Services involving any System, the period that shall
commence upon the Turnover Date with respect to such System and shall
expire twelve (12) months thereafter,
(d) Equipment that is repaired or replaced pursuant to Nortel's
obligations under Exhibit D to the NPPA, the period commencing /***/
after (i) shipment of the replacement Equipment to Buyer or (ii)
completion of the repair at the Installation Site of the applicable
Equipment and that shall expire on /***/ or replaced, and
(e) Software that was corrected pursuant to Nortel's obligations under
Exhibit D to the NPPA, the period commencing /***/ of the corrected
Software by Nortel to Buyer and expiring on /***/.
3. SCOPE
-----
3.1 During the Term as defined in Section 2 herein, Buyer shall order and
license, as applicable, and take delivery of Equipment and Software
listed in Schedule A of this Product Attachment in partial
satisfaction of its obligations with respect to the Purchase
Commitment set forth in Section
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
CARRIER NETWORKS PRODUCT ATTACHMENT
PAGE 3 OF 11
1.6 and the /***/ of anticipated purchases as set forth in Section 3
of the NPPA.
3.3 Pursuant to Sections 3.3, 3.4, 3.5, 3.6 and 3.7 of the NPPA, Buyer may
use the TNS Service Credits to apply toward the purchase of TNS
Services listed in Exhibit C of the NPPA. The TNS Services exclude
engineering and installation of Initial Systems and Extensions.
4. SCHEDULES
---------
The following Schedules, which are attached hereto, are an integral part of
the Product Attachment and are incorporated herein by reference:
Schedule A - Products, Prices, and Fees
Schedule B - Services and Charges
Schedule C - Delivery
Schedule D - Documentation
Schedule E - Local Number Portability Compliance
5. ORDERING
--------
With respect to Section 2, ORDERING of the NPPA the following additional
terms shall apply:
a. Buyer shall identify in each Order for Products whether the Products
constitute an Initial System, Extension, or Merchandise. All Orders for
Extensions, Merchandise, or any Services other than engineering and
installation Services provided by Nortel in connection with an Order for an
Initial System shall be subject to written agreement of Buyer and Nortel on
the applicable prices, charges and fees with respect thereto as required
pursuant to Section 6, PRICING, of this Product Attachment. Nortel must
receive Orders for any Initial System at least sixty (60) days prior to the
scheduled delivery date of the Initial System ordered.
b. Notwithstanding anything contained in Exhibit C to the NPPA to the
contrary, Buyer may by written notice to Nortel cancel without charge any
Order for Products or Services prior to the delivery date of the applicable
Products set forth in such Order or the agreed date for the commencement by
Nortel of the applicable Services ("Service Commencement Date"), except
that if Buyer cancels such Order within six (6) weeks or less of any such
date, a cancellation fee of /***/ of the aggregate price of all Products or
Services included in such cancelled Order shall be payable by Buyer. Nortel
may invoice such amount upon receipt of Buyer's notice of cancellation of
the Order.
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
CARRIER NETWORKS PRODUCT ATTACHMENT
PAGE 4 OF 11
c. Notwithstanding anything contained in Exhibit C to the NPPA to the
contrary, Buyer may by written notice to Nortel not less than six (6) weeks
prior to the delivery date of any Products set forth in an Order or the
Service Commencement Date of the applicable Services, delay the delivery
date of such Products or the Service Commencement Date of such Services for
a period that shall not exceed ninety (90) days from the date such Products
were originally scheduled to be delivered or ninety (90) days from the
Service Commencement Date, subject to the availability from Nortel of the
applicable Products or Services after such period of delay.
d. Except as set forth in Sections 5.b. and 5.c. of this Product Attachment,
any change to an Order after Nortel's acceptance of such Order shall
require written agreement of Nortel and Buyer upon a written change to the
Order ("Change Order"), which shall reference the original Order and be
executed by the parties. No such changes shall be implemented until the
applicable Change Order has been executed by the parties.
e. With respect to each Order for Products that is accepted by Nortel, Buyer
may make a written request at least ninety (90) days prior to the scheduled
shipment date of such Products for a change ("Change") consisting of
certain addition(s) or deletion(s) to such Products. After receipt of such
request, Nortel shall submit a Job Change Order ("JCO") to Buyer for
Buyer's approval with respect to the requested Change, except that Nortel
shall be under no obligation to submit such JCO to Buyer if Nortel
determines that the Price applicable to such Order would be reduced by more
than ten percent (10%) as a result of the implementation of the Change.
Each JCO shall state whether the requested Change shall increase or
decrease the Price and/or time required by Nortel for any aspect of its
performance under the NPPA with respect to such Order. Buyer shall accept
or reject the JCO in writing within ten (10) days of receipt thereof.
Failure of the Buyer to accept or reject the JCO in writing as described
above shall be deemed a rejection of the JCO by Buyer. In the event an
accepted JCO involves the return to Nortel of any Equipment which shall
have been previously delivered to Buyer, Nortel may invoice and Buyer shall
pay the transportation costs and Nortel's then-current restocking charge
for the returned Equipment.
f. Any increase or decrease in the Price with respect to an Order hereunder
which is occasioned by an accepted JCO shall be added to or subtracted
from, as applicable, the amount of the last payment due pursuant to Section
6 with respect to such Order.
g. If Buyer rejects a proposed JCO, then the rights and obligations of the
parties with respect to the applicable Order shall not be subject to
Buyer's requested Changes, provided that Buyer shall promptly pay to Nortel
all of Nortel's additional costs and expenses incurred hereunder in
accordance with Buyer's requested Changes and Nortel's additional costs and
expenses subsequently incurred in order that Nortel may
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
CARRIER NETWORKS PRODUCT ATTACHMENT
PAGE 5 OF 11
be able to perform Nortel's obligations without modification by the
requested Changes, and Nortel shall be entitled to an extension of the
dates for performance of its obligations with respect to the applicable
Order as a result of any delays in such performance which result from the
foregoing.
6. PRICING
-------
With respect to Section 4, PRICES of the NPPA, the following additional
terms shall apply:
a. The prices listed in Schedule A shall apply to any Order for an Initial
System listed in Schedule A which shall be received by Nortel prior to the
effective date of any change in such prices as permitted by this Section,
provided that delivery date for such Initial System as set forth in the
applicable Order shall be not more than /***/ after Nortel's acceptance of
such Orders.
b. The prices for Equipment and the fees for the right to use the Software
included in any Extension not listed in Schedule A, prices for any
Merchandise, and charges for any Services, other than engineering and
installation Services provided with any Initial System shall be as
subsequently agreed in writing by Nortel and Buyer.
c. All transportation charges associated with the shipment of the Products to
Buyer shall be payable by Buyer. Buyer shall promptly reimburse Nortel for
any such charges which may be incurred by Nortel.
7. TERMS OF PAYMENT
----------------
With respect to Section 5, TERMS OF PAYMENT of the NPPA, the following
additional terms shall apply:
a. With respect to each Initial System furnished hereunder by Nortel to Buyer
the price listed in Schedule A shall be invoiced by Nortel in accordance
with the following schedule:
(i) /***/ of such price may be invoiced upon Nortel's acceptance of the
Order for such Initial System,
(ii) /***/ of such price may be invoiced on the date of shipment by Nortel
to Buyer of the switch component of such Initial System,
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
CARRIER NETWORKS PRODUCT ATTACHMENT
PAGE 6 OF 11
(iii) /***/ of such price may be invoiced on the Turnover Date of such
Initial System, and
(iv) /***/ of such price may be invoiced on the date of Acceptance of such
Initial System.
b. With respect to each Extension furnished hereunder by Nortel to Buyer, the
applicable price determined in accordance with Section 6.b. of this Product
Attachment shall be invoiced by Nortel in accordance with the following
schedule:
(i) /***/ of such price may be invoiced upon Nortel's acceptance of the
Order for such Extension,
(ii) /***/ of such price may be invoiced on the date of shipment by Nortel
to Buyer of the Equipment included in such Extension,
(iii) /***/ of such price may be invoiced on the Turnover Date with
respect to such Extension, and
(iv) /***/ of such price may be invoiced on the date of Acceptance of such
Extension.
c. Except as may be otherwise agreed in writing by the parties Nortel's prices
for Merchandise and charges for any Services determined in accordance with
Section 6.b. above may be respectively invoiced upon delivery of such
Merchandise and upon performance of such Services by Nortel.
8. TESTING, TURNOVER, AND ACCEPTANCE
---------------------------------
Pursuant to Section 8.1 of the NPPA, the rights and obligations of the
parties with respect to testing, turnover and acceptance of any Products
furnished hereunder and installed by Nortel shall be as follows:
a. Nortel shall provide Buyer with five (5) days written notice prior to
commencing final commissioning and testing of any Products installed by
Nortel. Buyer shall cause an authorized representative of Buyer to be
present at the applicable Installation Site to witness such final
commissioning and testing, provided that in the event such representative
fails to be present for any reason, Nortel shall not be required to delay
performance of such final commissioning and testing. In connection with the
final commissioning and testing of such Products, Nortel shall test the
Products for conformity with the applicable Acceptance Criteria. When such
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
CARRIER NETWORKS PRODUCT ATTACHMENT
PAGE 7 OF 11
tests have been successfully completed, Nortel shall provide Buyer with
written notice ("Turnover Notice") that the applicable Products meet such
Acceptance Criteria and are ready for Buyer's testing for compliance with
such Acceptance Criteria. Buyer shall promptly complete and return to
Nortel Buyer's acknowledgment of receipt of such Turnover Notice.
b. Following the Turnover Date, Buyer may test the applicable Products for
compliance with the Acceptance Criteria using the tests and test procedures
contained in Nortel's Installation Manuals with respect to such Products.
Within fifteen (15) days following the Turnover Date of the applicable
Products, Buyer shall notify Nortel either that Buyer has accepted such
Products in writing using Nortel's standard Acceptance Notice form or that
Buyer has not accepted such Products in which case Buyer shall also provide
Nortel with a written notice ("Notice of Deficiency") which shall provide
in reasonable detail the manner in which Buyer asserts that the Products
failed to meet the Acceptance Criteria. With respect to any such details
with which Nortel agrees, Nortel shall promptly proceed to take appropriate
corrective action and following correction, Buyer may retest the Products
in accordance with this Section. Buyer shall accept the Products in writing
without delay when the tests pursuant to this Section indicate that the
Products comply with the Acceptance Criteria.
c. With respect to any points of disagreement between Nortel and Buyer
concerning any Notice of Deficiency that are not resolved by Nortel and
Buyer within ten (10) days after the effective date of the Notice of
Deficiency, Buyer, at its option, may waive any rights it may have on
account of any such points of disagreement, or require that the disputed
points be resolved by arbitration.
d. Buyer shall notify Nortel in writing of its election pursuant to Section
8.c. not later than ten (10) days after the effective date of the Notice of
Deficiency, if any, given to Nortel by Buyer. Upon expiration of such ten
(10) day period unless Buyer has notified Nortel to the contrary, Buyer
shall be deemed to have elected to waive its right with respect to any
points of disagreement then existing between it and Nortel with respect to
such Notice of Deficiency.
e. If Buyer makes timely election to require arbitration of such disputed
points, the arbitrator shall be chosen by mutual agreement. If the parties
cannot agree upon an arbitrator within three (3) days of Buyer's election
to arbitrate, each party shall within three (3) days thereafter select an
independent and an unaffiliated person to be an arbitrator. These two (2)
persons selected shall select a third person, independent and unaffiliated
with either party, as a third arbitrator. The arbitration shall be
conducted in accordance with the Rules of the American Arbitration
Association, provided, however that the Arbitrator(s) shall be empowered to
reduce the Prices of Products only to the extent that the Arbitrator(s)
find that the benefit of Buyer's
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
CARRIER NETWORKS PRODUCT ATTACHMENT
PAGE 8 OF 11
bargain has been reduced. The Arbitrator(s) shall not have any authority to
grant partial or total rescission unless the Arbitrator(s) determine that
(i) Buyer has not substantially received the benefit of its bargain; and
(ii) money damages will not provide an adequate remedy. Judgment upon the
award rendered by the Arbitrator(s) may be entered in any Court of
competent jurisdiction.
f. For purposes of this Product Attachment, "Acceptance" of the applicable
Products shall occur upon the earliest of the following and Buyer shall
upon request sign Nortel's Acceptance Notice confirming such Acceptance
without any conditions, restrictions, or limitations of any nature
whatsoever:
(i) The date on which Buyer accepts such Products pursuant to Section
8.b. of this Product Attachment;
(ii) The failure of Buyer to provide Nortel with any notice required by
Section 8.b. of this Product Attachment, with respect to such
Products;
(iii) Use by Buyer of such Products or any portion thereof in revenue-
producing service at any time; or
(iv) Waiver by Buyer of its rights pursuant to Section 8.c. or 8.d.
g. Acceptance by Buyer of such Products pursuant to Section 8.f. of this
Product Attachment above shall not be withheld or postponed due to:
(i) Deficiencies of such Products resulting from causes not attributable
to Nortel, such as, but not limited to (A) inaccuracy of information
provided by Buyer, (B) inadequacy or deficiencies of any materials,
facilities or services provided directly or indirectly by Buyer and
tested in conjunction with the applicable Products, (C) other
conditions external to the Products which are beyond the limits
specified by Nortel in the Specifications for the Products and which
are used by Nortel in performance calculations with respect to the
Acceptance Criteria, or (D) spurious outputs from adjacent material;
or
(ii) Minor deficiencies or shortages with respect to such Products which
are attributable to Nortel, but of a nature that do not prevent full
and efficient operation of the Products.
h. With respect to any deficiencies of the type described in Section 8.g.(i),
Nortel shall at Buyer's request and expense assist Buyer in the elimination
or minimization of any such deficiencies. With respect to any deficiencies
or shortages as described in the Section 8.g.(ii), Nortel shall, at
Nortel's expense, take prompt and effective action to correct any such
deficiencies or shortages.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
CARRIER NETWORKS PRODUCT ATTACHMENT
PAGE 9 OF 11
i. In the event Buyer's Acceptance of any Products is withheld or postponed
due to any deficiencies of the type described in Section 8.g.(i), Nortel
shall invoice and Buyer shall pay Nortel's charges and reasonable expenses
incurred by Nortel associated with Nortel's investigation of the reasons
for Buyer's withholding or postponement of such Acceptance.
9. WARRANTIES AND REMEDIES
-----------------------
With respect to Exhibit D to the NPPA, LIMITED WARRANTIES AND REMEDIES, the
following additional terms shall apply:
a. Except as set forth in Section 9.b. below, Nortel shall in performance of
its obligations under Section 2 of Exhibit D to the NPPA, (i) ship
replacement Equipment or complete the repair within thirty (30) days of
Nortel's receipt of the Equipment to be replaced or repaired, and (ii)
commence the correction of the applicable installation Services within
thirty (30) days of receipt of notice from Buyer pursuant to Section 5 of
Exhibit D to the NPPA.
b. For emergency warranty service situations involving the Equipment, Nortel
shall during the applicable Warranty Period use all reasonable efforts to
ship replacement Equipment within twenty-four (24) hours of notification of
the applicable warranty defect by Buyer pursuant to Section 5 of Exhibit D
to the NPPA, provided that Buyer shall have requested such emergency
service. Nortel may invoice Buyer and Buyer shall pay Nortel's surcharge
for emergency warranty services. If Nortel determines that due to the
particular circumstances, onsite technical assistance is necessary, Nortel
shall use all reasonable efforts to dispatch emergency service personnel to
the applicable Installation Site within twenty-four (24) hours of receipt
of notice from Buyer as described above.
c. All Products to be repaired or replaced, both within and outside of the
applicable Warranty Period, shall be packed by Buyer in accordance with
Nortel's then-current instructions.
d. No later than ninety (90) days prior to the expiration of the Warranty
Period with respect to any Initial System, Nortel shall offer to Buyer
post-warranty support by means of an extended service plan or other terms,
provided that neither party shall have any obligation with respect thereto
except as may be agreed upon in writing by the parties.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
CARRIER NETWORKS PRODUCT ATTACHMENT
PAGE 10 OF 11
10. NOTICES
-------
Pursuant to Section 18.5 of the NPPA, any notices by Buyer to Nortel which
are specific to this Product Attachment shall be delivered to the following
address:
Northern Telecom Inc.
2350 Lakeside Blvd.
Richardson, Texas 75082-4399
Attn: Senior Manager, Contracts Management & Negotiations
11. ADDITIONAL TERMS
----------------
The following additional terms shall apply to the NPPA:
(a) With respect to Section 14, BUYER'S RESPONSIBILITIES, the following
additional terms shall apply:
(i) Buyer shall be responsible for ordering and coordinating with each
applicable local telephone company the installation of all central
office trunks and test trunks and Buyer shall be responsible for all
utility charges associated with the installation, testing, operation
and maintenance of Products furnished hereunder, including, but not
limited to, all applicable charges for such central office trunks,
test trunks and any tie lines.
(b) Nortel shall provide documentation with respect to the Products in
accordance with Schedule D to this Product Attachment.
(c) If Nortel has made /***/ Software Release generally available to its other
customers prior to shipment of the DMS-500 Initial System ordered
hereunder, Nortel will furnish the DMS-500 Initial System with such /***/
Software Release. In the event /***/ Software Release is not generally
available at the time of Turnover of the DMS-500 Initial System, Nortel
will furnish the DMS-500 Initial System with /***/ Software Release.
However, Nortel will /***/. Such /***/ Software Release Level may require
the purchase of additional Equipment, which purchase shall remain Buyer's
responsibility.
(d) The matrix shown in Schedule E sets forth Nortel's DMS-500 Local Number
Portability compliance to Illinois Communication Committee ("ICC") Generic
Switching and Signaling Requirements for the NCS07 and NCS08 Software
Releases.
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
CARRIER NETWORKS PRODUCT ATTACHMENT
PAGE 11 OF 11
(e) During the Product Attachment Term, Nortel shall make available to Buyer
for a license fee not to exceed /***/ per Software release for each DMS-500
Initial System ordered hereunder, a standard feature DMS-500 Initial System
Software Upgrade ("DMS-500 Standard Feature Upgrade") which Nortel may
make generally available to its other customers. The /***/ license fee
does not include associated engineering and labor, Equipment or optional
Software packages.
NORTHERN TELECOM INC. 21ST CENTURY TELECOM GROUP, INC.
By:_______________________________ By:__________________________________
(Signature) (Signature)
Name:_____________________________ Name:________________________________
(Print) (Print)
Title:____________________________ Title:_______________________________
Date:_____________________________ Date:________________________________
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
SCHEDULE A
PAGE 1 OF 1
SCHEDULE A
----------
PRODUCTS, PRICES AND FEES
-------------------------
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
SCHEDULE B
PAGE 1 OF 2
SCHEDULE B
----------
SERVICES AND CHARGES
--------------------
ENGINEERING
- -----------
1. Nortel shall engineer each System furnished hereunder in accordance with
Nortel's engineering practices applicable to such Initial System at the
time such engineering is performed.
2. Nortel's charges for engineering each Initial System are included in the
prices and fees for the Initial System set forth in Schedule A.
3. The provision of any other engineering by Nortel and the charges associated
therewith shall be as subsequently agreed in writing by Nortel and Buyer.
INSTALLATION
- ------------
1. Nortel shall install each Initial System furnished hereunder at the
applicable Installation Site in accordance with Nortel's installation
practices applicable to such Initial System at the time such installation
is performed.
2. Nortel's charges for performance of such installation are included in the
prices and fees for the Initial System set forth in Schedule A.
3. The provision of any other installation by Nortel and the charges
associated therewith shall be as subsequently agreed in writing by Nortel
and Buyer.
TRAINING
- --------
1. With each Initial System furnished hereunder, Nortel shall provide to Buyer
/***/ of training at Nortel's Training Center currently located in Raleigh,
North Carolina. Such training shall be in any of the courses scheduled to
be provided at that Training Center as set forth in Nortel's applicable
Technical Training Course catalog with respect to the Products described in
Schedule A to this Product Attachment.
2. Buyer shall be responsible for the payment of all travel and living
expenses of its employees whom Buyer sends to receive such training.
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
SCHEDULE B
PAGE 2 OF 2
3. Additional Training in such courses shall be provided by Nortel to Buyer
subject to availability and scheduling of such courses. Nortel may change
the schedule of such courses at any time. Such additional training shall be
provided at Nortel's then-current charges.
4. All training provided by Nortel shall consist of such materials and cover
such subject as Nortel in its sole discretion determines to be appropriate.
Nortel makes no representation concerning the ability of anyone to
satisfactorily complete any training.
5. Nortel may add to, or delete from, the subject matter and or medium of any
of the training courses which Nortel provides. In addition, Nortel may
reschedule such courses as Nortel determines to be appropriate.
6. The availability of any training to Buyer as set forth above shall be
subject to any prerequisites identified by Nortel in its training catalog
or other documentation with respect to such training.
ADDITIONAL SERVICES
- -------------------
1. All other services to be furnished hereunder shall be subject to written
agreement of the parties which shall set forth the terms and conditions
applicable to the provision of such services and a description of such
services and the charges for such services.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
SCHEDULE C
PAGE 1 OF 1
SCHEDULE C
----------
DELIVERY
--------
Intentionally Left Blank
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
SCHEDULE D
PAGE 1 OF 3
SCHEDULE D
----------
DOCUMENTATION
-------------
Certain documentation with respect to the Products may be made available to
Buyer on CD-ROM pursuant to the terms and conditions set forth below.
In addition, Nortel may furnish to Buyer such other documentation with respect
to the Products as Nortel deems appropriate.
CD-ROM TERMS AND CONDITIONS
1. DEFINITIONS
"CD-ROM" shall mean a compact disk with read-only memory.
"CD-ROM Documentation" shall mean the documentation that Nortel makes available
to its customers on CD-ROM with respect to DMS-250, DMS-300, and/or DMS-STP
Systems.
" CD-ROM Software" shall mean the computer programs that provide basic logic,
operating instructions or user-related application instructions with respect to
the storage and/or retrieval of any CD-ROM Documentation residing on the CD-ROM,
along with the documentation used to describe, maintain and use such computer
programs.
2. SCOPE
With the delivery of each Initial System ordered by Buyer, Nortel shall deliver
a CD-ROM on which the appropriate CD-ROM Documentation is contained and a user
manual which shall set forth the procedures by which Buyer may use the CD-ROM
Software to access to the CD-ROM Documentation.
Buyer shall be solely responsible for obtaining, at its cost and expense, any
computer or other equipment and software required to use the CD-ROM, CD-ROM
Software or CD-ROM Documentation.
Buyer may order additional CD-ROMs from Nortel at Nortel's then current fees
therefor, and any such additional CD-ROMs shall be subject to these terms and
conditions.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
SCHEDULE D
PAGE 2 OF 3
3. LICENSE
Upon delivery of the CD-ROM, Nortel shall grant to Buyer a non-exclusive, non-
transferable and non-assignable license, subject to these terms and conditions:
(a) to use CD-ROM Software solely to access to the CD-ROM Documentation; and
(b) to use the CD-ROM Documentation solely to operate and maintain the Initial
System with which it was delivered.
Buyer acknowledges that, as between Nortel and Buyer, Nortel retains title to
and all other rights and interest in the CD-ROM Software and CD-ROM
Documentation. Buyer shall not modify, translate or copy the CD-ROM Software or
CD-ROM Documentation without Nortel's prior written consent. Buyer shall hold
secret and not disclose to any person, except Buyer's employees with a need to
know, any of the CD-ROM Software or CD-ROM Documentation.
Buyer shall not sell, license, reproduce or otherwise convey or directly or
indirectly allow access to the CD-ROM Software or CD-ROM Documentation to any
other person, firm, corporation or other entity.
Except to the extent expressly set forth in this Schedule D, Nortel shall have
no obligations of any nature whatsoever with respect to the CD-ROM Software or
the CD-ROM Documentation.
4. DISCLAIMER OF WARRANTY AND LIABILITY
NORTEL MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY NATURE WHATSOEVER WITH
RESPECT TO THE CD-ROM, CD-ROM SOFTWARE, CD-ROM DOCUMENTATION OR ANY INFORMATION
CONTAINED ON ANY OF THE FOREGOING OR ANY RESULTS OR CONCLUSIONS REACHED BY BUYER
AS A RESULT OF ACCESS TO OR USE THEREOF, OR WITH RESPECT TO ANY OTHER MATTER OR
SERVICE PROVIDED BY NORTEL, WHETHER STATUTORY, EXPRESS OR IMPLIED, INCLUDING,
BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR AGAINST INFRINGEMENT. NORTEL SHALL NOT BE LIABLE FOR ANY DIRECT,
SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY NATURE WHATSOEVER
INCLUDING ANY SUCH DAMAGES WHICH MAY ARISE OUT OF THE USE OF OR INABILITY TO USE
OR ACCESS THE CD-ROM, THE CD-ROM SOFTWARE, THE CD-ROM DOCUMENTATION, AND FURTHER
INCLUDING LOSS OF USE, REVENUE, PROFITS OR ANTICIPATED SAVINGS REGARDLESS OF HOW
SUCH DAMAGES MAY HAVE BEEN CAUSED.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
SCHEDULE D
PAGE 3 OF 3
5. GENERAL
Nothing contained in this Schedule D shall limit, in any manner, Nortel's right
to change the CD-ROM Software or CD-ROM Documentation or the design or
characteristics of Nortel's Products at any time without notice and without
liability.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
SCHEDULE E
PAGE 1 OF 1
SCHEDULE E
----------
NORTEL'S DMS-500 LOCAL NUMBER PORTABILITY COMPLIANCE
----------------------------------------------------
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
ACCESS NODE ATTACHMENT
PAGE 1 OF 6
PRODUCT ATTACHMENT
S/DMS ACCESSNODE PRODUCTS
Northern Telecom Inc. ("Nortel") and 21st Century Telecom Group, Inc. ("Buyer")
agree as follows:
NOW, THEREFORE Buyer and Nortel agree as follows:
1. INCORPORATION BY REFERENCE
--------------------------
This Product Attachment shall be incorporated into and made a part of
Network Products Purchase Agreement No. TCC9701N ("NPPA") between Nortel
and Buyer.
2. DEFINITIONS
-----------
For purposes of this Product Attachment:
"Equipment" shall mean the equipment listed in Schedule A.
"Product Attachment Term" shall mean the period set forth in Section 1.4 of
the NPPA.
"Services" shall mean the services described in Schedule B.
"Software" shall mean the software listed in Schedule A.
"Specifications" shall mean Nortel's standard published performance
specifications for the Products.
"Warranty Period" shall mean /***/ from the date of shipment stamped on the
Equipment or, if the date of shipment is not marked on the Equipment, /***/
from the date of manufacture. In the event Nortel performs installation
Services, the Equipment warranty shall be /***/. With respect to Software
provided hereunder, the warranty period shall be /***/ of such Software.
3. SCOPE
-----
3.1 During the Product Attachment Term, as defined in Section 2 herein, Buyer
shall purchase and take delivery of Products listed in schedule A of this
Product Attachment in partial satisfaction of its obligations with respect
to the Purchase Commitment set forth in Section 1.6 and the /***/ of
anticipated purchases as set forth in Section 3 of the NPPA.
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
ACCESS NODE ATTACHMENT
PAGE 2 OF 6
3.2 Pursuant to Sections 3.3, 3.4, 3.5, 3.6, and 3.7 of the NPPA, Buyer may use
the TNS Service Credits to apply toward the purchase of TNS Services listed
in Exhibit C of the NPPA.
4. SCHEDULES
---------
The following Schedules which are attached hereto are an integral part of
the Product Attachment and are incorporated herein by reference:
Schedule A - Products, Prices, and Fees
Schedule B - Services and Charges
Schedule C - Delivery Intervals
5. ORDERING
--------
All Orders shall specify the Products required and the Services, Nortel is
to perform, if any.
Any change to the original Order initiated by Buyer after Nortel's
acceptance of the Order and any resulting adjustments to prices, schedule
and/or other requirements of the Order shall be negotiated, mutually agreed
upon and subsequently detailed in a written change to the Order ("Change
Order"), referencing the original Order and executed by authorized
representatives of Buyer and Nortel. The adjustment of the Order prices
for Equipment and charges for any Services, as applicable, in a Change
Order shall be established on the basis of Nortel's then current
merchandise prices for such Equipment and/or charges for Services. In the
event that the Change Order affects work already performed, the adjustment
of the Order price shall include reasonable charges incurred by Nortel
related to such work. No such changes shall be performed until a Change
Order has been executed by Nortel and Buyer as described above.
6. PRICING AND TERMS OF PAYMENT
----------------------------
6.1 Pricing for Equipment and Software shall be as set forth in Schedule
A, Section 1. Pricing for Engineered Systems and/or Merchandise
Orders shall be as set forth in Schedule A, Section 2.
6.2 In the event that Buyer has not met the AccessNode Minimum, the
pricing for Line Cards listed in Schedule A shall increase by /***/
per Line Card ("New Line Card Price") for all such Line Cards
purchased during the Product Attachment Term. For any such Line Cards
previously purchased during the Product Attachment Term, Nortel shall
invoice Buyer for the /***/. Such invoice shall be payable as set
forth in Section 6.7 herein.
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
ACCESS NODE ATTACHMENT
PAGE 3 OF 6
6.3 The prices for engineering, installation and/or system line-up and
testing ("SLAT") Services performed by Nortel with respect to an
accepted Order shall be as quoted by Nortel and agreed to by Buyer
prior to issuance of the applicable Order.
6.4 Nortel will prepay freight charges and the cost of any insurance
requested by Buyer and invoice Buyer for these items at Nortel's
actual cost. These charges will appear as separate line items on
Nortel's invoice.
6.5 Nortel's prices set forth in Schedule A may be revised by Nortel, from
time to time, by means of /***/ prior written notice given to Buyer.
Such notice shall specify the effective date of the price change and
shall apply to Orders received by Nortel on or after the effective
date of the price change. Additions and/or deletions of products to
these price lists may occur as the Product evolves.
6.6 Nortel shall invoice Buyer for the price of the Products upon shipment
of the Products. Any Services provided hereunder shall be invoiced to
Buyer upon Nortel's completion of such Services.
6.7 Payment of the purchase price of the Equipment as well as any prepaid
freight and insurance charges shall be due within thirty (30) days
from the date of Nortel's invoice for such Equipment. Nortel's
charges, as applicable, for installation and/or other services
performed during each calendar month shall be paid by Buyer on a
monthly basis within thirty (30) days after receipt of Nortel's
invoice for such Services.
7. TESTING, TURNOVER, AND ACCEPTANCE
---------------------------------
7.1 If installation is being purchased pursuant to this contract, Buyer
shall be responsible for having the installation sites ready on time
and in accordance with Nortel's requirements and shall reimburse
Nortel for any additional expense incurred by Nortel as a result of
Buyers failure in this respect. Any installation purchased pursuant to
this contract shall be performed in accordance with Nortel's standard
installation procedures and manuals. Upon completion of installation,
Nortel shall perform its standard test procedures in accordance with
applicable Nortel Specifications and any mutually agreed upon test
plan, and shall certify to Buyer that the Equipment (and Software, if
applicable) is ready to be placed in service and same shall be
conclusively deemed to have been accepted by Buyer. Acceptance shall
not be postponed due to any deficiencies of Equipment or Services
supplied by Buyer and tested in conjunction with the Equipment. In the
event that installation is not purchased pursuant to this contract,
any Equipment
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
ACCESS NODE ATTACHMENT
PAGE 4 OF 6
and Software delivered hereunder shall be conclusively deemed to have
been accepted upon delivery of same to purchaser at the Shipping
Point.
7.2 When Nortel installs the Products, Buyer's acceptance of the Products
and Services shall take place, or be deemed to have taken place, upon
completion by Nortel of installation and SLAT Services in accordance
with Nortel's standard procedures and practices, as evidenced by the
acceptance test results showing that the Products meet and perform in
accordance with the applicable Specifications. Upon such acceptance,
Nortel shall provide Buyer with a turnover notice to be acknowledged
in writing by Buyer. By providing the turnover notice, Nortel
certifies that the Products meet and perform in accordance with the
applicable Specifications. Acceptance of Products shall not be
withheld or postponed due to:
a) deficiencies of the Products or any other product with which such
Products are used or operated, resulting from causes not
attributable to Nortel, such as but not limited to (i) inaccuracy
of information provided by Buyer, (ii) inadequacy or deficiencies
of product, facilities or services provided by Buyer or a third
party and tested in conjunction with the Products, or (iii) other
conditions, external to the Products provided by Nortel, which
are beyond limits specified herein and are used by Nortel in
performance calculations and spurious outputs from adjacent
product. Nortel shall, however, at Buyer's expense, assist Buyer
in the elimination or minimization of such deficiencies; or
b) minor deficiencies or shortages, attributable to Nortel, of a
nature that do not prevent full and efficient commercial
operation of the Products. Nortel shall, however, at its expense,
take prompt and effective action to correct any such deficiencies
or shortages.
7.3 The effort associated with Nortel's investigation of any deficiencies
not attributable to Nortel shall be billed to Buyer.
8. WARRANTIES AND REMEDIES
-----------------------
8.1 The repair or replacement of Equipment and the correction of defective
installation Services shall be warranted for a period of /***/ days or
the remainder of the original Warranty Period whichever is longer.
8.2 Nortel shall provide Buyer with repair and replacement service for a
minimum period of /***/ from the commencement date of this Product
Attachment. Nortel shall provide Buyer with a /***/ prior written
notice of any discontinuance so as to enable Buyer to place an order
for its requirements or to enter into any other
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
ACCESS NODE ATTACHMENT
PAGE 5 OF 6
mutually satisfactory agreement with Nortel prior to such
discontinuance. This provision shall survive the expiration of this
Product Attachment.
9. NOTICES
-------
Pursuant to Paragraph 18.5 of the NPPA, any notices by Buyer to Nortel
which are specific to this Product Attachment shall be delivered to the
following address:
Northern Telecom Inc.
5405 Windward Parkway
Alpharetta, Georgia 30004-3895
Attn: Vice President, Carrier Networks
Facsimile: (770) 708-5565
with a copy to: Northern Telecom Inc.
5405 Windward Parkway
Alpharetta, Georgia 30004-3895
Attn: Peter Farranto, Senior Counsel
Facsimile: (770) 708-5272
10. ADDITIONAL TERMS
----------------
10.1 Nortel may, from time to time, issue updates to the Software and, upon
Buyer's payment of applicable Right to Use Fees or Software License
Fees, if any, shall license these updates to Buyer. Nortel shall
classify such updates as either: 1) /***/ ("ISU's"), /***/, 2) /***/
("Enhancements"), or 3) /***/ ("Generics"). Updates to Software
classified, as ISU's by Nortel will be provided at /***/ to Buyer.
Notwithstanding the foregoing, ISU's and Enhancements shall not
include the cost of /***/ that may be required to update such ISU's.
Updates classified as Generics, which will be used by Buyer in its
operations shall be made available to Buyer on a /***/ basis. In the
event that Nortel determines that the update includes both ISU's and
Generics which will be used by Buyer in its operations, such update
shall be made available to Buyer. If Buyer elects to receive the
update(s) during the Term of the Agreement, Nortel shall invoice Buyer
/***/.
10.2 Standard delivery intervals for Unforecasted Product shall be as set
forth in Schedule C. If Buyer desires to maintain the shorter
delivery schedules set forth in Schedule C, Buyer agrees to issue
quarterly forecasts in a time frame and format mutually agreed to by
the parties. Nortel's only obligation regarding such delivery
intervals shall be to meet delivery dates set forth in an accepted
Order. If Nortel, prior to acceptance of an Order, advises Buyer that
it cannot meet a delivery date shown in an Order, both parties will
negotiate a revised date prior to acceptance of the Order by Nortel.
The installation and SLAT intervals
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
ACCESS NODE ATTACHMENT
PAGE 6 OF 6
applicable to an Order will be quoted by Nortel and agreed to by Buyer
and Nortel prior to issuance of such Order.
10.3 INSTALLATION SITES
If Nortel is providing Buyer with installation Services, Buyer shall
be responsible for having all installation sites ready on time and in
accordance with Nortel's requirements. Buyer shall be responsible for
any expense incurred by Nortel as a result of Buyer's failure to meet
the foregoing obligations.
NORTHERN TELECOM INC. 21ST CENTURY TELECOM GROUP, INC.
By:______________________________ By:______________________________
(Signature) (Signature)
Name:____________________________ Name:____________________________
(Print) (Print)
Title:___________________________ Title:___________________________
Date:____________________________ Date:____________________________
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
TRANSMISSION PRODUCT ATTACHMENT
PAGE 1 OF 6
PRODUCT ATTACHMENT
S/DMS TRANSMISSION PRODUCTS
Northern Telecom Inc. ("Nortel") and 21st Century Telecom Group, Inc. ("Buyer")
agree as follows:
NOW, THEREFORE, Nortel and Buyer agree as follows:
1. INCORPORATION BY REFERENCE
--------------------------
This Product Attachment shall be incorporated into and made a part of
Network Products Purchase Agreement No. TCC9701N ("NPPA") between Nortel
and Buyer.
2. DEFINITIONS
-----------
For purposes of this Product Attachment:
"Equipment" shall mean the equipment listed in Schedule A.
"Product Attachment Term" shall mean the period set forth in Section 1.4 of
the NPPA.
"Services" shall mean the services described in Schedule B.
"Software" shall mean the software listed in Schedule A.
"Specifications" shall mean Nortel's standard published performance
specifications for the Products.
"Vendor Items" shall mean the equipment marked with an asterisk (*) in
Schedule A.
"Warranty Period" shall mean /***/ from the date of shipment stamped on the
Equipment or, if the date of shipment is not marked on the Equipment, /***/
months from the date of manufacture. In the event Nortel performs
installation Services, the Equipment warranty shall be /***/ from the
/***/. With respect to Software provided hereunder, the warranty period
shall be /***/ of such Software.
3. SCOPE
-----
3.1 During the Product Attachment Term, as defined in Section 2 herein, Buyer
shall purchase and take delivery of Products listed in Schedule A of this
Product Attachment in partial satisfaction of its obligations with respect
to the Purchase Commitment set forth in Section 1.6 and the /***/ of
anticipated purchases as set forth in Section 3 of the NPPA.
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
TRANSMISSION PRODUCT ATTACHMENT
PAGE 2 OF 6
3.2 Pursuant to Sections 3.3, 3.4, 3.5, 3.6, and 3.7 of the NPPA, Buyer may use
the Service Credits to apply toward the purchase of Services listed in
Schedule A of this Product Attachment.
4. SCHEDULES
---------
The following Schedules which are attached hereto are an integral part of
the Product Attachment and are incorporated herein by reference:
Schedule A - Products, Prices, and Fees
Schedule B - Services and Charges
Schedule C - Delivery Intervals
Schedule D - Forecast
5. ORDERS AND CANCELLATIONS
------------------------
5.1 Delivery of Products and Services will be in accordance with Nortel's
accepted Order. All Orders issued by Buyer shall include the following
information:
(a) an Order number and a reference to the Agreement and this Product
Attachment;
(b) the detailed description, quantity and price of the Products and
Services to be performed by Nortel, if any;
(c) requested delivery date(s);
(d) shipping destination(s) for Products;
(e) mailing address for Nortel invoice(s);
5.2 Orders submitted by Buyer for Products to be supplied furnish only ("FO")
shall be acknowledged by Nortel in a timely fashion. Orders submitted by
Buyer for Products engineered, furnished and installed ("EFI") shall be
acknowledged by Nortel as received in a timely fashion. Nortel shall
provide one copy of the order acknowledgment to Buyer for each Order
received.
5.3 In the event of total or partial cancellation of an Order by Buyer within
ten (10) business days prior to scheduled ship date, Buyer shall pay to
Nortel charges calculated in accordance with the following based upon the
percentage of the total Order or affected portion thereof:
Notification prior to Cancellation Penalty
scheduled ship date paid by Buyer
--------------------- ---------------------
5 to 6 Weeks /***/
Less than 4 Weeks /***/
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
TRANSMISSION PRODUCT ATTACHMENT
PAGE 3 OF 6
5.4 During any calendar year period during the Term, Buyer may request, one (1)
time only that an Order be rescheduled without penalty upon giving at least
two (2) weeks written notice to Nortel prior to the scheduled ship date.
The new ship date shall be no more than /***/ later than the original ship
date. Any request by Buyer for rescheduling ship dates shall be subject to
mutual agreement.
5.5 All Orders for Products set forth in Schedule A and all Orders for
engineered Products canceled by Buyer after delivery to Buyer, shall be
subject to cancellation penalties of /***/ of the value of the affected
Order.
5.6 Any change to the original Order initiated by Buyer after Nortel's
acceptance of the Order and any resulting adjustments to prices, schedule
or other requirements of the Order shall be negotiated, mutually agreed
upon and subsequently detailed in a written change to the Order ("Change
Order"), referencing the original Order and executed by authorized
representatives of Buyer and Nortel. The adjustment of the Order prices
for Products and charges for any Services, as applicable, in a Change Order
shall be established on the basis of Nortel's then current merchandise
prices for such Products or charges for Services. In the event that the
Change Order affects work already performed, the adjustment of the Order
price shall include reasonable charges incurred by Nortel related to such
work. No such changes shall be performed until a Change Order has been
executed by Nortel and Buyer as described above.
6. PRICING AND TERMS OF PAYMENT
----------------------------
6.1 Pricing for Equipment and Software shall be as set forth in Schedule A,
Section 1 subject to any discounts, if applicable, set forth in Schedule A,
Section 2.
6.2 The prices for engineering, installation and system line-up and testing
("SLAT") Services performed by Nortel with respect to an accepted Order
shall be as quoted by Nortel and agreed to by Buyer prior to issuance of
the applicable Order.
6.3 Nortel will prepay freight charges and the cost of any insurance requested
by Buyer and invoice Buyer for these items at Nortel's actual cost. These
charges will appear as separate line items on Nortel's invoice.
6.4 Nortel's prices set forth in Schedule A may be revised by Nortel, from time
to time, by means of /***/ days prior written notice given to Buyer. Such
notice shall specify the effective date of the price change and shall apply
to Orders received by Nortel on or after the effective date of the price
change.
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
TRANSMISSION PRODUCT ATTACHMENT
PAGE 4 OF 6
6.5 Nortel shall invoice Buyer for the price of the Products as well as any
prepaid freight and insurance charges upon shipment of the Products. Any
Services provided hereunder shall be invoiced to Buyer upon Nortel's
completion of such Services.
7. TESTING, TURNOVER, AND ACCEPTANCE
---------------------------------
7.1 When Nortel installs the Products, Buyer's acceptance of the Products and
Services shall take place, or be deemed to have taken place, upon
completion by Nortel of installation and SLAT Services in accordance with
Nortel's standard procedures and practices, as evidenced by the acceptance
test results showing that the Products meet and perform in accordance with
the applicable Specifications and any mutually agreed upon test plan. Upon
such acceptance, Nortel shall provide Buyer with a turnover notice to be
acknowledged in writing by Buyer. By providing the turnover notice, Nortel
certifies that the Products meet and perform in accordance with the
applicable Specifications. Acceptance of the Products shall not be withheld
or postponed due to:
a) deficiencies of the Products or any other product with which such
Products are used or operated, resulting from causes not attributable
to Nortel, such as but not limited to (i) inaccuracy of information
provided by Buyer, (ii) inadequacy or deficiencies of product,
facilities or services provided by Buyer or a third party and tested in
conjunction with the Products, or (iii) other conditions, external to
the Products provided by Nortel, which are beyond limits specified
herein and are used by Nortel in performance calculations and spurious
outputs from adjacent product. Nortel shall, however, at Buyer's
expense, assist Buyer in the elimination or minimization of such
deficiencies; or
b) minor deficiencies or shortages, attributable to Nortel, of a nature
that do not prevent full and efficient commercial operation of the
Products. Nortel shall, however, at its expense, take prompt and
effective action to correct any such deficiencies or shortages.
7.2 The effort associated with Nortel's investigation of any deficiencies not
attributable to Nortel shall be billed to Buyer.
8. WARRANTIES AND REMEDIES
-----------------------
8.1 The repair or replacement of Equipment and the correction of defective
installation Services shall be warranted for a period of /***/ or the
remainder of the original Warranty Period whichever is longer.
8.2 Nortel shall provide Buyer with repair and replacement service for a
minimum period of /***/ from the commencement date of this Product
Attachment, subject to the condition that should Nortel discontinue
manufacture of the Product or portions thereof prior to the
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
TRANSMISSION PRODUCT ATTACHMENT
PAGE 5 OF 6
expiration of such /***/ period (such right of discontinuance being
expressly reserved by Nortel), Nortel shall provide Buyer with a /***/
prior written notice of any discontinuance so as to enable Buyer to place
an order for its requirements or to enter into any other mutually
satisfactory agreement with Nortel prior to such discontinuance. This
provision shall survive the expiration of this Product Attachment.
9. NOTICES
-------
Pursuant to Section 18.5 of the NPPA, any notices by Buyer to Nortel that
are specific to this Product Attachment shall be delivered to the following
address:
Northern Telecom Inc.
5405 Windward Parkway
Alpharetta, Georgia 30004-3895
Attn: Vice President, Carrier Networks
Facsimile: (770) 708-5565
with a copy to: Northern Telecom Inc.
5405 Windward Parkway
Alpharetta, Georgia 30004-3895
Attn: Peter Farranto, Senior Counsel
Facsimile: (770) 708-5272
10. ADDITIONAL TERMS
----------------
10.1 Nortel may, from time to time, issue updates to the Software and, upon
Buyer's payment of applicable Right to Use Fees or Software License Fees,
if any, shall license these updates to Buyer. Nortel shall classify such
updates as either: 1) /***/ ("ISUs"), /***/ or 2) /***/ ("Enhancements").
Updates to Software, classified as ISUs by Nortel, will be provided at no
cost to Buyer. Notwithstanding the foregoing, ISUs and Enhancements shall
not include the cost of /***/ that may be required to update such ISUs.
Updates classified as Enhancements, which will be used by Buyer in its
operations shall be made available to Buyer on a /***/ basis. In the
event Nortel determines that the update includes both ISUs and Enhancements
which will be used by Buyer in its operations, such update shall be made
available to Buyer. If Buyer elects to receive the update, Nortel shall
invoice Buyer only for the amount determined by Nortel to be attributed to
the Enhancements contained in such update.
10.2 In order to allow Nortel to meet its delivery requirements, Buyer shall
issue a forecast showing the specific types and quantities of Products to
be released and the dates such Products will be released throughout the
Product Attachment Term. Buyer shall update such forecasts quarterly with
each forecast stating the specific types of Products and quantities of
Products to be released during the next quarter. The initial forecast
shall be
- ----------------------
/***/ Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission.
NORTEL PROPRIETARY INFORMATION
<PAGE>
AGREEMENT NO. TCC9701N
TRANSMISSION PRODUCT ATTACHMENT
PAGE 6 OF 6
as set forth in Schedule D. In the event Buyer does not meet its obligation
to update its forecast quarterly, then Nortel shall not be obligated to
meet its forecasted delivery intervals as stated in Schedule C. Nortel's
only obligation regarding such delivery intervals shall be to meet delivery
dates set forth in an accepted Order. If Nortel, prior to acceptance of an
Order, advises Buyer that it cannot meet a delivery date shown in an Order,
both parties will negotiate a revised date prior to acceptance of the Order
by Nortel. The installation and SLAT intervals applicable to an Order will
be quoted by Nortel and agreed to by Buyer and Nortel prior to issuance of
such Order.
10.3 If Nortel is providing Buyer with installation Services, Buyer shall be
responsible for having all installation sites ready on time and in
accordance with Nortel's requirements. Buyer shall be responsible for any
expense incurred by Nortel as a result of Buyer's failure to meet the
foregoing obligations.
NORTHERN TELECOM INC. 21st CENTURY TELECOM GROUP, INC.
By:______________________________ By:______________________________
(Signature) (Signature)
Name:____________________________ Name:____________________________
(Print) (Print)
Title:___________________________ Title:___________________________
Date:____________________________ Date:____________________________
NORTEL PROPRIETARY INFORMATION
<PAGE>
Exhibit 12.1
21st CENTURY TELECOM GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES,
INTEREST CHARGES AND PREFERRED STOCK REQUIREMENTS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
--------------------------------------------------------------------
1995 1996 1997 1996 1997
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. EARNINGS
a) Loss before interest expense and income taxes $(663,886) $ (811,921) $(2,379,449) $(1,735,884) $(7,725,635)
b) Portion of rental expense representative
of the interest factor (1) (8,855) (11,422) (18,384) (15,032) (148,025)
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Total of 1(a) and 1(b) $(655,031) $ (800,499) $(2,361,065) $(1,720,852) $(7,577,610)
2. COMBINED FIXED CHARGES
a) Total interest expense (2) $115,428 $ 214,688 $ 437,843 $ 376,828 $ 119,226
b) Portion of rental expense representative
of the interest factor (1) 8,855 11,422 18,384 15,032 148,025
c) Dividends and accretion on Class A
Convertible 8% Cumulative preferred stock - - 478,981 - 2,287,928
d) Dividends and accretion on 13 3/4% Senior
Cumulative Exchangeable preferred stock
due 2010 (3) - - - - -
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Total Combined Fixed Charges (2(a) through 2(d)) 124,283 226,110 935,208 391,860 2,555,179
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Total Interest Charges (2(a) through 2(b)) 124,283 226,110 456,227 391,860 267,251
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Total Preferred Stock Requirements (2(c)
through 2(d)) $ - $ - $ 478,981 $ - $ 2,287,928
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3. RATIO OF EARNINGS TO COMBINED FIXED CHARGES (5.27) (3.54) (2.52) (4.39) (2.97)
====================================================================
RATIO OF EARNINGS TO INTEREST CHARGES (5.27) (3.54) (5.18) (4.39) (28.35)
====================================================================
RATIO OF EARNINGS TO PREFERRED STOCK REQUIREMENTS N/A N/A (4.93) N/A (3.31)
====================================================================
4. DEFICIENCY RELATED TO LESS THAN ONE-TO-ONE COVERAGE:
Ratio of Earnings to Combined Fixed Charges $779,314 $1,026,609 $ 3,296,273 $ 2,112,712 $10,132,789
====================================================================
Ratio of Earnings to Interest Charges $779,314 $1,026,609 $ 2,817,292 $ 2,112,712 $ 7,844,861
====================================================================
Ratio of Earnings to Preferred Stock Requirements N/A N/A $ 2,840,046 N/A $ 9,865,538
====================================================================
<CAPTION>
PRO FORMA (2)(3)
Inception-to Date --------------------------------------
October 29, 1992 to Year Ended Nine Months Ended
December 31, 1997 March 31, 1997 December 31, 1997
------------------------------------------------------------
<S> <C> <C> <C>
1. EARNINGS
a) Loss before interest expense and income taxes $(11,963,470) $(2,379,449) $(7,725,635)
b) Portion of rental expense representative
of the interest factor (1) (199,480) (18,384) (148,025)
------------------------------------------------------------
Total of 1(a) and 1(b) $(11,763,990) $(2,361,065) $(7,577,610)
2. COMBINED FIXED CHARGES
a) Total interest expense (2) $ 925,240 $27,260,776 $20,041,440
b) Portion of rental expense representative
of the interest factor (1) 199,480 18,384 148,025
c) Dividends and accretion on Class A
Convertible 8% Cumulative preferred stock 2,766,909 478,981 2,287,928
d) Dividends and accretion on 13 3/4% Senior
Cumulative Exchangeable preferred stock
due 2010 (3) - 8,107,478 5,986,277
------------------------------------------------------------
Total Combined Fixed Charges (2(a) through 2(d)) 3,891,629 35,865,619 28,463,670
------------------------------------------------------------
Total Interest Charges (2(a) through 2(b)) 1,124,720 27,279,160 20,189,465
------------------------------------------------------------
Total Preferred Stock Requirements (2(c)
through 2(d)) $ 2,766,909 $ 8,586,459 $ 8,274,205
------------------------------------------------------------
3. RATIO OF EARNINGS TO COMBINED FIXED CHARGES (3.02) (0.07) (0.27)
============================================================
RATIO OF EARNINGS TO INTEREST CHARGES (10.46) (0.09) (0.38)
============================================================
RATIO OF EARNINGS TO PREFERRED STOCK REQUIREMENTS (4.25) (0.27) (0.92)
============================================================
4. DEFICIENCY RELATED TO LESS THAN ONE-TO-ONE COVERAGE:
Ratio of Earnings to Combined Fixed Charges $15,655,619 $38,226,684 $36,041,280
============================================================
Ratio of Earnings to Interest Charges $12,888,710 $29,640,225 $27,767,075
============================================================
Ratio of Earnings to Preferred Stock Requirements $14,530,899 $10,947,524 $15,851,815
============================================================
</TABLE>
(1) We consider one-third of total rental expense to represent return on
capital.
(2) The pro forma year ended March 31, 1997 and pro forma nine months ended
December 31, 1997, reflect the first twelve months and nine months,
respectively, of interest expense and amortization of deferred debt issuance
costs related to the $200,000,000 Senior Discount Notes.
(3) The pro forma year ended March 31, 1997 and pro forma nine months ended
December 31, 1997, reflect the first twelve months and nine months,
respectively, of accrued dividends and accretion related to the 13 3/4%
Senior Cumulative Exchangeable Preferred Stock.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTS
As independent public accounts, we hereby consent to the use of our reports (and
to all references to our Firm) included in or made a part of the registration
statement on Form S-4 for 21st Century Telecom Group, Inc., File Number
333-47235.
/s/
---------------------------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 12, 1998
